How to calculate Fibonacci
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Fibonacci studies
Leonardo Fibonacci was a mathematician who was born in Italy around the year 1170. It is believed that Mr. Fibonacci discovered the relationship of what are now referred to as Fibonacci numbers while studying the Great Pyramid of Gizeh in Egypt.
Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 114, 610, etc.
These numbers possess an intriguing number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number and any given number is approximately 0.618 times the following number. The booklet Understanding Fibonacci Numbers by Edward Dobson contains a good discussion of these interrelationships.
Arcs
Fibonacci Arcs are displayed by first drawing a trendline between two extreme points, for example, a trough and opposing peak. Three arcs are then drawn, centered on the second extreme point, so they intersect the trendline at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.The interpretation of Fibonacci Arcs involves anticipating support and resistance as prices approach the arcs. A common technique is to display both Fibonacci Arcs and Fibonacci Fan Lines and to anticipate support/resistance at the points where the Fibonacci studies cross.Note that the points where the Arcs cross the price data will vary depending on the scaling of the chart, because the Arcs are drawn so they are circular relative to the chart paper or computer screen.The following British Pound chart illustrates how the arcs can provide support and resistance (points “A,” “B,” and “C”).
Example: Drawing Fibonacci Arc for Australian Dollar
Example Trade using 100% Fibonacci Arc (Arc Circle Trading)
Fans
Fibonacci Fan Lines are displayed by drawing a trendline between two extreme points, for example, a trough and opposing peak. Then an “invisible” vertical line is drawn through the second extreme point. Three trendlines are then drawn from the first extreme point so they pass through the invisible vertical line at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.. (This technique is similar to Speed Resistance Lines.)
Retracements
Fibonacci Retracements are displayed by first drawing a trendline between two extreme points, for example, a trough and opposing peak. A series of nine horizontal lines are drawn intersecting the trendline at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8%, 261.8%, and 423.6%. (Some of the lines will probably not be visable because they will be off the scale.)After a significant price move (either up or down), prices will often retrace a significant portion (if not all) of the original move. As prices retrace, support and resistance levels often occur at or near the Fibonacci Retracement levels.In the following chart of Eastman Kodak, Fibonacci Retracement lines were drawn between a major trough and peak.
Prices continue to move in same direction tf it bounces from 38.2%. Any retracement up to 61.8% means trend is weaking and trying to change direction.
Time Zones
Fibonacci Time Zones are a series of vertical lines. They are spaced at the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of Fibonacci Time Zones involves looking for significant changes in price near the vertical lines.In the following example, Fibonacci Time Zones were drawn on the Dow Jones Industrials beginning at the market bottom in 1970.
Example: Fibonacci Timewise retracement for EURO.
Leonardo Fibonacci was a mathematician who was born in Italy around the year 1170. It is believed that Mr. Fibonacci discovered the relationship of what are now referred to as Fibonacci numbers while studying the Great Pyramid of Gizeh in Egypt.
Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 114, 610, etc.
These numbers possess an intriguing number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number and any given number is approximately 0.618 times the following number. The booklet Understanding Fibonacci Numbers by Edward Dobson contains a good discussion of these interrelationships.
Arcs
Fibonacci Arcs are displayed by first drawing a trendline between two extreme points, for example, a trough and opposing peak. Three arcs are then drawn, centered on the second extreme point, so they intersect the trendline at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.The interpretation of Fibonacci Arcs involves anticipating support and resistance as prices approach the arcs. A common technique is to display both Fibonacci Arcs and Fibonacci Fan Lines and to anticipate support/resistance at the points where the Fibonacci studies cross.Note that the points where the Arcs cross the price data will vary depending on the scaling of the chart, because the Arcs are drawn so they are circular relative to the chart paper or computer screen.The following British Pound chart illustrates how the arcs can provide support and resistance (points “A,” “B,” and “C”).
