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Graphical Fibonacci Studies are used to in technical analysis as indicators of cycles and of support and resistance line.
There are several Fibonacci Studies:
Fibonacci Time Zones,
Arcs,
Fans,
Retracements,
Fibo Channel
Fibo Expansion
All of these studies are based on an interesting discovering made by an Italian mathematician – Leonardo Fibonacci, who lived in a 12th century.
While studying the Egyptian pyramids he established a numerical pattern.
Fibonacci Numbers are a numerical sequence, in which subsequent number is equal to the sum of the previous two.
Here is a sample:
1,1,2,3,5,8,13,21,34,55,89,144,233,377 etc.
The Fibonacci numbers have a lot of mysterious properties.
For example, any Fibonacci Number approximates the product of the previous number multiplied by 1.618, or the product of the subsequent number multiplied by 0.618.
The Fibonacci studies allow us to create on a price chart several lines that stand apart from each other, a distance equal to the Fibonacci numbers.
For instance, Fibonacci Times Zones represent vertical lines spaced at intervals of 1,2,3,5,8,13 etc.
The interpretation of Fibonacci Studies in technical analysis is based on two assumptions.
One. The changes in trend occur regularly on the borders of a Fibonacci lines.
Two. The Fibonacci lines also serve as levels of support and resistance.
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