Fibonacci Levels: Useful Tool or Magic?
The definition of a fractal is an object for which the whole carries some property of the components. Often, we see fractal behavior in the chart of a given asset. That is, the price at some point is related to the prices before it in a meaningful way. When this happens, we can anticipate certain ratios to appear. These ratios appear in population growth, the intricate branching structure of trees, in music and much more. In particular, these levels are the ratios between Fibonacci numbers, one of the most important series of numbers in all of nature. These levels are called Fibonacci levels.
Fibonacci levels represent Fibonacci ratios drawn between two anchor points, or points that the user has identified as significant in some way. These levels typically identify points to which the asset will gravitate. They are forward looking, suggesting that the asset will respect them now and in the future, if drawn properly. Further, Fibonacci Extension levels can be used to anticipate levels we haven't seen before. That is, if an asset breaks out and makes new highs, eventually we will meet resistance at certain points, and these can be predicted using the extension levels.