Example: Drawing Fibonacci Arc for Australian Dollar
Example Trade using 100% Fibonacci Arc (Arc Circle Trading)
Fans
Fibonacci Fan Lines are displayed by drawing a trendline between two extreme points, for example, a trough and opposing peak. Then an “invisible” vertical line is drawn through the second extreme point. Three trendlines are then drawn from the first extreme point so they pass through the invisible vertical line at the Fibonacci levels of 38.2%, 50.0%, and 61.8%.. (This technique is similar to Speed Resistance Lines.)
Retracements
Fibonacci Retracements are displayed by first drawing a trendline between two extreme points, for example, a trough and opposing peak. A series of nine horizontal lines are drawn intersecting the trendline at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%, 100%, 161.8%, 261.8%, and 423.6%. (Some of the lines will probably not be visable because they will be off the scale.)After a significant price move (either up or down), prices will often retrace a significant portion (if not all) of the original move. As prices retrace, support and resistance levels often occur at or near the Fibonacci Retracement levels.In the following chart of Eastman Kodak, Fibonacci Retracement lines were drawn between a major trough and peak.
Prices continue to move in same direction tf it bounces from 38.2%. Any retracement up to 61.8% means trend is weaking and trying to change direction.
Time Zones
Fibonacci Time Zones are a series of vertical lines. They are spaced at the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of Fibonacci Time Zones involves looking for significant changes in price near the vertical lines.In the following example, Fibonacci Time Zones were drawn on the Dow Jones Industrials beginning at the market bottom in 1970.
Example: Fibonacci Timewise retracement for EURO.
Pitchfork
Andrews’ Pitchfork is a line study consisting of three parallel trend lines based on three points you select. This tool was developed by Dr. Alan Andrews.
Andrews pitchfork is a study using trendlines. A basic understanding of trendlines and support/resistance levels is appropriate when finding application and interpretation using Andrews Pitchfork’s. In constructing the study, starting points are chosen. The first is a major peak or trough on the left side of the chart display. The second and third starting points are chosen to be a major peak and a major trough to the right of the first point. After all starting points have been decided, draw a trendline from the first point (the most left) so that it passes directly between the right most points. This line is called the handle of the pitchfork. The second and third trend lines are drawn beginning at the starting points and parallel to the handle. Dr. Andrews suggested that prices make it to the median line (or handle) about 80% of the time while the price trend is in place. This means that while the basic long term price trend remains intact, Dr. Andrews believed that the smaller trends in price would gravitate toward the median line while the larger price trend remained in tact. When that does not occur, it may be evidence that a reversal in the larger price trend may be in progress or provides evidence of a stronger bias at work in market. When price fails to make it to the medial line from either side, it is often an expression of the relative enthusiasm of buyers and sellers and may predict the next major direction of prices. If prices fail to reach the median line while above the median line, it is a bullish and failing to reach the median line from below is bearish. 
Andrews’ Pitchfork is a line study consisting of three parallel trend lines based on three points you select. This tool was developed by Dr. Alan Andrews.
Andrews pitchfork is a study using trendlines. A basic understanding of trendlines and support/resistance levels is appropriate when finding application and interpretation using Andrews Pitchfork’s. In constructing the study, starting points are chosen. The first is a major peak or trough on the left side of the chart display. The second and third starting points are chosen to be a major peak and a major trough to the right of the first point. After all starting points have been decided, draw a trendline from the first point (the most left) so that it passes directly between the right most points. This line is called the handle of the pitchfork. The second and third trend lines are drawn beginning at the starting points and parallel to the handle. Dr. Andrews suggested that prices make it to the median line (or handle) about 80% of the time while the price trend is in place. This means that while the basic long term price trend remains intact, Dr. Andrews believed that the smaller trends in price would gravitate toward the median line while the larger price trend remained in tact. When that does not occur, it may be evidence that a reversal in the larger price trend may be in progress or provides evidence of a stronger bias at work in market. When price fails to make it to the medial line from either side, it is often an expression of the relative enthusiasm of buyers and sellers and may predict the next major direction of prices. If prices fail to reach the median line while above the median line, it is a bullish and failing to reach the median line from below is bearish.
