| The Fibonacci numbers Golden ratio can be used to | | | | The markets have the very same mathematical base |
| describe the proportions of everything from nature | | | | as these natural phenomena. Below we will examine |
| to the smallest building blocks, such as atoms, to the | | | | some ways in which this ratio can be applied to |
| most advanced patterns in the universe, such as | | | | finance, and we'll show you some charts to prove it. |
| unimaginably large celestial bodies. Nature relies on this | | | | The Fibonacci Numbers Golden Ratio Studies and |
| innate proportion to maintain balance, but the financial | | | | Finance |
| markets also seem to conform to the Fibonacci | | | | When used in technical analysis, the fibonacci |
| Numbers "golden ratio." Here we take a look at some | | | | numbers golden ratio is typically translated into three |
| technical analysis tools that have been developed to | | | | percentages: 38.2%, 50%, and 61.8%. However, |
| take advantage of the Fibonacci Numbers Golden | | | | more multiples can be used when needed, such as |
| Ratio. | | | | 23.6%, 161.8%, 423%, and so on. There are four |
| The Mathematics | | | | primary methods for applying the Fibonacci sequence |
| Mathematicians, scientists, and naturalists have known | | | | to finance: retracements, arcs, fans, and time zones. |
| the Fibonacci Numbers Golden ratio for years. It is | | | | 1. Fibonacci Retracements |
| derived from something known as the Fibonacci | | | | Fibonacci retracements use horizontal lines to indicate |
| sequence, named after its Italian founder, Leonardo | | | | areas of support or resistance. They are calculated |
| Fibonacci (whose birth is assumed to be around 1175 | | | | by first locating the high and low of the chart. Then |
| AD and death around 1250 AD). Each term in this | | | | five lines are drawn: the first at 100% (the high on |
| sequence is simply the sum of the two preceding | | | | the chart), the second at 61.8%, the third at 50%, |
| terms (1, 1, 2, 3, 5, 8, 13, etc.). | | | | the fourth at 38.2%, and the last one at 0% (the |
| But this sequence is not all that important; rather, it is | | | | low on the chart). After a significant price movement |
| the quotient of the adjacent terms that possesses | | | | up or down, the new support and resistance levels |
| an amazing proportion, roughly 1.618, or its inverse | | | | are often at or near these lines. |
| 0.618. This proportion is known by many names: the | | | | 2. Fibonacci Arcs |
| golden ratio, the golden mean, PHI, and the divine | | | | Finding the high and low of a chart is the first step to |
| proportion, among others. So, why is this number so | | | | composing Fibonacci arcs. Then, with a compass-like |
| important? Well, almost everything has dimensional | | | | movement, three curved lines are drawn at 38.2%, |
| properties that adhere to the ratio of 1.618, so it | | | | 50%, and 61.8%, from the desired point. These lines |
| seems to have a fundamental function for the | | | | anticipate the support and resistance levels, and |
| building blocks of nature. | | | | areas of ranging. |
| Prove It | | | | 3. Fibonacci Fans |
| Take honeybees, for example. If you divide the | | | | Fibonacci fans are composed of diagonal lines. After |
| female bees by the male bees in any given hive, you | | | | the high and low of the chart is located, an invisible |
| will get 1.618. Sunflowers, which have opposing spirals | | | | vertical line is drawn though the rightmost point. This |
| of seeds, have a 1.618 ratio between the diameters | | | | invisible line is then divided into 38.2%, 50%, and |
| of each rotation. This same ratio can be seen in | | | | 61.8%, and lines are drawn from the leftmost point |
| relationships between different components | | | | through each of these points. These lines indicate |
| throughout nature. | | | | areas of support and resistance. |
| Try measuring from your shoulder to your fingertips, | | | | 4. Fibonacci Time Zones |
| and then divide this number by the length from your | | | | Unlike the other Fibonacci methods, time zones are a |
| elbow to your fingertips. Or try measuring from your | | | | series of vertical lines. They are composed by dividing |
| head to your feet, and divide that by the length | | | | a chart into segments with vertical lines spaced apart |
| from your belly button to your feet. The results the | | | | in increments that conform to the Fibonacci sequence |
| same, somewhere in the area of 1.618. The fibonacci | | | | (1, 1, 2, 3, 5, 8, 13, etc.). These lines indicate areas in |
| numbers golden ratio is seemingly unavoidable. | | | | which major price movement can be expected. |
| So we then transalate this to finance and stocks. | | | | |