Here's a short primer:
Trend-based Fibonacci Extensions use past price behavior to establish price targets and potential reversal areas. They can be a guide for unchartered territory at new highs and new lows. Remember, these indicators should not be used in isolation and are only to provide context to price moves.
Technical analysts have noted a mathematical relationship between past and future price moves based on the Fibonacci series, a sequence of numbers in which each number is the sum of the two preceding ones. This “golden ratio” is witnessed throughout the natural world and can be found in plant growth, astronomical patterns and even financial markets. Trend-based Fibonacci Extensions are a predictive technical indicator that applies this “golden ratio” to asset price movements.
The is drawn over one wave of prices to provide estimates on the magnitude of the next price wave. The important Fibonacci levels to watch are: 61.8 percent, 100 percent, 138.2 percent, 161.8 percent, 200 percent, 238.2 percent, and 261.8 percent
There are three price points to consider in an uptrend: the former swing low, the most recent swing high and the most recent swing low. The then plots future levels based on these three price points.
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