Fibonacci Analysis

Fibonacci analysis is a powerful tool used in technical analysis to identify potential support and resistance levels and forecast price movements. It is based on the Fibonacci sequence, a series of numbers where each number is the sum of the two preceding ones.

Fibonacci Retracements

Fibonacci retracements are horizontal lines drawn on a price chart to identify potential levels of support or resistance during a pullback or correction within a trend. These retracement levels are derived from the Fibonacci sequence and are expressed as percentages, including 23.6%, 38.2%, 50%, 61.8%, and 100%.

Example:

Suppose a stock is in an uptrend, and you're considering buying near a pullback. You might draw Fibonacci retracement levels from the low point of the trend to the high point. The 38.2%, 50%, and 61.8% retracement levels could potentially serve as areas of support where buyers may step in.

Fibonacci Extensions

Fibonacci extensions are used to forecast potential future price targets or resistance levels beyond the current trend. These extension levels are also derived from the Fibonacci sequence and are expressed as percentages, including 127.2%, 161.8%, 200%, 261.8%, and 423.6%.

Example:

Suppose a stock is in an uptrend, and you want to identify potential price targets if the trend continues. You might draw Fibonacci extension levels from a recent swing low to a swing high. The 127.2%, 161.8%, and 261.8% extension levels could serve as potential areas where the price may encounter resistance or where traders may consider taking profits.

Fibonacci Fans and Arcs

Fibonacci fans and arcs are additional tools that traders use to identify potential support and resistance levels or trendlines based on the Fibonacci sequence. Fibonacci fans consist of diagonal lines drawn from a significant high or low to other significant highs or lows. Fibonacci arcs consist of curved lines drawn from a significant high or low, forming potential support or resistance zones.

Example:

Fibonacci fans and arcs can be used to identify potential areas of interest where price may react in the future. For example, if a stock is in an uptrend, traders may draw Fibonacci fans from a significant low to a high, looking for areas where the price may find support or resistance along the diagonal lines.