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Fibonacci Numbers in Elliott Wave Theory of Technical Analysis

Much of the Elliott Wave Theory use the Fibonacci numbers and ratios. The wave count in the Elliott Wave Theory uses the Fibonacci number sequence and wave entrancements are thought to respect the key Fibonacci ratios.

You can meet a several popular Fibonacci studies that are used by technicians in their Technical Analysis: arcs, fans, retracements, and time zones.

Fibonacci numbers may be used in conjunction with other techniques to trade.

From left to right after the first two numbers, the values increase successively. Each number, in turn, is determined by the sum of the previous two numbers.

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377,...

to get the next value of Fibonacci series fafter 377 add 233 to 377 and arrive at 610.

The other interesting relationship of this number sequence is that if we take the ratio of two successive numbers in the Fibonacci series (that is, we divide each number by the number after it in the sequence) we will move towards a particular constant value. That value is 0.6180345 which has been referred to as “the golden ratio”. If you also calculate the ratios using alternate numbers in the Fibonacci series (that is, do the same calculation but skip over a number) the resulting ratios approach e 0.38196

Many technicians use Fibonacci numbers in their Technical Analysis when trying to determine support and resistance, and commonly use 38.2%, 50%, 61.8% retracements. Commonly thought, a .382 retracement from a trend move will tend to imply a continuation of the trend. A .618 retracement implies that a trend change may be in the making. Many such rules have been adopted by technicians.

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