That economic trends are predictable through the analysis of numerical series is a matter of study and experimentation by many. If you are an experienced trader, you will have had to deal with the analysis of various metrics and trends: one of the most exciting theoretical models, also because it relates to one of the "mysteries" of nature, is the one that reconnects online trading with Fibonacci.
To answer this question, you obviously have to take a step back and try to make yourself understand what the Fibonacci series is. You have certainly heard about it recently because it is one of the "protagonists" (so to speak) of a book that has made the recent history of mass literature, the Da Vinci Code. The sequence discovered by the mathematician from Pisa, which you may find useful to know for analysis related to trading (as evidenced by this series of PDF dedicated to the sequence of online investments) consists of the following numbers: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, and so on.
Each number of the Fibonacci series is composed of the sum of the two previous ones. But the most useful information you need to know about online trading is the relationship between two consecutive numbers in the series. In fact, this ratio tends to 1.618 with the endless trend of numbers.
What interest do we have to know this "magic" number, that is 1,618? It is a number called "golden", because the relationship is present both in nature and architecture. For example, the spiral of the snail, as well as the shape of the galaxies, follows a numerical ratio obtainable through that mathematical series.
We are coming to the center of the discussion related to online investments: in fact, the followers of this method have identified the inverse of the magic number, or 1.618, a crucial aspect. In fact, it is a number that constantly returns when measuring the duration of price movements. To be precise, analysts who follow this trend have included so-called "Fibonacci Tracking" in their technical analysis software for traders.
In addition to the tracing of the numeric series, there are other fields of application of the sequence in trading.
One of the most interesting is the timing of future markets. All this is highlighted and applied at the level of charts in forex in this way: a certain price is considered by labelling it as "new minimum" or "new maximum". At this point we work with this data continuing along the axis of the abscissae according to the days counted following the magic series, or we proceed with the counting of the next 21, 34 and 55 days.
It is therefore predicted that very similar events will occur during the dates that follow according to the Fibonacci numbers in the trading.
Another field of application concerns the graphic construction of "arcs" and fan lines. Predictive structures are thus determined based on three arcs of intervals determined at 38.2%, 50% and 61.8%.
But are all these interventions of this mathematical theory in trading purely random or do they have a statistical basis? Through various tests over the years, it has been possible to give empirical confirmation to these models, so that the series numbers are the basis of a fundamental economic theory such as that of Elliott's Waves.
As we have mentioned, one of the most applied models is the retracement model, which is the definition of nine horizontal ranges of a given price range, divided as follows:
You can then insert them into a specific graph that is calculated virtually automatically by any program of management and technical analysis of forex.
The world of Forex, i.e. the currency market, is a complex one. There are really a lot of operators all over the world who try to get rich through this market that, if studied and exploited in the right world, is able to bring a very positive profit. It is precisely from the study of its clearer dynamics, but also from its more obscure ones, that many strategies have arisen over the years to maximize profits or to forecast market trends in a certain way. One of these strategies is called "Fibonacci Indicators". Leonardo Pisano, is considered one of the most illustrious mathematicians of all time, lived between 1100 and 1200 was the one who introduced the Arabic numbers in Europe. Let's see how his work provides a valid tool to understand the trend of a trend.
Yes, but what do you see with the financial markets? These two elements are combined to create a market strategy, i.e. the 'tracking of Fibonacci'. Let us give an example so that everyone understands what we are talking about. If you want to divide a segment into two not equal parts, in which the ratio between the shortest and the longest is the same as the one that exists between the latter and the whole section, then the ratio in question must be 0.618 (ideal ratio which is therefore called the golden ratio).
The Fibonacci series is: 1,1,2,3,5,8,13
Some of its main features:
Another intelligent way to use the sequence in Forex Trading is to use it in calculating moving averages. Through these numbers and the mathematical operations in which they play a leading role, it is possible to obtain percentages that help predict potential targets that can be reached by prices. In this way you can trace the percentages of tracking that in a bullish trend will indicate the possible supports, while in a bearish one will signal possible resistance.
If you are interested consult this "Fibonacci Calculator", a valuable and useful tool.
The Fibonacci retracement concerns the idea that, even in a sustained trend, some corrections or "retracements" may occur that do not alter the main trend. For example, if there is a sustained upward trend, potential tracing will also reach 38.2%, 50% and 61.8%. After this threshold we can certainly deduce that we have had a change in trend or trend. Fibonacci retracements are graphically represented with horizontal lines that meet the trend line at six levels: the first 0.0%, the second 23.6%, the third 38.2%, the fourth 50.0%, the fifth 61.8% and the last, the sixth 100%. What we will get is a vertical line describing the trend, divided by horizontal lines for all the tracking targets. The idea is to study the trend to understand what the next variation will be.
