## Wednesday, February 16, 2011

### Fibonacci Time Zones

Fibonacci Time Zones

Fibonacci Time Zones are vertical lines based on the Fibonacci Sequence. These lines extend along the x axis (date axis) as a mechanism to forecast reversals based on elapsed time. A major low or high is often chosen as the starting point. Distances start relatively small and grow as the Fibonacci sequence extends. Chartists can extend the Fibonacci Time Zones into the future to anticipate potential reversal points.

The Sequence and Ratios

Tthe Fibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A few basics, however, will provide the necessary background for the most popular numbers.  Fibonacci sequence is as follows:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……

The sequence extends to infinity and contains many unique mathematical properties.

* After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13 8+13=21 etc…).
* A number divided by the previous number approximates 1.618 (21/13=1.6153, 34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the numbers increase.

*A number divided by the next highest number approximates .6180 (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179 etc….). The approximation nears .6180 as the numbers increase. This is the basis for the 61.8% retracement.

Interpretation

The slow start in the Fibonacci sequence creates relatively tight clustering at the beginning of the Fibonacci Time Zones. Sometimes, it is necessary to ignore the first 5 or so time zones. After the first five zones, these zones expand quite quickly as the sequence unfolds. According to the theory, potential reversal points can be found by looking ahead 21, 34, 55, 89 and 144 days, all of which are Fibonacci numbers. 21 days marks the 8th Fibonacci Time Zone. Some subsequent zones are listed below. Remember, you can find future times zones by adding the previous two time zones (89 + 144 = 233).

* 8th zone = 21 days or periods
*9th zone = 34 days or periods
*10th zone = 55 days or periods
*11th zone = 89 days or periods
*12th zone = 144 days or periods
*13th zone = 233 days or periods