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Fibonacci
Description
Leonardo Fibonacci was an important
mathematician who was born in Italy around the year 1170. It is rumored that Fibonacci
discovered the relationship of what are now referred to as
Fibonacci numbers while studying the Great Pyramid of Giza in
Egypt.
Fibonacci numbers are a sequence of
numbers in which each successive number is the sum of the two
previous numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55,
89, 144, 233, 377, 610, etc.
These numbers possess an intriguing
number of interrelationships, such as the fact that any given
number is approximately 1.618 times the preceding number and any
given number is approximately 0.618 times the following number.
Interpretation
MetaStock Pro has four Fibonacci studies: arcs, fans, retracements, and
time zones.
The general interpretation of the Fibonacci
studies involves the anticipation of a change in trend as prices
near the lines created by the Fibonacci studies.
Arcs
The calculation and interpretation of Fibonacci Arcs is
similar to that of Fibonacci Fan Lines. First, a trendline is drawn
between two extreme points.
MetaStock Pro then draws three arcs, centered on the
second extreme point, that intersect the trendline drawn between
the two extreme points at the Fibonacci levels of 38.2%, 50.0%,
and 61.8%.
The interpretation of Fibonacci Arcs involves
looking for, or anticipating, support and resistance as prices
approach the arcs. A
common technique is to display both Fibonacci Arcs and Fibonacci
Fan Lines and to anticipate support/resistance at the points
where the Fibonacci studies cross.
The points where the Arcs cross the price data
will vary depending on the scaling, because the Arcs are drawn
so they always appear circular relative to the computer screen.
Fans
Fibonacci Fan Lines are displayed by first drawing a
trendline between two extreme points.
MetaStock Pro then draws an invisible vertical line
through the second extreme point. This vertical line is then
divided at the Fibonacci levels of 38.2%, 50.0%, and 61.8%. Finally, three trendlines are
drawn from the first extreme point so they pass through the
invisible vertical line at the above three levels. (This technique is similar to
the method used to calculate Speed Resistance Lines.)
Retracements
Fibonacci Retracements are displayed by first drawing a
trendline between two extreme points (i.e., a significant trough
and peak). After
selecting Fibonacci
Retracement from the Insert menu, a series of up to nine
horizontal lines will be drawn at the Fibonacci levels of 0.0%,
23.6%, 38.2%, 50.0%, 61.8%, 100%, 161.8%, 261.8%, and 423.6%.
After a significant move (either up or down),
prices will often rebound and retrace a significant portion (if
not all) of the original move.
As the price retraces, support and resistance levels will
often occur at or near the Fibonacci Retracement levels.
Time Zones
The Fibonacci Time Zones command displays vertical lines at
the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of
Fibonacci Time Zones involves looking for significant changes in
price near the vertical lines. |
