Technicals
Fibonacci is a sequence of numbers defined by the linear recurrence equation that have been computed for use with technical stock analysis. The formula for Fibonacci was discovered by the Greek philosopher Pythagoras, who worked with the ratios hundreds of years before Leonardo De Pisa.
The Fibonacci sequence used in trading establishes a series of ratios which can be used to determine potential prices where a stock or index can use as support or resistance. These series of Fibonacci lines can be placed on top of a stock's price chart and many times will accurately establish the price points at which a stock stops and starts.
The Fibonacci settings can also show the potential retracement level a stock may hit. The degree of the retracement can often determine whether the stock will remain in its current trend or see the trend reverse.
Most charting programs have an option to overlay Fibonacci lines and the Fibonacci expansion lines, which permit a user to see how high or low a stock may go after it breaks the trend's high or low point. The typical Fibonacci settings are 1, .236, .382, .5, .618, .764, and 1. The typical settings for a Fibonacci expansion are -1, -.618, -.382, and -.236.
Fibonacci info by BetterTrades Charts
To use a Fibonacci line, one point is established at the high point of a trend (some traders set the point off a candle body, others prefer to use the highest wick) and the other point is established at the lowest point of the trend. The program will draw the Fibonacci lines at the established ratio points, which give traders an idea about where the stock may be headed.
