The Fibonacci sequence of numbers provides the mathematical basis of the Wave Principle. Elliott wave traders calculate Fibonacci price levels to help identify target zones and possible ending points for wave patterns.
The Fibonacci sequence of numbers is 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 and so on to infinity.
Frost & Prechter’s Elliott Wave Principle: Key to Market Behavior adds:
After the first several numbers in the sequence, the ratio of any number to the next higher is approximately .618 to 1 and to the next lower number approximately 1.618 to 1.
There are other key Fibonacci ratios but .618 (1.618) is so special that it’s called the Golden Ratio. This ratio can be found throughout all of nature as well as in the chart patterns of financial markets.
So, Elliott Wave International’s analysts use Fibonacci ratios in their work.
This chart and commentary from our August 2024 Global Market Perspective provide an example:
The world’s largest gold miner looks like a leader of the next uptrend in gold stocks. Shares of Newmont Corp. traced out five waves up from 2015 to 2022 and then three waves down to the 2024 low, where they retraced 61.8% of the impulsive advance. The stock is now among the first horses out of the gate [in this] sector.
Learn how the Wave Principle and Fibonacci ratios are helping us to identify other potential opportunities around the globe by following the link below.