Price movement often occurs in a range-bound way, even when an uptrend or downtrend is in effect. Fibonacci channels estimate support and resistance numbers using Fibonacci numbers, which are found throughout the natural world, in order to define possible places where reversals will occur.
Fibonacci numbers are related to the study of chaos theory, which seeks to find order in complex systems. Since the markets have so many variables, but no lack of data, they are an excellent place to search for Fibonacci patterns.
Fibonacci channels are similar to Fibonacci Retracement levels, but appear as parallel diagonal lines, spaced according to Fibonacci number proportions. The lines are angled using the first major peak-to-peak the chartist wishes to analyze. They show what could be a trading range moving forward, where the other Fibonacci levels are almost a function of deviation instead of two-dimensional price movement.
By arranging the lines parallel to this line, instead of in a vertical/horizontal arrangement as with Fibonacci Retracements, the chartist gives the Fibonacci lines the ability to flow with the angles of the chart movement instead of sticking to the axis of the chart. The most popular proportions to use in constructing the series of lines is 61.8%, 36.2%, and 23.6%.
The use of Fibonacci numbers in trading is still in its early stages, but ever-growing computing power available to traders increases their ability to find the common threads that will make this investment theory more usable, accurate, and reliable. Artificial intelligence services from Tickeron are one such tool, providing traders with powerful ways to evaluate trade ideas, analyze signals, and provide key confirmation to help investors make rational, emotionless, and effective trading decisions.