Speed Lines
Speed Resistance Lines (“SRL”), sometimes called 1/3-2/3 lines, are a series of trendlines that divide a price move into three equal sections. They are similar in construction and interpretation to Fibonacci Fan Lines.
Speed Resistance Lines display three trendlines. The slope of each line defines a different rate at which pricing expectations are changing.
Prices should find support above the 2/3 line. When prices do fall below the 2/3 line, they should quickly drop to the 1/3 line where they should then again find support.
The initial trendline was drawn from the low point labeled “A” to the high point labeled “B.” You can see that prices found support each time they fell to the 2/3 line. When prices finally penetrated the 2/3 line (at point “C”) they quickly fell to the 1/3 line where they again found support.
Calculation
To draw Speed Resistance Lines:
1.Draw a line from a major low to a major high.
2.Draw a vertical line on the day the major high occurred. Divide this vertical line into thirds.3.Draw lines from the major low (If trend is up) or from major high (If trend is down) so they intersect the vertical line at the 1/3 and 2/3 levels.
Step by step guide to draw fibonacci fan/ Speed lines
Speed Resistance Lines (“SRL”), sometimes called 1/3-2/3 lines, are a series of trendlines that divide a price move into three equal sections. They are similar in construction and interpretation to Fibonacci Fan Lines.
Speed Resistance Lines display three trendlines. The slope of each line defines a different rate at which pricing expectations are changing.
Prices should find support above the 2/3 line. When prices do fall below the 2/3 line, they should quickly drop to the 1/3 line where they should then again find support.
The initial trendline was drawn from the low point labeled “A” to the high point labeled “B.” You can see that prices found support each time they fell to the 2/3 line. When prices finally penetrated the 2/3 line (at point “C”) they quickly fell to the 1/3 line where they again found support.
Calculation
To draw Speed Resistance Lines:
1.Draw a line from a major low to a major high.
2.Draw a vertical line on the day the major high occurred. Divide this vertical line into thirds.3.Draw lines from the major low (If trend is up) or from major high (If trend is down) so they intersect the vertical line at the 1/3 and 2/3 levels.
2.Draw a vertical line on the day the major high occurred. Divide this vertical line into thirds.3.Draw lines from the major low (If trend is up) or from major high (If trend is down) so they intersect the vertical line at the 1/3 and 2/3 levels.
Step by step guide to draw fibonacci fan/ Speed lines
Support & Resistance
Support and Resistance become very commonly and important term used by traders and investors. Now days before investing in stock investors ask about its support and resistance. It has been seen that it is more profitable to invest at the support level and not to invest at resistance. But question arise that what is support and resistance?
Let’s take an example If Current market price (CMP) of Reliance Industries is 100. Investors take position in such at 100. Now price of RIL increase to 120, but still investors holds the shares. But from 120 price of RIL fall to 116. It is the psychology of investors that as RIL reach to 120 why to sell at 116 and they all wants to exit once RIL share price reach to 120. In this way 120 become “Resistance” for RIL share. At 120 we can expect that investors try to sell. But RIL shares are very bullish and it breaks 120 and reaches to 135. Now the investors who sold shares at 120 one more time want to take position in RIL as they fill that they miss the bus. So, they want to grab it, but here also psychology suggest that as they sold at 120 we will buy at 120 only in that sense 120 become “Support” for RIL shares.
Resistance becomes support
When a resistance level is successfully penetrated, that level becomes a support level. Similarly, when a support level is successfully penetrated, that level becomes a resistance level.
Key Points
1. Support levels occur when the consensus is that the price will not move lower. It is the point where buyers outnumber sellers.
2. Resistance levels occur when the consensus is that the price will not move higher. It is the point where sellers outnumber buyers.
3. The penetration of a support or resistance level indicates a change in investor expectations and a shift in the supply/demand lines.
Support and Resistance become very commonly and important term used by traders and investors. Now days before investing in stock investors ask about its support and resistance. It has been seen that it is more profitable to invest at the support level and not to invest at resistance. But question arise that what is support and resistance?
