Just to share something interesting i found today...
Fibonacci arcs & retracements help anticipate support and resistance levels along with price targets.
After making long sustained moves in one direction, many markets retrace a part of the move before continuing on further. The Fibonacci indicator, popularized by Ralph Nelson Elliot, is used to try and forecast potential support levels and price targets, based on the height of the overall move and any wave patterns.
For example, if a stock increased from $5 to $10 and then slipped back 50%, this retracement would take it to $7.50 before it continued upwards again.
This indicator uses mathematical ratios discovered by Leonardo Fibonacci's in the 12th century. The Fibonacci summation series is 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144… and so on to infinity. Interestingly, these numbers have the following constant relationships:
- The sum of any two consecutive numbers equals the next higher number.
- The ratio between any number and the next higher number approaches 0.618 after the first four calculations.
- The ratio between any number and the next lower number is approximately 1.618 (the inverse of 0.618).
The number 1.618 is commonly referred to as the Golden Mean or the Golden Section. The real value of this number series is that it is "the most important mathematical presentation of natural phenomena ever discovered" (R. Fischer). It keeps popping up in everything from the proportions of the Egyptian pyramids… the number of florets in flower heads…the double helix of the DNA molecule… to the logarithmic spiral of the nautilus shell.
(The well-known Elliot Wave Principle is also based on the application of Fibonacci numbers to the waves evident in any price chart.)
For further elaboration go [ here ]