Fibonacci Analysis - Part 1
- A. Fibonacci Series
01. The Fibonacci series is a sequence of numbers starting from zero arranged so that the value of any number in the series is the sum of the previous two numbers.
02. The Fibonacci sequence is as follows:
0 , 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, …
- B. Properties Of The Fibonacci Series
03. The series extends to infinity.
04. Divide any number in the series by the previous number; the ratio is always approximately 1.618. For example:
610/377 = 1.618
377/233 = 1.618
233/144 = 1.618
05. The ratio of 1.618 is considered as the Golden Ratio.
06. Further into the ratio properties, one can find remarkable consistency when a number in the Fibonacci series is divided by its immediate succeeding number. For example:
89/144 = 0.618
144/233 = 0.618
377/610 = 0.618
07. Similar consistency can be found when any number in the Fibonacci series is divided by a number two places higher. For example:
13/34 = 0.382
21/55 = 0.382
34/89 = 0.382
08. Also, consistency is when a number in the Fibonacci series is divided by a number 3 places higher. For example:
13/55 = 0.236
21/89 = 0.236
34/144 = 0.236
55/233 = 0.236
- C. Fibonacci Retracement
09. Fibonacci analysis can be applied when there is a noticeable up-move or down-move in prices.
10. Whenever the stock moves either upwards or downwards sharply, it usually tends to retrace back before its next move.
11. ‘The retracement level forecast’ is a technique that can identify up to which level retracement can happen.
12. Fibonacci retracements are movements in the chart that go against the trend.
13. In finance, Fibonacci retracement is a method of technical analysis for determining support and resistance levels. It is named after the Fibonacci sequence of numbers, whose ratios provide price levels to which markets tend to retrace a portion of a move before a trend continues in the original direction.
14. A Fibonacci retracement forecast is created by taking two extreme points on a chart and dividing the vertical distance by important Fibonacci ratios.
15. 0% is considered to be the start of the retracement, while 100% is a complete reversal to the original price before the move.
16. Horizontal lines are drawn in the chart for these price levels to provide support and resistance levels.
17. Unlike moving averages, Fibonacci retracement levels are static prices. They do not change.
18. Because these levels are inflection points, traders expect some type of price action, either a break or a rejection.
19. The 0.618 Fibonacci retracement that is often used by stock analysts approximates to the "golden ratio".
- D. How should you use the Fibonacci retracement levels?
20. Think of a situation where you wanted to buy a particular stock, but you have not been able to do so because of a sharp run-up in the stock.
21. The most prudent action to take would be to wait for a retracement in the stock in such a situation.
22. Fibonacci retracement levels such as 61.8%, 38.2%, and 23.6% act as a potential level up to which a stock can correct.
YASER RAHMATI
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