fibonacci studies
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regarding the technical analysis of stocksTRANSCRIPT
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TechnicalAnalysisfromAtoZbyStevenB.Achelis
FibonacciStudies
LeonardoFibonacciwasamathematicianwhowasborninItalyaroundtheyear1170.ItisbelievedthatMr.Fibonaccidiscovered therelationshipofwhatarenowreferred toasFibonacci numbers while studying the Great Pyramid ofGizehinEgypt.
Fibonacci numbers are a sequence of numbers in whicheach successive number is the sum of the two previousnumbers:
1,1,2,3,5,8,13,21,34,55,89,144,610,etc.
These numbers possess an intriguing number ofinterrelationships,suchasthefactthatanygivennumberisapproximately1.618 times theprecedingnumberandanygiven number is approximately 0.618 times the following
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number.ThebookletUnderstandingFibonacciNumbersbyEdward Dobson contains a good discussion of theseinterrelationships.
Interpretation
There are four popular Fibonacci studies:arcs, fans,retracements, and time zones. The interpretation of thesestudies involves anticipating changes in trends as pricesnearthelinescreatedbytheFibonaccistudies.
Arcs
Fibonacci Arcs are displayed by first drawing a trendlinebetween two extreme points, for example, a trough andopposingpeak.Threearcsarethendrawn,centeredonthesecondextremepoint,sotheyintersectthetrendlineattheFibonaccilevelsof38.2%,50.0%,and61.8%.
The interpretation of Fibonacci Arcs involves anticipatingsupport and resistance as prices approach the arcs. Acommon technique is to display both Fibonacci Arcs andFibonacciFanLinesandtoanticipatesupport/resistanceatthepointswheretheFibonaccistudiescross.
NotethatthepointswheretheArcscrossthepricedatawillvary depending on the scaling of the chart, because theArcs are drawn so they are circular relative to the chartpaperorcomputerscreen.
The following British Pound chart illustrates how the arcscan provide support and resistance (points "A," "B," and"C").
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Fans
Fibonacci Fan Lines are displayed by drawing a trendlinebetween two extreme points, for example, a trough andopposing peak. Then an "invisible" vertical line is drawnthrough the second extreme point. Three trendlines arethen drawn from the first extreme point so they passthrough the invisiblevertical lineat theFibonacci levelsof38.2%, 50.0%, and 61.8%.. (This technique is similar toSpeedResistanceLines.)
The following chart of Texaco shows how prices foundsupportattheFanLines.
You can see that when prices encountered the top Fan
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Line(point"A"), theywereunable topenetrate the line forseveral days. When prices did penetrate this line, theydroppedquicklytothebottomFanLine(points"B"and"C")beforefindingsupport.Alsonotethatwhenpricesbouncedoff the bottom line (point "C"), they rose freely to the topline(point"D")wheretheyagainmetresistance,felltothemiddleline(point"E")andrebounded.
Retracements
Fibonacci Retracements are displayed by first drawing atrendline between two extreme points, for example, atroughandopposingpeak.AseriesofninehorizontallinesaredrawnintersectingthetrendlineattheFibonaccilevelsof 0.0%, 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8%,261.8%,and423.6%. (Someof the lineswillprobablynotbevisablebecausetheywillbeoffthescale.)
Afterasignificantpricemove(eitherupordown),priceswilloften retraceasignificantportion (ifnotall)of theoriginalmove. As prices retrace, support and resistance levelsoftenoccuratorneartheFibonacciRetracementlevels.
In the following chart of Eastman Kodak, FibonacciRetracementlinesweredrawnbetweenamajortroughandpeak.
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YoucanseethatsupportandresistanceoccurredneartheFibonaccilevelsof23and38%.
TimeZones
Fibonacci TimeZones are a series of vertical lines. TheyarespacedattheFibonacciintervalsof1,2,3,5,8,13,21,34, etc. The interpretation of Fibonacci Time Zonesinvolves looking for significant changes in price near theverticallines.
In the following example, Fibonacci Time Zones weredrawn on the Dow Jones Industrials beginning at themarketbottomin1970.
You can see that significant changes in the IndustrialsoccurredonorneartheTimeZonelines.
ThisonlineeditionofTechnicalAnalysisfromAtoZisreproducedherewithpermissionfromtheauthor
andpublisher.
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Contents
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Preface
Acknowledgments
Terminology
ToLearnMore
IntroductiontoTechnicalAnalysis
Reference
Bibliography
AbouttheAuthor
TechnicalAnalysis
PriceFields
Charts
Support&Resistance
Trends
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MovingAverages
Indicators
MarketIndicators
LineStudies
Periodicity
TheTimeElement
Conclusion
AbsoluteBreadthIndex
Accumulation/Distribution
AccumulationSwingIndex
Advance/DeclineLine
Advance/DeclineRatio
AdvancingDecliningIssues
Advancing,Declining,UnchangedVolume
Andrews'Pitchfork
ArmsIndex
AverageTrueRange
BollingerBands
BreadthThrust
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Bull/BearRatio
CandlesticksJapanese
CANSLIM
ChaikinOscillator
CommodityChannelIndex
CommoditySelectionIndex
CorrelationAnalysis
CumulativeVolumeIndex
Cycles
DemandIndex
DetrendedPriceOscillator
DirectionalMovement
DowTheory
EaseofMovement
EfficientMarketTheory
ElliottWaveTheory
Envelopes(TradingBands)
Equivolume/Candlevolume
FibonacciStudies
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FourPercentModel
FourierTransform
FundamentalAnalysis
GannAngles
HerrickPayoffIndex
InterestRates
Kagi
LargeBlockRatio
LinearRegressionLines
MACD
MassIndex
McClellanOscillator
McClellanSummationIndex
MedianPrice
MemberShortRatio
Momentum
MoneyFlowIndex
MovingAverages
NegativeVolumeIndex
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NewHighsLowsCumulative
NewHighsNewLows
NewHighs/LowsRatio
OddLotBalanceIndex
OddLotPurchases/Sales
OddLotShortRatio
OnBalanceVolume
OpenInterest
Open10TRIN
OptionAnalysis
Overbought/Oversold
ParabolicSAR
Patterns
PercentRetracement
Performance
Point&Figure
PositiveVolumeIndex
PriceandVolumeTrend
PriceOscillator
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PriceRateofChange
PublicShortRatio
Puts/CallsRatio
QuadrantLines
RelativeStrength,Comparative
RelativeStrengthIndex
Renko
SpeedResistanceLines
Spreads
StandardDeviation
STIX
StochasticOscillator
SwingIndex
ThreeLineBreak
TimeSeriesForcast
TironeLevels
TotalShortRatio
TradeVolumeIndex
Trendlines
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TRIX
TypicalPrice
UltimateOscillator
Upside/DownsideRatio
Upside/DownsideVolume
VerticalHorizonalFilter
Volatility,Chaikin's
Volume
VolumeOscillator
VolumeRateofChange
WeightedClose
Williams'Accumulation/Distribution
Williams'%R
ZigZag
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