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Fibonacci
Description
Leonardo Fibonacci was an important mathematician who was born in
Italy around the year 1170. It is rumoured that Fibonacci discovered
the relationship of what are now referred to as Fibonacci numbers
while studying the Great Pyramid of Giza in Egypt.
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, 21, 34, 55, 89, 144, 233, 377, 610, etc.
These numbers possess an intriguing number of interrelationships,
such as the fact that any given number is approximately 1.618 times
the preceding number and any given number is approximately 0.618
times the following number.
Interpretation
MetaStock has four Fibonacci studies: arcs, fans, retracements,
and time zones.
The general interpretation of the Fibonacci studies involves the
anticipation of a change in trend as prices near the lines created
by the Fibonacci studies.
Arcs
The calculation and interpretation of Fibonacci Arcs is similar
to that of Fibonacci Fan Lines. First, a trendline is drawn between
two extreme points. MetaStock Pro then draws three arcs, centered on
the second extreme point, that intersect the trendline drawn between
the two extreme points at the Fibonacci levels of 38.2%, 50.0%, and
61.8%.
The interpretation of Fibonacci Arcs involves looking for, or
anticipating, support and resistance as prices approach the arcs. A
common technique is to display both Fibonacci Arcs and Fibonacci Fan
Lines and to anticipate support/resistance at the points where the
Fibonacci studies cross.
The points where the Arcs cross the price data will vary depending
on the scaling, because the Arcs are drawn so they always appear
circular relative to the computer screen.
Fans
Fibonacci Fan Lines are displayed by first drawing a trendline
between two extreme points. MetaStock Pro then draws an invisible
vertical line through the second extreme point. This vertical line
is then divided at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.
Finally, three trendlines are drawn from the first extreme point so
they pass through the invisible vertical line at the above three
levels. (This technique is similar to the method used to calculate
Speed Resistance Lines.)
Retracements
Fibonacci Retracements are displayed by first drawing a
trendline between two extreme points (i.e., a significant trough and
peak). After selecting Fibonacci Retracement from the Insert menu, a
series of up to nine horizontal lines will be drawn at the Fibonacci
levels of 0.0%, 23.6%, 38.2%, 50.0%, 61.8%, 100%, 161.8%, 261.8%,
and 423.6%. After a significant move (either up or down), prices will often
rebound and retrace a significant portion (if not all) of the
original move. As the price retraces, support and resistance levels
will often occur at or near the Fibonacci Retracement levels.
Time Zones
The Fibonacci Time Zones command displays vertical lines at the
Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The
interpretation of Fibonacci Time Zones involves looking for
significant changes in price near the vertical lines.
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