Since I started trading only a month or two ago, I'm fascinated by the enormous volatility of the crypto coins (sometimes even more than 100%). Even the coins with a large market cap like Bitcoin can move relatively large percentages in a single day.

Cryptospace: Large Markets Caps are Tiny Market Caps

Although main stream media is bringing more and more news from the cryptospace to the world and innovator investors and traders from outside cryptospace are entering the markets, cryptospace markets are still tiny compared to US$, Euro or even corporate market caps.

Bitcoin (BTC) has a bit more than 30 Billion US$ market cap with around 45% of the total market cap of all 700+ altcoins. This sounds a lot, but in terms of the 'normal' financial world, this figure is peanuts; WhatsApp was purchased for a bit more than 20 Billion US$ by Facebook some time ago and the market cap of Apple is around 800 Billion US$; the central bank of Europe is pumping around 90 Billion US$ into the Euro-zone economies, every month for already more than year and will continue to do so for coming months, maybe even longer.

But so much about that - Back to trading.

Technical Analyses: Hoax or Real?

Many traders and investors in stocks, bonds, currencies and other financial and tradable products are using technical analyses methods to determine what the best entries (buy) and exits (sell) are. Although I have a very analytical mind, love mathematics, and I know traders are using electronic systems with technical analyses build in (and may even use auto trading systems); When I started trading in cryptospace my first thought was "How can technical analyses be applicable for cryptospace? So many pump and dumps! So small markets; Too small to apply statistics and other mathematical theories to determine entries and exits!".

I wanted to know more!

This weekend I started to read up on technical analyses, and discovered something already really interesting. One of the methods to determine entries and exit is using Fibonacci Retracement Levels. These are specific mathematical calculated levels using always the same formula to derive values at which a tradable asset may reverse in a trend, eg an asset with a downward trend may reverse its trend when getting to one of the Fibonacci calculated values.

I applied the Fibonacci retracement levels on a coin I'm trading in for the last couple of days, Siacoin (SC). The chart below is the 5 min candlestick chart for the last 6 hours. The horizontal lines across the chart with the percentage values at the left 100%/61,8%/50% etc are the Fibonacci retracement levels. As you can see in this chart Siacoin stayed quite nicely at and between the various lines.

Zooming out on the same chart to the last 24 hours shows similarities. Although the graph of Saicoin is a little less at the lines itself, still you can see the graph more or less following the Fibonacci retracement levels.

This is most curious, isn't it? I'm fascinated, for sure! You?

Fibonacci Retracement Levels: Explained in Layman's Terms

Fibonacci (real name: Leonardo Pisano Bogollo) was an Italian mathematician and lived in the middle ages, around 1.200 AC. He created a sequence of number based on a formula, called the Fibonacci series. The logic of the series is quite simple: it start with zero and each following number is the sum of the two numbers before it.

The series start with o. The following number is 1, since there are no former two number, simply the next number in our decimal system is taken which is 1. The following number after that is the sum of the previous 2 numbers which are 1 and 0 which equals again 1. The next number is than the sum of 1 and 1 equals 2. The following after that is the sum of 2 and 1 equals 3. Followed by the sum of 3 and 2 equals 5, and so on... The sequence looks like this:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610...

The Fibonacci retracement levels are derived from this series using the method of dividing a number in the series by its next higher neighbour number, by its second neighbour number, by its third neighbour number. The results of these calculations becomes the Fibonacci Retracement Percentages/Levels.

Interestingly the percentages are approximately the same regardless what number is used to start with, whether this be 8, 55 or 233 or any other number in the series (note: the earlier numbers in the series are out of scope; they have some 'startup' issues so to speak).

For instance we take number 55 to calculate the percentages:

55 divided by 89 = 0,618 = 61,8%
55 divided by 144 = 0,382 = 38,2%
55 divided by 233 = 0,236 = 23,6%

If we would have taken 144, we would have the same results; Just try it! The first percentage is 144 divided by 233; The second percentage is 144 divided by 377 and the third percentage is 144 divided by 610. You see? Same result! If you don't believe it, try yet another number; You may even want to extend the series first and try higher value numbers. I assure you, you will find always the same percentages (well approximately, not exactly exactly the same). These characteristics and feature makes the Fibonacci series so interesting.

It becomes even more interesting when at some later date in our history it was discovered that the first ratio (0,618) is equal to the Golden Ratio.

Note: since we calculated percentages, we need to have some number to take a percentage of. In trading charts the Fibonacci range is determined by the highest value on the chart and the lowest value on the chart. Usually you see a line between these two points and we can call this line a diagonal.

The Golden Ratio

You may have heard of the Golden Ratio. The ratio we frequently see in nature, biology and also architecture and fine art (the later are human made so these can be manipulated; but nature, biology and the human itself not). The golden ratio has been observed in the Parthenon, Leonardo da Vinci's Mona Lisa, sunflowers, rose petals, mollusk shells, tree branches, human faces, ancient Greek vases, and even the spiral galaxies of outer space.

The golden ratio is the division of a number in the Fibonacci series by the next higher number (the number directly to the right in the series) which results in a number that is approximately 1,618 times greater than the preceding number regardless what the base number is used.

This figure 1.618 is called Phi or the Golden Ratio. The inverse of 1.618 is .618.

Conclusions & What's Next

Although Fibonnaci retracement levels is just one of the so many method used by traders to determine their tactics, I'm intrigued and for sure want to know more of technical analyses.

I'll for sure spend time on this, and at the same time I hope you can guide me in where to start, what to read and how to learn applying technical analyses and determine and conclude good trading decisions.

Disclaimer

None of the information given in this post is to be regarded as an advise to you. It is meant for informative purposes only. By no means I pretend to be a specialist, and by no means I give you advise to followup on whatever I have written in this post.

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