Leonardo Fibonacci, a mathematician in the 1200’s created a numerical sequence of numbers, while studying the Great Pyramid of Gizeh. The fascinating concept that Fibonacci discovered is that as the sequence of numbers proceeds, each number in the sequence is 1.618 times the preceding number and .618 of the next number. (1,2,3,5,8,13,21,34,55,89,144,233,377,610,987 etc.)
This sequence of numbers is believed to occur throughout nature.
Fibonacci Numbers as Applied to Technical Analysis.
Many technicians use Fibonacci numbers when trying to determine support and resistance, and commonly use .382, .50, .618 retracements. Commonly thought, a .382 retracement from a trend move will tend to imply a continuation of the trend. A .618 retracement implies that a trend change may be in the making. Many such rules have been adopted by technicians. Our approach is different in that we do not use Fib retracement numbers to determine the trend. Our long term trend is determined by a simple 89 period moving average. This moving average is the literal battleground between bulls and bears. Our use of Fibonacci Clusters ™ will determine Support and Resistance in the direction of the main trend (which is always determined by prices either above or below the long term moving average). What we call our "Main 89 line". Most charting packages will enable you to create a simple 89 period moving average. We encourage you to look at the market this way.
FIBONACCI CLUSTERS:
They are:
Upper Support
"Stopping Point"
Lower Support
Maximum Support
Lower Resistance
"Stopping Point"
Upper Resistance
Maximum Resistance
As every trader knows all trend moves start from a SIGNIFICANT HIGH POINT (SHP) or a SIGNIFICANT LOW POINT (SLP). While the market is trending away from these SHP’s and SLP’s, there will be "normal" corrections going contrary to the main trend. It is these "normal" corrections we need to "capture" in order to generate our Support/Resistance levels.
TO FIND RESISTANCE
For example, the market has made a SIGNIFICANT HIGH POINT (SHP). Now the market proceeds to correct, contrary to the main trend and puts in a series of SWING HIGHS (SH), finally registering a SIGNIFICANT LOW POINT (SLP).
Observing the chart, you can easily identify the highest high (SHP) and lowest low (SLP) in the trend and a series of SWING HIGHS (SH) that fall between the two extreme points.
You need to identify these prices.
TO FIND SUPPORT
For example, the market has made a SIGNIFICANT LOW POINT (SLP). Now the market proceeds to rally, contrary to the main trend and puts in a series of SWING LOWS (SL), finally registering a SIGNIFICANT HIGH POINT (SHP).
Observing the chart, you can easily identify the highest high (SHP) and lowest low (SLP) in the trend and a series of SWING LOWS (SL) that fall between the two extreme points.
You need to identify these prices.
Confluence gives you unlimited possibilities
Some technicians have determined that by combining multiple trends with Fibonacci projections, that produce the same (or very similar) numbers, the support/resistance level is thereby strengthened, making the results more reliable.
The greater the confluence the more significant the number. For example a .382 number from one trend when matching to a .618 number from another trend with, for example, a .50 number from a third trend, will produce a more powerful number.
There is validity to this concept. Our method takes it one step further by allowing you to calculate from multiple trends (if you wish), and by our method of projecting support and resistance by identifying multiple swings within those trends.