Continued from Fibonacci Retracements and Extensions
The vast majority of all Fibonacci analysis is concerned with Fibonacci retracements and Fibonacci extensions. However, other less common Fibonacci tools include Fibonacci Time Zones, Fibonacci Fans, and Fibonacci Arcs.
While Fibonacci extensions and retracements measure changes in price (y-axis, horizontal bands), Fibonacci Time Zones measure changes in time (x-axis, vertical bands). Fibonacci Time Zones are vertical bands with days or periods equal to numbers in the Fibonacci Sequence.
Fibonacci Time Sequence: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987 . . .
Since the first five numbers of the Fibonacci Sequence are so tightly bound, the initial periods create a vertical cluster that can be ignored. As with other Fibonacci tools, the starting point should be a peak or trough in price. The time zones extend vertically forward, whereby the 8th period corresponds to 21 days (or periods).
According to theory, pivot points in price activity might occur around these Fibonacci periods.
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A similar tool, Fibonacci Time Ratios, applies the same technique across the x-axis to measure activity across time, but instead of producing bands related to a fixed period, a Fibonacci Time Ratio produces vertical bands corresponding to Fibonacci Ratios:
When a number in the Fibonacci series is divided by the number preceding it, the quotients themselves approach the Fibonacci constant (Φ) also known as the Golden Ratio (1.618):
1/1 = 1, 2/1 = 2, 3/2 = 1.5, 5/3 = 1.666…, 8/5 = 1.6, 13/8 = 1.625, 21/13 = 1.61538, 34/21 = 1.619, 55/34 = 1.6176…, and 89/55 = 1.618…
The inverse process (e.g. 55/89 instead of 89/55) also produces a constant: 0.618, or φ. Skipping a number in the sequence (e.g. 55/144 and 144/55) produces two more constants: .382 and 2.618
Using this method, Fibonacci Time Ratios are applied more similarly to Fibonacci Extensions and Retracements than are Fibonacci Time Zones.
Like Fibonacci Time Zones, these ratios often correspond to pivot points in price activity.
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