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FIBONACCI
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.
Most of the Fibonacci tools are available in the charting package. We are not going to go into details of how to use the tools, as each charting package
has a a help menu where it is explained in details how the tools are used. Since there maybe different ways of applying the tools based on the software setup
you need to get this information from the user's manual.
The most common tools that trader use are:
- Fibonacci Expansion
- Fibonacci Retracement
- Fibonacci Arcs
Fibonacci theory is used in Monika's proprietary systems.
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