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The Fibonacci sequence is named after Leonardo of Pisa, who was known as Fibonacci. Fibonacci's 1202 book Liber Abaci introduced the sequence to Western European mathematics, although the sequence had been previously described in Indian mathematics.
Fibonacci numbers are used in the analysis of computer algorithms, biological systems and very often in analyzing financial markets. They form one of the main pillars of Technical Analysis.
Fibonacci retracements are a very well known and well used trading method.. There are several retracements numbers which a ‘hit’ on a frequent basis on an intra-day time frame as well as longer ones.
The most common Fibonacci Retracements number are; 38.2%, 50.0%, and 78.6%. There are many others. the idea goes like this; the market is trending, in order to enter, we would like to wait for a pullback. After the price retraces to the numbers, it often continues it’s trend.
A Fibonacci Expansion is calculated by by measuring a wave (extended move), and applying the Fibonacci percentages of that move, from the end of its subsequent corrective move. 78.6%,100%,138.2%, and 161.8% are the most common expansion fib numbers. See the following illustration;
A Fibonacci Extension is calculated by measuring a wave (extended move), and applying the common Extension numbers to the tool without moving it from the original ‘move’. 127.20% and 141.67%, 150%, and 161.8% are among the more common fib numbers for calculating the continuation of the present move.
We employ all of these Fibonacci methods at Pivotfarm in a process called Fibonacci Clustering. A Fibonacci Cluster occurs when a group of independent fibs lineup within a tight span and form a ‘cluster’. These clusters tend to offer high probablility Support and Resistance areas as they are derived from analysis across multiple timeframes. |
