Advanced Fibonacci Chart Analysis
Advanced Fibonacci chart analysis is a type of technical analysis that works especially well when combined with a general knowledge of Elliott wave theory. These 2 technical analysis methods work extremely well together. These techniques are my preferred methods of analysis when analyzing stock charts.
I consider these two techniques to be my “bread and butter” techniques. Other methods of analysis, like candlesticks, moving averages and trendlines are mostly used to confirm or disprove my Elliott wave and Fibonacci analysis.
In my Fibonacci basic analysis, I mentioned that phi φ, or .618 (61.8% as a percentage) was an important ratio to remember.
If you watch the History Channel at all, the symbols phi φ and Phi Φ are plastered all over ancient Egypt. Kind of weird that a math symbol can have such relevance for so long. Coincidence? I don’t believe in coincidences. But what do these ratios really mean?
phi & the Golden Ratio
On the Fibonacci charting basics page, I discuss phi quite a bit. But there is an equally, if not more important, Fibonacci ratio to remember than phi. That number is also known as Phi, but with a capital P. Phi Φ as a number is 1.618, or 161.8%.
Phi = Golden Ratio = 1.618 or 161.8%
phi = .618 0r 61.8%
Phi (with a capital P) has another nickname – the Golden Ratio. Most times I will refer to Phi as the Golden Ratio to avoid any confusion with phi and Phi.
Therefore, in order to try to eliminate any confusion between phi φ and Phi Φ, I will refer to Phi as the Golden Ratio. The Golden Ratio sounds cooler than Phi anyways. This should help eliminate which of the two ratios below I am referring to. Got it?
These ratios are very adaptive as they work well on charts of different lengths of time, such as 5 minute charts, daily charts, weekly charts and even monthly charts, as seen through my various stock article updates.
When I start analyzing a stock’s candlestick chart, the Fibonacci Extension and Retracement Tool and typically the first 2 Charting Tools I will use. After placing the Fibonacci Extension and Retracement Tools on a stock chart, phi Φ and Golden Ratio Φ calculations can be seen everywhere. These calculations are then used as entry and exit points to enter into and exit out of a stock trade.
Fibonacci Charting Tools
Let’s start with the tools most commonly used to calculate phi Φ and the Golden Ratio Φ. I typically calculate phi Φ (61.8%) using a Fibonacci Retracement Tool. I use a Fibonacci Extension Tool to calculate the Golden Ratio Φ.
To learn more advanced Fibonacci chart analysis and the various uses for each of the Fibonacci charting tools, including chart placement and tips for constant success, click on this link for the Charting Tools or select Charting Tools from the main menu. I currently have in-depth coverage on the Fibonacci Extension Tool, Retracement Tool and Fan Tool.
Placing multiple Fibonacci carting tools on a chart can sometimes produce interesting results. When 2 or more tools have Target Lines, Retracement Lines or Fan Lines that intersect, that area usually provides greater support or resistance than a single tool does by itself. I often refer to these areas of intersecting lines as “confluence areas”. When a confluence area is confirmed by several technical analysis methods or several different tools, it could be setting up what I like to call a “confidence trade”.
Visit each tools page for detailed information and specific guidelines for that specific tool. I hope to expand coverage and add a few additional Fibonacci tools in the near future.
