- Fibonacci retracement is a popular technical analysis indicator that can be used to predict stock prices of leading U.S. energy companies and energy cryptocurrencies.
- The study methodology focuses on applying Fibonacci retracements as a system compared with the buy–and–hold strategy.
- The Fibonacci–based strategy resulted in higher returns relative to the naïve buy–and–hold model.
- Fibonacci retracement captures energy stock price changes better than cryptos.
- The Fibonacci strategy is superior to the naïve buy–and–hold model.
- Complementing the Fibonacci retracement strategy with the price crossover strategy is not an effective trading model for energy–based commodities.
In recent years, there has been a growing interest in the role of technical analysis in predicting stock prices. Fibonacci retracements, a popular technical analysis indicator, have been shown to be effective in predicting stock prices of leading U.S. energy companies. This study sought to investigate whether the Fibonacci retracements tool could also be used to predict energy cryptocurrencies.
Daily crypto and stock prices were obtained from the Standard & Poor‘s composite 1500 energy index and CoinMarketCap between November 2017 and January 2020. The study found that Fibonacci retracements captures energy stock price changes better than cryptos. Furthermore, most price violations were frequent during price falls compared to price increases, which supports that the Fibonacci instrument does not capture price movements during up and downtrends, respectively.
The study also examined if the combined Fibonacci retracements and the price crossover strategy result in a higher return per unit of risk. The findings revealed that the Fibonacci–based strategy resulted in higher returns relative to the naïve buy–and–hold model. Finally, complementing Fibonacci with the price cross strategy did not improve the results and led to fewer or no trades for some constituents.
Overall, the findings of this study elucidate that, despite significant drops in oil prices, speculators (traders) can implement profitable strategies when using technical analysis indicators, like the Fibonacci retracement tool, with or without price crossover rules.
This study found that Fibonacci retracements are more reliable in predicting energy stock prices than cryptos. The study suggests that price violations are observed more during downtrends than uptrends. Furthermore, the Fibonacci strategy is superior to the naïve buy–and–hold model. Complementing the Fibonacci retracement strategy with the price crossover strategy is not an effective trading model for energy–based commodities. Overall, this study provides useful insights into the role of Fibonacci retracements in predicting energy stock prices. The findings suggest that Fibonacci retracements can be used as an effective tool for traders in the energy market. Read the paper here.