Fibs are the poster child of technical analysis: Colorful lines on a chart based on a sequence that nobody really understands, but everyone uses anyway.
That’s the entire point.
Fibs work because everyone uses them. It’s a self-fulfilling prophecy, and frankly, that’s a feature, not a bug. In markets, consensus becomes reality.
What Are Fibs, Actually?
Fibonacci retracement levels estimate where price is likely to find support or resistance after a move.
They’re based on the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13…), and traders translate that into percentages:
- 0.618 retracement - About 62% pullback from the move
- 0.5 retracement - 50% pullback (not actually Fibonacci, but traders use it)
- 0.382 retracement - About 38% pullback
- Extension levels - 1.618, 2.618 (where price might go beyond the original high)
When price corrects after a pump or bounces after a dump, these levels often act as resistance/support.
Why? Because traders have drawn these lines and set limit orders around them. The lines aren’t magic—they’re execution zones.
Where Fibs Actually Matter in Crypto
Past ATH: This is Fib’s bread and butter.
Bitcoin just hit a new all-time high. Now what? There’s no historical price data above ATH. You can’t draw traditional support/resistance.
Enter Fibs.
Everyone draws Fib extensions from the previous swing low to the new ATH, projecting where resistance might form. Smart money knows this, so they start selling into those levels. Retail traders know traders sell there, so they set buys expecting bounces.
The lines become self-fulfilling.
How to Actually Use Fibs (Don’t Be Dumb About It)
In a correction (price falls after a pump):
- Draw from the swing high down to the swing low
- The Fib levels expand upward
- These become potential resistance on the bounce
- If price bounces to 0.618 and rejects, that’s usually strong resistance
- If it blasts through to extension levels, the correction is deeper than expected
In a bounce (price rises after a dump):
- Draw from the swing low up to the swing high
- The Fib levels expand downward
- These become potential support during pullbacks
- Hold above 0.618? Strong support forming
- Break below 0.382? The bounce is losing steam
The Psychology Behind Why Fibs Work
Traders don’t use Fibs because they’re mathematically perfect. They use them because:
- Simplicity - Everyone can draw the same lines and get the same levels
- Universality - The 1.618 ratio appears everywhere (art, nature, stock charts). There’s a feeling that it should work
- Consensus - Once enough traders use something, it becomes real. Limit orders cluster around Fib levels. Price moves to where the orders are
- Scalability - Works on BTC, ETH, shitcoins, oil, forex. It’s agnostic to the asset
The mystique helps. Traders want to believe Fibs are profound. But they’re just a shared coordinate system.
The Trap: Fibs Are Not Magic
Stop hunts happen at Fib levels constantly.
Smart traders know:
- 0.618 is the obvious level - Too many stop losses there. If price gets close, expect a stop hunt squeeze
- 0.382 is more subtle - Fewer retail traders watch it. Sometimes it holds better
- Extension levels get blown through in strong trends - Just because you projected 2.618 as resistance doesn’t mean price respects it
The real read is how price behaves around the Fib level, not the level itself.
- Does it bounce hard with force? Fib is working
- Does it just brush it and keep going? Fib is broken, trend is strong
- Does it spike through and come back? Stop hunt—expect the opposite next move
Better Than “Just Drawing Fibs”
Combine Fibs with volume and timing:
- Draw your Fibs on the daily chart
- Check the 4H chart to see where price currently is relative to Fibs
- Watch the volume as price approaches a Fib level
- Is volume picking up or dying? Picking up = traders preparing orders. Dying = price might blow through
- Use RSI or Stoch RSI to see if price is overbought/oversold at the Fib level
A 0.618 retracement on daily + price overbought on 4H + volume declining into it? That’s a sell setup.
A 0.382 retracement + price oversold + volume surging? That’s a buy.
Why CryptoTwitter Is Full of Fib Lines
Because they work for both sides of the argument.
If price is rising: “Support is at the 0.382 Fib!” If price is falling: “Resistance is at the 0.618 Fib!”
You’re never wrong because there are always multiple Fib levels to choose from. This is why some traders use Fibs as pure confirmation, not prediction.
That’s fine. Use them as a filter, not an oracle.
The Practical Play
- On a 1D chart: Find the most recent swing low and swing high
- Draw Fibs from the low to the high (or vice versa if it’s a correction)
- Check where price currently sits relative to the Fib levels
- Watch for rejection or acceptance at the obvious 0.618 level
- On the 4H chart: Use tighter Fibs for entry confirmation
- Scale in/out around the levels, don’t go all-in at them
Fibs are a map, not a destination. They show where crowds might react. Your edge is reading how they react.
Summary
Fibs work because traders use Fibs. That’s not irrational—it’s how consensus-based markets function.
Use them as:
- A filter (if daily Fibs suggest resistance, don’t go long)
- A timing tool (when price approaches a Fib, watch the hourly closely for entries)
- A stop hunt indicator (obvious Fibs get hunted, subtle ones might hold better)
Don’t use them as:
- Magic levels that always work (they don’t)
- Your only analysis (combine with volume, RSI, macro timing)
- A reason to chase into levels (FOMO into a 0.618 is how retail gets liquidated)
The market is filled with drawn lines and consensus fiction. Your job is to read where the consensus is and position accordingly before the crowd gets there.