Looking for a Fibonacci guide

I'm hitting a bump on Fibonacci. It's Greek to me.

Is there someone here who could perhaps explain this to me in layman's terms? That or a link to a source where I can learn some more?

Please don't tell me "jfgi", I tried already

Thanks in advance.

Actually, it is Italian.

Non sono ancora riuscito a capire

Ακομη δεν μπορω να καταλαβω

I still don't get it

What, in particular, is it that seems to be your stumbling block.

There are Volumes of explanations on Fibs. Please be more specific.

Thanks Bemac.

Perhaps it's how it looks on my broker's chart (I use Oanda). From what I've studied, there are 3 lines. 38%, 50% and 52%. Oanda has more lines than that and no indication of what's what. As a newcomer, it makes it confusing and hard to read. That or I'm just being dense.

Common fib numbers are...
0%, 23.6%, 38.2%, 61.8%, 100%

With 50% added for convenience. Some ppl expand it and add a 78.6% or there-abouts (it's a pretty common area too) and add lines above and below into the negatives and above 100%.

How you use them is up to you, everyone's a bit different.

Thanks Rabid. That makes more sense now.

Hi Jay,

Fib ratios are based on dividing successive numbers in the sequence 1,1,2,3,5,8,13,21,34,55,89,144,233, 377,... where each term is the sum of the previous two terms.

The ratio between any two terms approaches the "golden mean", which is = (1+SQRT(5))/2 = 1.618033989.....

In the context of technical analysis, critical Fib ratios are obtained by dividing any term by a near term, e.g.
233/377 = 0.618 = 61.8%
144/377 = 0.382 = 38.2%
89/377 = 0.236 = 23.6%
377/233 = 1.618 = 161.8%
377/144 = 2.618 = 261.8%

or their square root, e.g.
SQRT(233/377) = 78.6%
SQRT(144/377) = 61.8% (also = 233/377)
etc

or by adding or subtracting 1 from the value, e.g.
1 – 89/377 = 76.4%
1 + 144/377 = 138.2%
1 – 233/377 = 38.2% (also = 144/377)
etc

Also, 0.5 (50%) is considered to be an "honorary" Fib ratio

These ratios are plotted as either retracements (38.2, 50, 61.8, etc) or extensions (138.2, 161.8, 261.8, etc), from arbitrarily selected swing highs and lows (i.e. where the 0.0 and 100.0 are set at the high/low prices on these candles).

Occasionally prices reverse (i.e. local tops and bottoms are formed) at the Fib retracement points. The "art" is knowing which swing highs and lows on which to base the Fibs, and then which key ratio (38.2, 50, 61.8 etc), to select. Fibo proponents (including Elliott wave students) believe that Fibo retracements are predictive; skeptics suggest that if we plot enough lines on a chart, prices will reverse at some of these, simply due to coincidence. However, everything else being equal, they can be used as profit taking points during exit, giving one a debatable technical edge.

Like other chart patterns and technical indicators, Fibos are capable of creating a "self-fulfilling prophecy", i.e. if enough heavyweight traders believe that a reversal will occur at a certain point, then they will place their own buy/sell orders accordingly, thereby causing the hoped for reversal. IMHO that is what their proponents are counting on.

There's also a school of thought suggesting that Fib ratios are somehow wired into the human psyche, i.e. that within the "crowd psychology" that drives price movement, the collective emotional effect creates reversal around key Fibo retracement levels, e.g. 38.2, 50, 61.8, and also extensions like 138.2 and 161.8
However, this is perhaps a little more difficult to prove objectively.

MT4 has its own in-built Fibo retracement and extension indicators. You can add any price retracements/extensions to suit your requirements.

For more info on the math, Wikipedia is a reasonable place to start: http://en.wikipedia.org/wiki/Fibonacci_number

David

Have you checked out the following thread and its videos...

http://www.forexfactory.com/showthread.php?t=50767

I 'm concentrating on the Golden Ratio levels (or 1/2 of those levels). Everything else is superfluous in my view. I'm interested also in time base fibonacci. Carolyn Bowden (she has some free videos on youtube) uses 60 minutes and 120 minutes for here time based measurements. I found that interesting relative to our discussion about the original fibonacci sequence being derived in base 6 as well as hours and minutes being so as well.

I suspect base 6 gives us only Golden Ratios. It's interesting to note that the Golden Ratio is fractal whereas other levels are not self similar.
Anyway, just thought you'd find it interesting.

Cheers

PS simple example of how that particular dude is trying to identify where & when price will turn>>>>> I'm not advocating that dude's commercial system just pointing out the timing aspect as another example.