The numbers identified by the great Leonardo Pisano are the basis of Elliott's wave theory and are also used to estimate price or time objectives of a given market movement precisely because of its harmonic proportions. 0.618 (or 61.8%) and 1.618 (or 161.8%) are the most famous numbers, but at the graphic usage level we find 38.2% more often, which is obtained by dividing a sequence number by the second number that follows, and 23.6% , obtained by dividing a sequence number by the third number that follows. The six levels in which to divide the trend will therefore be, as mentioned, 0%, 23.6%, 38.2%, 50%, 61.8% and 100%. The others, i.e. 161.8% - 261.8% - 423.6% go outside the range from 0 to 100 and are called extensions.
Thanks to Fibonacci tracking it is possible to set a minimum trend starting level and a maximum arrival level. On the graph the levels of tracking are set according to the percentages described above, but that correspond to one third, one half and two thirds of the graph. This will identify the levels of support and resistance that prices will find in the main trend and you can predict the trend and act accordingly. Each level must be monitored carefully because it can provide interesting information that if associated.
Patterns represent configurations (which have predictive value) that are formed on the price chart. As far as the graphic configurations are concerned, we can point out two types.
Continuous patterns are a pause in the main trend. Identifying these breaks is useful for understanding signals coming from the market. The formation of these graphic figures is accompanied by a decrease in the volumes exchanged and a lower level of volatility than the previous one. The main figures of this type are:
This type of formation is characterized by a price oscillation enclosed by two parallel straight lines (the volumes traded inside will certainly be lower than the dominant phases of the trend). Depending on the primary direction of the trend, these figures are called "accumulation zones" or "distribution zones".
The more extensive the variables linked to the height and width of the rectangle, the stronger the resulting movement will be.
It is advisable, when a similar formation is identified, to proceed with purchases in the lower part of the rectangle (static support) and with sales in the upper part (static resistance). The possible breakage of this figure is very often a rather reliable operating signal. As far as operational ideas are concerned, there are essentially two types:
This type of figure is defined as consolidation. It is usually used to anticipate the continuation of the main trend. The space where prices fluctuate decreases as you approach Breakout. The characteristic structures of this figure are:
To analyze this training in detail, it is useful to study the volumes in order to easily identify the Breakout. It is therefore possible to establish a target of the figure by projecting, from the breaking point, the base of the triangle.
They identify a moment when the trend slows down. They occur within a very strong movement, supported by volatility and high volumes. Flags are a phase of congestion in which volumes remain low or falling. The pennants, on the other hand, represent a phase of contraction.
There are two targets that can be identified based on these figures:
It is an irregular triangle in which the two sides converge with different slopes (all this gives the figure the shape of a wedge). This training is characterized by a decrease in volumes that signals a pause in the primary trend. They are like symmetrical triangles except that the wedges describe a larger percentage of the previous movement.
The reversal patterns herald a trend change. The longer it takes to establish the model, the greater the validity of the model and the more important its reversal will be. The main reversal figures are:
If you want to learn more, we recommend the text "Fibonacci Trading: How to Master the Time and Price Advantage". You can find it comfortably on Amazon and it can be a turning point in your personal studies. We are convinced that it could be a valuable support to the various video tutorials that you can easily buy online in the form of DVDs.
It is characterized by three phases:
After the formation of the two shoulders and the head, the neckline should be traced. Simply join the point where the left shoulder begins with the point where you start to form the right shoulder. A movement is worth mentioning, the pullback: the return movement towards a previously sold trendline (that is, the last opportunity to exit the market).
The movement following the breakage of the neckline will be instead of an extension equal to the distance between this and the maximum of the head projected from the breaking point of the neckline itself.
These are among the figures that are found more in the everyday operative reality (they can be both bearish and bullish).
It's a configuration not very common and discreetly complicated to find. It may occur at the end of a bullish or a bearish trend. From a graphic point of view it is composed of two parts: a broadening top on the left and a triangle on the right. There are four elements to identify its formation:
It is a figure that forms at the end of a bullish trend; it looks like a triangle in reverse that starts from the apex. Prices fluctuate in a range in parallel with an increase in volumes.
It comes at a time when a bullish trend is followed by a sudden bearish reversal (perhaps following unusual news that plunges into the market).
We move from a phase of negative trend to a sudden inversion of prices.
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