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Leonardo Fibonacci, a
mathematician in the 1200’s created a numerical sequence of numbers,
while studying the Great Pyramid of Gizeh. The fascinating concept
that Fibonacci discovered is that as the sequence of numbers proceeds,
each number in the sequence is 1.618 times the preceding number and
.618 of the next number. (1,2,3,5,8,13,21,34,55,89,144,233,377,610,987
etc.)
This sequence of numbers is believed to occur throughout nature.
Fibonacci Numbers as Applied to Technical Analysis.
Many technicians use Fibonacci numbers when trying to determine
support and resistance, and commonly use .382, .50, .618 .
Commonly thought, a .382 movement from a trend move will tend to
imply a continuation of the trend. A .618 movement implies that a
trend change may be in the making. Many such rules have been adopted
by technicians. Our long term trend is determined by a simple 89
period moving average. This moving average is the literal battleground
between bulls and bears. We encourage you to look at the market
this way.
FIBONACCI CLUSTERS
They are:
Upper Support
"Stopping Point"
Lower Support
Maximum Support
Lower Resistance
"Stopping Point"
Upper Resistance
Maximum Resistance
As every trader knows all trend moves start from a SIGNIFICANT HIGH
POINT (SHP) or a SIGNIFICANT LOW POINT (SLP). While the market is
trending away from these SHP’s and SLP’s, there will be "normal"
corrections going contrary to the main trend. It is these "normal"
corrections we need to "capture" in order to generate our
Support/Resistance levels.
TO FIND RESISTANCE
For example, the market has made a SIGNIFICANT HIGH POINT (SHP). Now
the market proceeds to correct, contrary to the main trend and puts in
a series of SWING HIGHS (SH), finally registering a SIGNIFICANT LOW
POINT (SLP).
Observing the chart, you can easily identify the highest high (SHP)
and lowest low (SLP) in the trend and a series of SWING HIGHS (SH)
that fall between the two extreme points.
You need to identify these prices.
TO FIND SUPPORT
For example, the market has made a SIGNIFICANT LOW POINT (SLP). Now
the market proceeds to rally, contrary to the main trend and puts in a
series of SWING LOWS (SL), finally registering a SIGNIFICANT HIGH
POINT (SHP).
Observing the chart, you can easily identify the highest high (SHP)
and lowest low (SLP) in the trend and a series of SWING LOWS (SL) that
fall between the two extreme points.
You need to identify these prices.
Confluence gives you unlimited possibilities
Some technicians have determined that by combining multiple trends
with Fibonacci projections, that produce the same (or very similar)
numbers, the support/resistance level is thereby strengthened, making
the results more reliable.
The greater the confluence the more significant the number. For
example a .382 number from one trend when matching to a .618 number
from another trend with, for example, a .50 number from a third trend,
will produce a more powerful number.
There is validity to this concept. |
