Fibonacci
A grid of levels stretched over a move to estimate how far the pullback will go.
Fibonacci — what it is?
Fibonacci levels are a grid stretched over a move in price: 0.236, 0.382, 0.5, 0.618, 0.786. The claim is that a correction often ends at one of them.
There's no mathematical basis for this. The grid works exactly to the extent that many participants see and use it — as an agreement, not as a law.
In practice one level out of the whole grid is useful: 0.5, the midpoint of the move. It's also the equilibrium of the range, and the level that divides premium from discount.
Fibonacci — how it is built?
In our method the quartile grid is used instead of the Fibonacci grid: 0 / 0.25 / 0.5 / 0.75 / 1. It's built the same way on any object, reads unambiguously, and doesn't make you choose which of seven levels matters today.
Fibonacci — common mistakes
Dragging the grid from arbitrary points until a level lines up with price.
Using all the levels at once: with seven lines price is always near one of them.
Entering off a Fibonacci level with no zone and no confirmation from structure.
Calling 0.618 the "golden" level. It has no verifiable edge.
Related to
Glossary
- equilibrium
- the middle of the range, the 0.5 level.
- range
- movement inside a horizontal corridor with no clear direction.
- premium
- the upper half of the range. The zone where selling is better.
- discount
- the lower half of the range. The zone where buying is better.
- The quartile grid
- splitting a zone into quarters: 0, 0.25, 0.5, 0.75, 1. The boundaries serve as readiness levels, the middle part as the area to look for an entry.