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 etc. You
will notice that any given number is about 1.618 times the preceding
number (and approx. 0.618 times the following number). Users of
Fibonacci tend to focus on 4 theories  arcs, fans, retracements,
and time zones, which are supposed to highlight reversals in trends
as price near fibbo lines. If you are into day trading, the fibonacci
levels (or 'fibbos' as they are sometimes called) may be of some
use to you, although SureFireThing Camarilla Equation users tend to prefer the
levels offered by the equation itself.
Fibonacci Arcs
are created in the following way: draw a line between two extremes
(e.g a major peak and trough). Centering on the second extreme,
circle 3 arcs which intersect the line at the Fibonacci levels of
38.2 percent, 50.0 percent, and 61.8 percent. Support and resistance
is then supposed to be provided by the arcs.
Fibonacci Fans
are created by once again drawing a line between two extremes. Next
draw a vertical line thru th esecond point, and divide it by drawing
lines from the first point to intersect the vertical at the Fibonacci
levels (same percentages as before). These fan line are supposed
to provide support and resistance.
Perhaps the most popular
fibbo technique is retracements, created as usual by drawing
a line between two extremes, then drawing nine horizontal lines
that intersect the first line at the Fibonacci percentage levels
of 0.0, 23.6, 38.2, 50, 61.8, 100, 161.8, 261.8, and 423.6. Prices
tend to 'retrace' after significant moves, and the followers of
Fibonacci levels claim that these levels are very accurate support
and resistance guides.
Finally, time zones
are vertical lines, spaced at Fibonacci intervals of 1, 2, 3, 5,
8, 13, 21, 34, and so on. Practicioners look for significant price
action at or near these lines..
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