Fibonacci numbers have become a fascination for me. I have found this fascinating numerical sequence to be in nature, art, architecture, and even as an indicator in investing and trading. I had heard of Fibonacci numbers and the sequence, it has always interested me but have never taken the time to study it. The fascination occurred when reading Technical Analysis from A to Z by Steven B. Achelis. I knew it took place in nature but was surprised to see it in a book about investing and trading.
Fibonacci numbers have been known for over eight hundred years, for me, it has become a new interest. I have read several stories, but many believe that a sequence of numbers was discovered while Fibonacci was researching the breeding of rabbits. Fibonacci numbers are a sequence where each successive number is the sum of the two previous numbers, such as:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, etc.
The numbers have an interesting relationship as well. One will find that any given number is nearly 1.618 times the previous number and is close to 0.618 times the following number. This ratio is referred to as the golden ratio.
Trading with Fibonacci numbers may be shaped in four different modes: fan lines, arcs, retracements, and time zones. Time zones are Fibonacci numbers drawn vertically on a price chart, and the trader looks for meaningful changes at these points in time. Retracements are nine lines created between a selected peak and a bottom of a graph. The lines are drawn at 0%, 23.6%, 38.2%, 50%, 61.8%, etc. It has been found that after a dramatic price move, prices will return a portion of the initial move that was either up or down. Produce Fibonacci Arcs by drawing a trendline between two extreme points. Create arcs that centered on the second extreme point, so they intersect at Fibonacci levels. These I find difficult to produce and thus are not my favorite.
My favorite, fan lines. One creates a Fan line by drawing a trendline between two extreme points, as a trough and a peak. A vertical line is drawn through the peak. Three trend lines of 38.2, 50, and 61.8 per cent are created to pass through the vertical line created. A trader will find support or resistance at these trendlines and provides an excellent means by which to gauge entry or exit out of trade.
Fibonacci sequence is not new, yet it never ceases to entertain, enlighten, and fascinate in science and art; it facilitates and confirms decisions in man’s creations and undertakings. Investigate Fibonacci numbers and be intrigued.