Elliott Waves and Fibonacci

If you’ve subscribed to any of our services, taken a class with one of our instructors or even consumed any of our free content, you’ve more than likely come across the relationship between Elliott waves and Fibonacci. EWI’s analysts often use Fibonacci retracements as a point of reference when forecasting a market’s next move. Here’s a very short explanation from Elliott Wave Principle — Key to Market Behavior:

As we first showed in Figure 1-4, the essential structure of the market generates the complete Fibonacci sequence. The simplest expression of a correction is a straight-line decline. The simplest expression of an impulse is a straight-line advance. A complete cycle is two lines. In the next degree of complexity, the corresponding numbers are 3, 5 and 8. As illustrated in Figure 3-10, this sequence can be taken to infinity. The fact that waves produce the Fibonacci sequence of numbers reveals that man’s collectively expressed emotions are keyed to this mathematical law of nature.

EWP goes on to explain the relationship in much greater detail — along with The Golden Section and the meaning of Phi — in Section 3. In section 4.1, you’ll see an examination of Fibonacci time sequences and common retracement levels of various Elliott wave patterns. It’s eye-opening stuff, to say the least.

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