Summary Of Fibonacci in Technical Analysis

Notes To Remember:

Fibonacci includes a series of numbers that have simple mathematical relationships and many natural phenomena follow this pattern, such as the spirals of sunflower heads and snail shells. Technical analysis employed Fibonacci amazing properties with the goal of forecasting price graduation and estimate possible support and resistance levels. On the price chart, they act better than expected in a way that became one of useful, reliable technical analysis tools for professional traders. Here is a brief summary of Fibonacci series, ratios, and applicable types in technical analysis.

Fibonacci Series

An Italian mathematician introduced an exponential sequence of numbers that each number is the sum of the preceding two numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, 6765, 10946, 17711, 28657, 46368, 75025, 121393, 196418, 317811, …

Fibonacci Ratios

Fibonacci series has amazing properties which will be uncovered until calculating the proportion of numbers. From deep inside of Fibonacci series, a sequence of ratios was born: 0, 0.236, 0.318, 0.5, 0.618, 0.732, 1, 1.618, ...

Fibonacci Application in Technical Analysis
Fibonacci steps into the technical analysis world to indicate possible support and resistance levels. This duty is done by a Fibonacci retracement and Fibonacci extension as well. Corresponding to price axes, Fibonacci ratios can be deployed on time axes and estimate the time cycle of swing points.

Fibonacci Retracement:

Fibonacci retracement plays the best of all other Fibonacci tools in identifying possible levels at which the market retraces back. By drawing Fibonacci retracement, multi-levels of Fibonacci ratios are demonstrated (0,0.236,0.382,0.5,0.618,0.786,1). Trading experience proves that 61.8% is more accurate than others and when the price comes close to it is a sign.

Fibonacci Extension:
Fibonacci extension seeks the price projection over 100% and use
0,1,1.16, 2.618, and 3.618 ratios as criteria of evaluations. The most important one is 26.18%. The Fibonacci extension works well in finding possible support and resistance level, following the line of effect of price projection and also set stop-loss area.

Fibonacci Retracement Vs. Fibonacci Extension

Fibonacci extension extends the trend with the sight of pre-defined Fibonacci ratios beyond 100%, while Fibonacci retracement sees the probability of reversal trends below 100%.

Fibonacci extension deploys (0,1,1.16, 2.618, and 3.618) ratios, while Fibonacci retracement includes (0,0.236,0.382,0.5,0.618,0.786,1).
Fibonacci extension looks optimistic at trend and considers the price will fluctuate in prior trend. But, Fibonacci retracement calculates the reversal possibilities. For example, whenever a bullish trend turns into a bearish one, how much does it fall.

Fibonacci Time Zone:
Fibonacci series can either be applied to time axes and helps hand in clarifying the time analysis and time cycling projection. Fibonacci in time axes considers the first time cycle as a reference and foresees the possibilities of demonstrating the same swing point over time. It uses (0.236, 0.382, 0.5, 0.618, 0.786, 1, 1.272, 2.618) ratios and a group of vertical line equivalent to them is generated.

Frequently Asked Questions

Technical analysis deploys the practical properties of Fibonacci series to foresee the market. By Fibonacci retracement, evaluate the possible support and resistance level when the trend shows a reversal manner and turn back. On the other side, calculate the possible forgoing support and resistance level when the price follows prior trend.

Fibonacci retracement uses Fibonacci ratios like (0,0.318, 0.5, 0.618, 0.732, and 1) to estimate the possible levels that trend may reach, in the turning path. The trend always turns back, but when it comes back and how much it goes is exactly Fibonacci retracement's duty.

The Fibonacci extension has optimistic sight toward the trend and looks for how far a trend will continue in the prior direction. Fibonacci extension extends the trend and estimates its growth from higher than 100%. (0, 1, 1.618, 2.618, ... ) are demonstrated ratios in Fibonacci extension tools on the price chart.

0.618 is taken as golden ratio among other numbers of Fibonacci ratios series (0, 0.236, 0.318, 0.5, 0.618, 0.786, 1). Many natural and scientific phenomena prove the magical property of 0.618 and also in technical analysis, this takes as an important level.

Fibonacci steps into the technical analysis world to indicate possible support and resistance levels with two main functionality, Fibonacci retracements and Fibonacci extensions. Fibonacci extension extends the trend beyond 100%, while Fibonacci retracement sees the probability of reversal trends below 100%. Fibonacci extension employs (0,1,1.16, 2.618, and 3.618) ratios and Fibonacci retracement use (0, 0.318, 0.5, 0.618, 0.732, 1). Fibonacci extension chooses the climbing up's path and predicts how far the price fluctuates in the trend, but Fibonacci retracement looks for the climbing down's path and where the reversal trend stops growing.