Fibonacci Methods

Fibonacci numbers are pervasive in the universe and were originally derived by Leonardo Fibonacci. The basic Fibonacci ratio or "Fib ratio" is the Golden Ratio (1.618). Fibonacci Numbers are a sequence of numbers where each number is the sum of the previous two numbers.

The series of Fib Numbers begin as follows: 1,1,2,3,5,8,13,21,34,55,89,144,233,317,610

There are plenty of materials and books about the theory of how these numbers exist in nature and in the financial world. A list of the most important Fib ratios in the financial world which are derived by squaring, square-roots and reciprocating the actual Fibonacci Numbers are depicted below:

Key Set of Fibonacci Derived Ratios in Trading are:

0.382, 0.500, .618, 0.786, 1.0, 1.272, 1.618, 2.0, 2.62, 3.62, 4.62

Secondary Set of Fibonacci Derived Ratios in Trading are: 0.236, 0.486, 0.886, 1.13, 2.236, 3.14, 4.236

Most trading software packages have Fibonacci drawing tools which can show Fib retracements, Fib Extensions and Fib Projections. In addition. Fib Numbers are also applied to "time" and to "price" in trading.

Types of Fibonacci

Retracement: From the swing XA, a Fibonacci ratio length is retraced to B.

Extension: From the swing XA, more than 100% of the swing XA is extended from A to B.

Projection: From the swing XA, a retracement is made to form the AB leg. The swing XA is projected from B toC.

Expansion: From the swing XA, a retracement is made at B to form AB. A projection is plotted from A in the same direction and length of XA to C.

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