Targets and Stops (003) - Fibonacci projections

Another important and broadly used target calculation tool is what market technicians call the Fibonacci projections.

Simply putting the Fibonacci ratios are used to project the end of a three legged structure after two legs are considered complete. These three legs could be a-b-c, 1-2-3, 3-4-5 or w-x-y.

These following Fibonacci ratios or projections: 0.382 (38.2%), 0.50 (50%), 0.618(61.8%), 1(100%), 1.382 (138%), 1.618(161.8%) or 2.618 (261.8%) can be applied by your local charting tool. We at Orpheus find the 0.618(61.8%), 1(100%), 1.618(161.8%) proportions very regular.

Fibonacci projections are often used in combination with other target calculation techniques to give a more precise target. The more the number of targets bunched together in a confluence the more accurate the projection, target or likely reversal.

We have illustrated this technique on an idealised price structure and Indian Industrials major L&T. We have projected the end of the C wave from the B wave low. As you can see on the chart above, the Fibonacci projections highlight key 1,950 and 2,050 levels as important Fib targets and potential reversal areas.

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Orpheus Research at Reuters - United Kingdom

Orpheus Research at Reuters - United States

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