Fibonacci Trading Trendlines
There is another category of trendlines that I have not mentioned in the previous post because it is almost a whole world onto itself. And it is of course the Finconacci Trendlines.
As the history goes, the Fibonacci numeric properties in nature were first observed and classified by the Italian mathematician Leonardo Pisano Fibonacci (1170-1250). The Fibonacci numbers are 0, 1, 1, 2, 3, 5, 8, 13, 21, ... (each next number is derived by adding the previous two). Many forms in nature like pine cones, sea shells, leafs groupings, population spreads and much more, remarkably accurately corresponds to these number sequences. The Fibonacci sequencing has been also recently popularized in the best selling fictional book and movie The Da Vinci Code but anyhow here I will just outline how it is being used in investment charting.
There are basically four categories of the Fibonacci Trendlines. The first one is usually referred to as the Fibonacci Retracements. The theory there goes that when a low and a high of a given price move is concerned the price retraces a little before it continues resuming going in the same direction after bouncing off from usually one of the four main Fibonacci Retracement Levels being 38, 50, 62 and 79 percent of the main price move or wave. The theoretical target level of the bounce is 1.618 (that being one of the so called golden section numbers) of the initial price move when the price reverses from one of the first three levels here and 1.270 when it reverses after encountering the 79 percent one.
Of course the principle is far from perfect in describing all the live trading sittuations but these patterns show remarkably often enough to be a base of whole elaborate trading systems with thousands of followers using it in their trading practices. Also applying the fibonacci principles with the variety of available online trading and charting software it is immensly easier and faster then doing it by hand.
The second variation is called the Fibonacci Timelines. The idea here is much as before except that the price reversals are being mapped to the x or time chart axis instead of the price level or y axis and the fibs or fibo levels as these are often called, are here marked with vertical trendlines instead of the horizontal trendlines being used in the Fibonacci Retracements.
Next we have the Fibonacci Fans. Those are a bit trickier to explain but the idea basically is that the price reversal lines there are mapped to Fibonacci angles instead of levels. Hence the name 'fan' since all the lines there are fanning so to speak from one point where the given price motion on a chart originates.
And the last of the four is called Fibonacci Arcs or Fibonacci Arches. Here, beginning from the given original price point move, there are drawen concentric arcs and the placement of these is determined by the same percentage ratios as in the first of the Fibonacci retracements being discussed here.
Plotting of the horizontal Fibonacci retracement levels is by far the most common Fibonacci technique amidst the investment chartists although the other three ones can turn out quite handy as well.
As the history goes, the Fibonacci numeric properties in nature were first observed and classified by the Italian mathematician Leonardo Pisano Fibonacci (1170-1250). The Fibonacci numbers are 0, 1, 1, 2, 3, 5, 8, 13, 21, ... (each next number is derived by adding the previous two). Many forms in nature like pine cones, sea shells, leafs groupings, population spreads and much more, remarkably accurately corresponds to these number sequences. The Fibonacci sequencing has been also recently popularized in the best selling fictional book and movie The Da Vinci Code but anyhow here I will just outline how it is being used in investment charting.
There are basically four categories of the Fibonacci Trendlines. The first one is usually referred to as the Fibonacci Retracements. The theory there goes that when a low and a high of a given price move is concerned the price retraces a little before it continues resuming going in the same direction after bouncing off from usually one of the four main Fibonacci Retracement Levels being 38, 50, 62 and 79 percent of the main price move or wave. The theoretical target level of the bounce is 1.618 (that being one of the so called golden section numbers) of the initial price move when the price reverses from one of the first three levels here and 1.270 when it reverses after encountering the 79 percent one.
Of course the principle is far from perfect in describing all the live trading sittuations but these patterns show remarkably often enough to be a base of whole elaborate trading systems with thousands of followers using it in their trading practices. Also applying the fibonacci principles with the variety of available online trading and charting software it is immensly easier and faster then doing it by hand.
The second variation is called the Fibonacci Timelines. The idea here is much as before except that the price reversals are being mapped to the x or time chart axis instead of the price level or y axis and the fibs or fibo levels as these are often called, are here marked with vertical trendlines instead of the horizontal trendlines being used in the Fibonacci Retracements.
Next we have the Fibonacci Fans. Those are a bit trickier to explain but the idea basically is that the price reversal lines there are mapped to Fibonacci angles instead of levels. Hence the name 'fan' since all the lines there are fanning so to speak from one point where the given price motion on a chart originates.
And the last of the four is called Fibonacci Arcs or Fibonacci Arches. Here, beginning from the given original price point move, there are drawen concentric arcs and the placement of these is determined by the same percentage ratios as in the first of the Fibonacci retracements being discussed here.
Plotting of the horizontal Fibonacci retracement levels is by far the most common Fibonacci technique amidst the investment chartists although the other three ones can turn out quite handy as well.
posted by Ramzes at 11:33 AM
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