The contour lines of snail shells, the logarithmic spiral of human ears, the golden ratio, and the proportions of the microscopic structure of the human world are all closely related to the magical Fibonacci ratio. Since stocks fall within the realm of human collective activities, it is generally believed that the stock market must adhere to the same growth spiral.
1. Fibonacci Characteristics
(1) The sum of any two adjacent numbers equals the next number after them, for example, 5 and 5, the next is 8.
(2) Apart from the first four numbers, the ratio of any number to its adjacent next number approaches 0.618; similarly, the ratio of the next number to the previous number is approximately equal to 1.618, and the larger the number, the closer it approaches 1.618.
(3) The ratio of a number that skips one digit to the two numbers after it is 0.382.
2. Fibonacci and Price Retracement
(1) In the three main waves of the wave theory, if only one wave is extended, the time and amplitude of the other two are equal, which means if wave 3 is extended, then waves 1 and 5 are approximately equal.
(2) If wave 1 and wave 3 are approximately equal, then wave 5 is expected to extend, with its price target being the distance from the bottom of wave 1 to the peak of wave 3, multiplied by 1.618, and finally adding the result to the bottom of wave 4.
(3) Multiply wave 1 by 1.618, and add the bottom point of wave 2 to obtain the target point for wave 3.
(4) The length of wave c is calculated by multiplying wave a by 0.618, and then subtracting the resulting area from the bottom point of wave a.
(5) The most commonly used percentage retracements are at 38%, 50%, and 61.8%. Under a strong trend, the minimum percentage retracement is usually around 38%.