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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 (hyperlink).
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. |
