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Charting Education Fibonacci
The Fibonacci sequence is a powerful tool that has been used by mathematicians for centuries. First discovered in the 12th century by Leonardo Pisano, this infinite sequence is structured such that each number is the sum of the two numbers preceding it so that it appears as 0, 1, 1, 2, 3, 5, 8 and so on. The true power of Fibonacci's sequence, however, is the ratio that develops between the numbers in the pattern. Each number is approximately 1.618 times larger than the number preceding it; this number is known as the Golden Ratio and has been used in a variety of disciplines including science, music, and architecture.
One of the places that this ratio has been used extensively is in charting analysis. The Fibonacci ratio is a building block for several technical analysis techniques including Fibonacci Channel and Fibonacci Retracement.
Fibonacci Retracement is used by traders to identify possible areas of support and resistance for a particular asset. Investors take an extreme high point on the stock's chart (commonly referred to as a peak) and an extreme low point (called the trough) and find the vertical difference between these two points. This distance is then divided by the Fibonacci ratio (61.8%) and several variations of this ratio (23.6%, 38.2%, 50%, and 100%). The values that are obtained from this process are then added to the stock's chart as horizontal lines falling within the relevant trading range. Many times, these horizontal lines correspond to the asset's points of support and resistance and can be used to predict future turns in the stock's price. This information can be highly useful when developing a trading strategy, and for this reason it is a focus of many of BetterTrades' technical analysis workshops.
Another charting strategy that is taught in the BetterTrades workshops and that is based on the Fibonacci sequence is a tactic known as the Fibonacci Channel. Very similar to the retracement strategy, the Fibonacci Channel develops several trend lines using the ratios found in the Fibonacci sequence. The first diagonal trend line is drawn connecting two significant points on the stock's chart. In a downtrend, these points are two bottoms and in an uptrend these are two peaks. Fibonacci lines are then added parallel to the first trend line using the increasing ratios applied in the retracement strategy.
It is unclear exactly why the Fibonacci patterns apply so well to the stock market. However, studying market trends over time has shown that these techniques can be very accurate indicators. Attending an Atlanta based trading class with one of the experienced BetterTrades coaches is one of the fastest ways to expand your charting abilities to include Fibonacci patterns. Our coaches have studied these techniques and have applied them to their own trading. By using these techniques first hand, coaches have extensive experience to share with students in the BetterTrades charting workshops. Many of these live workshops are located in Atlanta, giving students the opportunity to explore the local trading community while studying charting techniques.
