You can find golden ratio easily everywhere in the nature, the previous post show some examples, and you can easily found more geometry examples related to golden ratio by searching google. The more you discover, the more you get amazed. I treat the golden ratio as the “God Code” and the matrix on how the universe develop.
Does market price movement having the clues of golden ratio? My answer is YES! As price recorded the buying and selling activities for a specific time given. Also, human activities are part of the universe. If this is the logic, we should able to find or apply golden ratio in price analysis.
There are many types of Fibonacci tools available for price analysis. The very common one start with Fibonacci Retracements. It is always the first tool people use Fibonacci on price analysis. So how does this work, a retracement apply on a completed price swing from high to low or low to high. The Golden ratios 38.2%, 50% and 61.8% use to identify possible support levels if the market pull back from a high. The ratio also tell the possible resistance if the market pull back from the low.
The chart above shows example of plotting Fibonacci Retracement on Crude Oil. The oil made a rally from 26.05 to 41.90 and move into correction. As you can see, the correction end around 61.8% of prior swing and rebound immediately.
This chart show two Fibonacci Retracement examples on Dow Industry. The first drawing on the completed up swing able to predict the correction from 13338 to a size between 61.8% to 38.2%. The second drawing on completed up swing from 12471 to 18351, the correction found support at the 50% retracement of the prior swing.
In my opinion, to better utilize this analysis tool, we must…
- Fibonacci Retracement use for projecting the correction price level.
- Know the market trend, higher high higher low is up trend. Lower high lower low is down trend. No obvious new high and new low is side way.
- Choose the correct high and low point to plot Fibonacci Retracement. Plotting on a completed up swing and down swing give the right answer on projecting the support and resistant level.
- Understand market move in wave structure. And this is the foundation on applying Fibonacci analysis on the Y axis.
Fibonacci analysis is dynamic analysis, user experience and capable to be adaptive is the key to make accurate analysis. It is not a static tools like Moving average, MACD and the indicators that commonly know. Static tools have lifespan, it work for a certain period of time or situation, but it did not work when the market condition change. But Fibonacci analysis is adaptive.
https://sixty1eight.wordpress.com/2017/06/22/golden-ratio-in-price-fibonacci-retracement/