Let’s take an example If Current market price (CMP) of Reliance Industries is 100. Investors take position in such at 100. Now price of RIL increase to 120, but still investors holds the shares. But from 120 price of RIL fall to 116. It is the psychology of investors that as RIL reach to 120 why to sell at 116 and they all wants to exit once RIL share price reach to 120. In this way 120 become “Resistance” for RIL share. At 120 we can expect that investors try to sell. But RIL shares are very bullish and it breaks 120 and reaches to 135. Now the investors who sold shares at 120 one more time want to take position in RIL as they fill that they miss the bus. So, they want to grab it, but here also psychology suggest that as they sold at 120 we will buy at 120 only in that sense 120 become “Support” for RIL shares.
Resistance becomes support
When a resistance level is successfully penetrated, that level becomes a support level. Similarly, when a support level is successfully penetrated, that level becomes a resistance level.
Key Points
1. Support levels occur when the consensus is that the price will not move lower. It is the point where buyers outnumber sellers.
2. Resistance levels occur when the consensus is that the price will not move higher. It is the point where sellers outnumber buyers.
3. The penetration of a support or resistance level indicates a change in investor expectations and a shift in the supply/demand lines.
3. The penetration of a support or resistance level indicates a change in investor expectations and a shift in the supply/demand lines.
Trend Lines
We can compare “Trend” with the direction of wind. Trend represents investor’s psychology. Trading against trend is like sailing boat against wind in sea. Identification of trend and trading in the direction of trend is the goal of traders. To identify the trend and reversal in it is the main task of analyst. There are number of tools available to identify the trend. Trend Line if one and mostly used tools to identify trend.
From years technical analyst use trend line as a key tools to identify trend in stock market. Basically there is no difference between trend line and a simple line. Trend line help in finding support as well as resistance of stock.
Two type of trend
1) Rising Trend – A Rising trend is defined by successively higher low-prices. A rising trend can be thought of as a rising support level–the bulls are in control and are pushing prices higher.
2) Falling Trend – A falling trend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level–the bears are in control and are pushing prices lower.
Key Points:
1) Technique to draw trend line is very simple, draw as straight line which covers successive tops of one intermediate trend. Finding a starting point of trend line is main art. Experience yourself on a top of hill and find a top, where by standing you can see all other tops in one line. In rising trend the trend line become resistance of stock.
2) Similarly for falling trend draw a straight line which covers all lower bottoms. Here trend line becomes support for stock.
3) Penetration of trend line is called as breakout. Penetration of trend line confirms that previous trend is no longer intact. Here volume is the key to determining the significance of the penetration of a trend.
Trend Line gives support and resistance.
Trading opportunities using Trend line
We can compare “Trend” with the direction of wind. Trend represents investor’s psychology. Trading against trend is like sailing boat against wind in sea. Identification of trend and trading in the direction of trend is the goal of traders. To identify the trend and reversal in it is the main task of analyst. There are number of tools available to identify the trend. Trend Line if one and mostly used tools to identify trend.
From years technical analyst use trend line as a key tools to identify trend in stock market. Basically there is no difference between trend line and a simple line. Trend line help in finding support as well as resistance of stock.
Two type of trend
1) Rising Trend – A Rising trend is defined by successively higher low-prices. A rising trend can be thought of as a rising support level–the bulls are in control and are pushing prices higher.
2) Falling Trend – A falling trend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level–the bears are in control and are pushing prices lower.
Key Points:
1) Technique to draw trend line is very simple, draw as straight line which covers successive tops of one intermediate trend. Finding a starting point of trend line is main art. Experience yourself on a top of hill and find a top, where by standing you can see all other tops in one line. In rising trend the trend line become resistance of stock.
2) Similarly for falling trend draw a straight line which covers all lower bottoms. Here trend line becomes support for stock.
3) Penetration of trend line is called as breakout. Penetration of trend line confirms that previous trend is no longer intact. Here volume is the key to determining the significance of the penetration of a trend.
Trend Line gives support and resistance.
Trading opportunities using Trend line
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