Wednesday, April 22, 2015

Fibonacci Analysis


The Fibonacci analysis gives ratios which play important role in the
forecasting of market movements. This theory is named after Leonardo
Fibonacci of Pisa, an Italian mathematician of the late twelfth and early
thirteenth centuries He introduced an additive numerical series - Fibonacci
sequence.
The Fibonacci sequence consists of the following series of numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987,
1597, 2584, 4181, (etc.), which exhibit several remarkable relationships,
in particular the ratio of any term in the series to the next higher term. This
ratio tends asymptotically to 0.618 (the Fibonacci ratio). In addition, the ratio
of any term to the next lower term in the sequence tends asymptotically to
1.618, which is the inverse of 0.618. Similarly constant ratios exist between
numbers two terms
Golden spirals appear in a variety of natural objects, from seashells to
hurricanes to galaxies.
The financial markets exhibit Fibonacci proportions in a number of
ways, particularly it constitute a tool for calculating price targets and placing
stops. For example, if a correction is expected to retrace 61.8 percent of the
preceding impulse wave, an investor might place a stop slightly below that
level. This will ensure that if the correction is of a larger degree of trend than
expected, the investor will not be exposed to excessive losses. On the other
hand, if the correction ends near the target level, this outcome will increase
the probability that the investor's preferred price move interpretation is
accurate.























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