The Fibonacci intervals, is a set of vertical lines drawn from each other on intervals, which correspond to the so called Fibonacci’s sequence. According to a popular but unproven theory the Fibonacci time intervals forecast the most significant market events. Therefore, the traders often use the Fibonacci time intervals in their forex trading strategies.
In 1202, Italian mathematician Leonardo Pisano (aka Fibonacci, "son of Bonacci") stated the following problem: how many pairs of rabbits can be produced from a single pair of rabbits in one year? The formulation assumes that the female rabbits always give birth to two rabbits. Each pair consists of one male and one female.
Rabbits can't reproduce until they are at least one month old. Therefore initially only one pair remains. At the end of the second step, the female gives again birth producing two pairs of rabbits. At step three the original pair of rabbits produces another pair while their offspring grow to adulthood. Therefore, at this point we got three pairs of rabbit, two of which will give birth to two more pairs the following month. In summary, the rabbits evolve as follows : 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and on to infinity. Each number is the sum of the previous two. In forex the Fibonacci Time Zones are a series of vertical lines that are spaced at the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The first line is placed at an extreme point on the chart and the lines that follow are spaced at increasingly wider intervals in accord with the Fibonacci sequence. Interpretation of Fibonacci Time Zones involves looking for significant changes in price at or near the vertical lines. Time Zones forex strategy is applicable to a long-term analysis of price action and is probably of limited value when studying short-term charts.
The beginners of forex should consider this type of analysis only when viewing charts that span multiple years. In the example charted on the next page, Fibonacci Time Zones were drawn on the Dow Jones Industrials beginning at the 1982 market bottom. 238 AIQ Trading Expert Pro Reference Manual On the chart, you can see that significant changes in the Dow occurred on or near the Time Zone lines.
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