TechnicalAnalysisfromAtoZbyStevenB.Achelis

FibonacciStudies

LeonardoFibonacciwasamathematicianwhowasborninItalyaroundtheyear1170.ItisbelievedthatMr.Fibonaccidiscovered therelationshipofwhatarenowreferred toasFibonacci numbers while studying the Great Pyramid ofGizehinEgypt.

Fibonacci numbers are a sequence of numbers in whicheach successive number is the sum of the two previousnumbers:

1,1,2,3,5,8,13,21,34,55,89,144,610,etc.

These numbers possess an intriguing number ofinterrelationships,suchasthefactthatanygivennumberisapproximately1.618 times theprecedingnumberandanygiven number is approximately 0.618 times the following

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number.ThebookletUnderstandingFibonacciNumbersbyEdward Dobson contains a good discussion of theseinterrelationships.

Interpretation

There are four popular Fibonacci studies:arcs, fans,retracements, and time zones. The interpretation of thesestudies involves anticipating changes in trends as pricesnearthelinescreatedbytheFibonaccistudies.

Arcs

Fibonacci Arcs are displayed by first drawing a trendlinebetween two extreme points, for example, a trough andopposingpeak.Threearcsarethendrawn,centeredonthesecondextremepoint,sotheyintersectthetrendlineattheFibonaccilevelsof38.2%,50.0%,and61.8%.

The interpretation of Fibonacci Arcs involves anticipatingsupport and resistance as prices approach the arcs. Acommon technique is to display both Fibonacci Arcs andFibonacciFanLinesandtoanticipatesupport/resistanceatthepointswheretheFibonaccistudiescross.

NotethatthepointswheretheArcscrossthepricedatawillvary depending on the scaling of the chart, because theArcs are drawn so they are circular relative to the chartpaperorcomputerscreen.

The following British Pound chart illustrates how the arcscan provide support and resistance (points "A," "B," and"C").

Fans

Fibonacci Fan Lines are displayed by drawing a trendlinebetween two extreme points, for example, a trough andopposing peak. Then an "invisible" vertical line is drawnthrough the second extreme point. Three trendlines arethen drawn from the first extreme point so they passthrough the invisiblevertical lineat theFibonacci levelsof38.2%, 50.0%, and 61.8%.. (This technique is similar toSpeedResistanceLines.)

The following chart of Texaco shows how prices foundsupportattheFanLines.

You can see that when prices encountered the top Fan

Line(point"A"), theywereunable topenetrate the line forseveral days. When prices did penetrate this line, theydroppedquicklytothebottomFanLine(points"B"and"C")beforefindingsupport.Alsonotethatwhenpricesbouncedoff the bottom line (point "C"), they rose freely to the topline(point"D")wheretheyagainmetresistance,felltothemiddleline(point"E")andrebounded.

Retracements

Fibonacci Retracements are displayed by first drawing atrendline between two extreme points, for example, atroughandopposingpeak.AseriesofninehorizontallinesaredrawnintersectingthetrendlineattheFibonaccilevelsof 0.0%, 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8%,261.8%,and423.6%. (Someof the lineswillprobablynotbevisablebecausetheywillbeoffthescale.)

Afterasignificantpricemove(eitherupordown),priceswilloften retraceasignificantportion (ifnotall)of theoriginalmove. As prices retrace, support and resistance levelsoftenoccuratorneartheFibonacciRetracementlevels.

In the following chart of Eastman Kodak, FibonacciRetracementlinesweredrawnbetweenamajortroughandpeak.

YoucanseethatsupportandresistanceoccurredneartheFibonaccilevelsof23and38%.

TimeZones

Fibonacci TimeZones are a series of vertical lines. TheyarespacedattheFibonacciintervalsof1,2,3,5,8,13,21,34, etc. The interpretation of Fibonacci Time Zonesinvolves looking for significant changes in price near theverticallines.

In the following example, Fibonacci Time Zones weredrawn on the Dow Jones Industrials beginning at themarketbottomin1970.

You can see that significant changes in the IndustrialsoccurredonorneartheTimeZonelines.

ThisonlineeditionofTechnicalAnalysisfromAtoZisreproducedherewithpermissionfromtheauthor

andpublisher.

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Contents

>

Preface

Acknowledgments

Terminology

ToLearnMore

IntroductiontoTechnicalAnalysis

Reference

Bibliography

AbouttheAuthor

TechnicalAnalysis

PriceFields

Charts

Support&Resistance

Trends

MovingAverages

Indicators

MarketIndicators

LineStudies

Periodicity

TheTimeElement

Conclusion

AbsoluteBreadthIndex

Accumulation/Distribution

AccumulationSwingIndex

Advance/DeclineLine

Advance/DeclineRatio

AdvancingDecliningIssues

Advancing,Declining,UnchangedVolume

Andrews'Pitchfork

ArmsIndex

AverageTrueRange

BollingerBands

BreadthThrust

Bull/BearRatio

CandlesticksJapanese

CANSLIM

ChaikinOscillator

CommodityChannelIndex

CommoditySelectionIndex

CorrelationAnalysis

CumulativeVolumeIndex

Cycles

DemandIndex

DetrendedPriceOscillator

DirectionalMovement

DowTheory

EaseofMovement

EfficientMarketTheory

ElliottWaveTheory

Envelopes(TradingBands)

Equivolume/Candlevolume

FibonacciStudies

FourPercentModel

FourierTransform

FundamentalAnalysis

GannAngles

HerrickPayoffIndex

InterestRates

Kagi

LargeBlockRatio

LinearRegressionLines

MACD

MassIndex

McClellanOscillator

McClellanSummationIndex

MedianPrice

MemberShortRatio

Momentum

MoneyFlowIndex

MovingAverages

NegativeVolumeIndex

NewHighsLowsCumulative

NewHighsNewLows

NewHighs/LowsRatio

OddLotBalanceIndex

OddLotPurchases/Sales

OddLotShortRatio

OnBalanceVolume

OpenInterest

Open10TRIN

OptionAnalysis

Overbought/Oversold

ParabolicSAR

Patterns

PercentRetracement

Performance

Point&Figure

PositiveVolumeIndex

PriceandVolumeTrend

PriceOscillator

PriceRateofChange

PublicShortRatio

Puts/CallsRatio

QuadrantLines

RelativeStrength,Comparative

RelativeStrengthIndex

Renko

SpeedResistanceLines

Spreads

StandardDeviation

STIX

StochasticOscillator

SwingIndex

ThreeLineBreak

TimeSeriesForcast

TironeLevels

TotalShortRatio

TradeVolumeIndex

Trendlines

TRIX

TypicalPrice

UltimateOscillator

Upside/DownsideRatio

Upside/DownsideVolume

VerticalHorizonalFilter

Volatility,Chaikin's

Volume

VolumeOscillator

VolumeRateofChange

WeightedClose

Williams'Accumulation/Distribution

Williams'%R

ZigZag

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