Fibonacci lines, retracements, and extensions are used by chartists to identify possible future support and resistance levels, as well as areas where there may be reversals. Investors can use this information to put hedges or speculative bets in place, if they believe that, like many naturally occurring systems in nature, the market behavior will exhibit some fractal-like forms that can be measured with Fibonacci sequence numbers and the Golden Ratio.
Modern computing power has uncovered plentiful examples of the Golden Ratio in nature, from Nautilus shells to musical harmonics, as well as in mathematical fractal patterns. 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.
The use of Fibonacci lines to identify possible retracements and extensions has become increasingly popular over the last 20 years. When an investor seeks all of the possible Fibonacci lines for a trend and uses a few different variables, such as time frame, to look at the possible future movement, the number of results can be overwhelming. Algorithms have been developed that allow chartists to turn clutter into clusters, consolidating data from the various possible outcomes to reveal a few of the most likely points of reversal.
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. These include artificial intelligence services from Tickeron, which provide traders with powerful ways to evaluate trade ideas, analyze signals, and provide key confirmation to help investors make rational, emotionless, and effective trading decisions.