Fibonacci Analysis

# Video:Utilizing Fibonacci Retracements

## Understanding the Fibonacci number sequence presented using Personal Hotline from Trendsetter Software

### Leonardo Fibonacci lived in the thirteenth century. His work on the relationship of mathematics and nature has been applied in physics, astronomy and engineering. Many famous market analysts believe that Fibonacci principles apply equally as well to markets and market psychology.

#### The Fibonacci number sequence is created by adding the last two numbers in the sequence to create the next number (i.e., 1,1,2,3,5,8,13,21,34,55,89,144… ∞). The first three numbers in the sequence are normally dropped for analysis purposes. The number sequence creates some interesting mathematical relationships. The most commonly used are: the ratio of any number to its next higher number which approaches a constant value of .618 (e.g. 34/55 = . 618, 55/89 = .618); the ratios of alternate numbers which approach a constant .382 (e.g. 21/55 = 382, 34/89 = .382). For those that are mathematically inclined, .382 is also the inverse of .618 (i.e., 1- .618 = .382).

##### The Fibonacci number series, its ratios and mathematical relationships are used to create four technical analysis indicators...
• Time lines: vertical lines drawn at fibonacci intervals from the significant high or low of the current trend. The first line is drawn five days after the significant high or low. In theory, future turning points should coincide near these time lines.
• Fan lines: drawn using the ratios .618, .5 and .382, from the same high or low point. An invisible vertical line is drawn through the second extreme value. This vertical line is then divided into three using the fibonacci ratios. Three trend lines are then drawn connecting the first significant point and each of the dividing points on the invisible line.
• Arcs: combine time and price to display expected containment of price action over time.
• Ratios: horizontal lines drawn using the ratios.