Golden Ratio: What It Is and How To Use Golden Pocket In Crypto?

Nature, architecture, and the arts use the Golden Ratio as a mathematical formula. It has also been utilized for cryptocurrencies, offering an intriguing and effective method of assessing potential investments.

The golden ratio is frequently called the “divine proportion” because it is frequently used in sacred art, architecture, and design. In honor of Leonardo Fibonacci, who wrote extensively about it in his book Liber Abaci, it is also called the Fibonacci sequence.

This article will examine the Golden Ratio’s principles and the reasons behind its rising fame among cryptocurrency traders.

Key Takeaways:

The perfect numerical relationship between the Fibonacci numbers can be used in various natural and artificial systems, including cryptocurrency trading.

According to technical analysts, the ratio between specific price development stages and trader behavior is correlated.

The Golden Ratio: Who Discovered It?

The Greeks and Egyptians of antiquity were the first to use the golden ratio. Their mathematicians were well versed in the interrelationships of numbers. Pyramids provide empirical support for this theory since their dimensions also yield a ratio of roughly 1.618. Around the year 1200, Leonardo Fibonacci discovered a longer sequence of numbers; as a result, the list of numbers is known as the “Fibonacci sequence.”

Since then, many scholars have used this mathematical relationship as the foundation of their work, leading us to where we are now. I wouldn’t be writing this article right now if not for them.

What is the golden ratio?

A pair of numbers have a “perfect” relationship when they are in the golden ratio. This relationship is peculiar because formulas using this pair of numbers always produce results equal to or nearly equal to phi (φ)= 1.618.

Simply put, dividing the higher number by the smaller number yields a very close result for the numbers in this sequence to phi (φ)= 1.618. The same result is obtained by dividing the sum of the higher and lesser numbers by the higher numbers.

For instance, 3 and 5. The result of 5 divided by 3 is 1.66. In an alternative calculation, multiplying both numbers together (5+3) and then dividing by the higher number (5) yields a similar outcome (1.6).

In summary

5÷3 = 1.66

(5+3) ÷ 5 = 1.6

This ratio is quite helpful for cryptocurrency analysis when expressed as a percentage, especially when compared to four important strategies: retracements, arcs, fans, and time zones.

What is the Golden Pocket?

If an asset is not in total risk (positive and negative) condition, the golden pocket is an important target level for a trader. The golden pocket denotes the complete price reversal level for an asset and the beginning or end of a likely uptrend. Most traders predict this to be 0.65 (-65% from the prior high) and 0.618 (-61.8% from the prior high).

However, depending on additional variables that could impact the asset’s supply and demand statistics, the golden pocket could appear below these regions. This includes statements that have an impact on how traders act. Starting just a little below the prior high, the retracement moves upward. This level is the ‘golden pocket.”

Simply put, it is the point at which a specific uptrend completely reverses. The golden pocket appears just below the total reversal point. At this time, there is a greater likelihood that the asset will begin to move upward again.

The cryptocurrency charts can determine the full reversal point, but the golden pocket can be any point below this level. Traders are advised to enter the market at the golden pocket.

Trading participants may enter the market at prices just below the reversal point or hold out for even lower prices to avoid missing a real uptrend.

Risks Associated with the Golden Ratio Strategy for Crypto Trading

The popularity of the golden ratio has paved the way for some misconceptions. Frequently, these statements become self-fulfilling prophecies that generate more false signals than actual profitable trades. Traders should be extra cautious when using this technique to spot market trends.

It can be risky to rely solely on the Golden Ratio to determine entry and exit points because prices occasionally behave differently than these ratios predict. As a result, when dealing with the crypto markets, it’s imperative to use caution and diversify your investment approaches.

Conclusion

The golden ratio is useful for performing technical analysis on cryptocurrency markets. When determining market volatility, we can gain an advantage by plotting support and resistance levels with arcs and time zones.

By combining this technique with other indicators, traders can more precisely determine the best investment entry and exit points. Nevertheless, due to its widespread use, one must be aware of the dangers of relying solely on the Golden Ratio, always diversifying strategies, and being watchful when examining the markets.