Fibonacci Time Zones
What Are Fibonacci Time Zones?
Fibonacci Time Zones are a technical analysis tool designed to identify potential areas of price reversal using the Fibonacci sequence. The tool draws vertical lines to the right at each Fibonacci ratio, most commonly 23.6%, 38.2%, 50%, 61.8%, and 78.6%, based on significant swing highs and lows.
These lines extend along the date axis, marking expected intervals where reversals might occur based on the time that has passed. While the starting point often comes from a major low or high, the distances between these zones start relatively small and grow in accordance with the Fibonacci Sequence. Though not always pinpoint accurate, Fibonacci Time Zones are a valuable forecasting tool for anticipating potential price reversal points.
How Do the Sequence and Ratios Work?
This article is not designed to delve too deep into the mathematical properties behind the Fibonacci sequence and Golden Ratio. There are plenty of other sources for this detail. A few basics, however, will provide the necessary background for the most popular numbers. Leonardo Pisano Bogollo (1170-1250), an Italian mathematician from Pisa, is credited with introducing the Fibonacci sequence to the West. It is as follows:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610……
The sequence extends to infinity and contains many unique mathematical properties.
After 0 and 1, each number is the sum of the two prior numbers (1+2=3, 2+3=5, 5+8=13 8+13=21 etc…).
A number divided by the previous number approximates 1.618 (21/13=1.6153, 34/21=1.6190, 55/34=1.6176, 89/55=1.6181). The approximation nears 1.6180 as the numbers increase.
A number divided by the next highest number approximates .6180 (13/21=.6190, 21/34=.6176, 34/55=.6181, 55/89=.6179 etc….). The approximation nears .6180 as the numbers increase. This is the basis for the 61.8% retracement.
1.618 refers to the Golden Ratio or Golden Mean, also called Phi. The inverse of 1.618 is .618. These ratios can be found throughout nature, architecture, art, and biology. In his book, Elliott Wave Principle, Robert Prechter quotes William Hoffer from the December 1975 issue of Smithsonian Magazine:
….the proportion of 0.618034 to 1 is the mathematical basis for the shape of playing cards and the Parthenon, sunflowers and snail shells, Greek vases and the spiral galaxies of outer space. The Greeks based much of their art and architecture upon this proportion. They called it the golden mean.
How To Use Fibonacci Time Zones
The slow start in the Fibonacci sequence creates relatively tight clustering at the beginning of the Fibonacci Time Zones. You may need to ignore the first five or so time zones as, after that point, the zones expand pretty quickly as the sequence unfolds. According to the theory, potential reversal points can be found by looking ahead 21, 34, 55, 89, and 144 days, all of which are Fibonacci numbers. 21 days mark the 8th Fibonacci Time Zone. Some subsequent zones are listed below.
Remember, you can find future time zones by adding the previous two time zones (89 + 144 = 233).
8th zone = 21 days or periods
9th zone = 34 days or periods
10th zone = 55 days or periods
11th zone = 89 days or periods
12th zone = 144 days or periods
13th zone = 233 days or periods
QQQ Example
The chart below shows the Invesco QQQ Trust (QQQ) with the Fibonacci Time Zones extending from the November 2022 high. The tight clustering makes the first few time zones challenging to use. The sequence gets some breathing room starting with the sixth time zone (8 days), which coincides with the December low. The seventh time zone (13 days) coincides with the January 2022 low, the ninth time one (34 days) coincides with the March high, and the 10th time zone (55 days) coincides with the June 2022 low. The eighth time zone (21 days) occurred in the middle of a downtrend and was insignificant.
How do you add Fibonacci Time Zones to your charts? Select the Annotate button > Line Study tool > Fibonacci Time Zone.
The chart below shows QQQ with time added to see the next Fibonacci Time Zone. Under Chart Attributes (found below the price chart), you can add “extra bars” to view future Fibonacci Time Zones. The next Fibonacci Time Zone comes at the 89-day mark (mid-October). In the chart below, 60 extra bars were added to display the next Fibonacci Time Zone.
QQQ has started trending higher in mid-June 2022. Will the 89-day Fibonacci time zone mark a significant high or low?
Euro Example
The chart below shows the Euro ETF (FXE) with the Fibonacci Time Zones extending from the April 2008 high, which marked a major high. The 8th Fibonacci Time Zone (21 days) marked a top in July, the 34-day line didn't mark anything significant, and the 55-day line marked a significant low. The March 2009 high formed just after the 89-day line, and the November high was a month after the 144-day line. As with most forecasting and cycle tools, a little leeway is required, especially when the lengths grow longer.
The chart below shows FXE with time added to see the next Fibonacci Time Zone at 233. Even though the Euro ETF bounced in June–July, another leg lower is still possible, with the Fibonacci Time Zones forecasting a low in September 2010. 50 days were added to this chart to see the next Fibonacci Time Zone. After 233, the next line would be at day 377, which means the chart would need around 330 extra days for viewing.
The Bottom Line
Fibonacci Time Zones are called “zones” for a reason. They are not hard reversal points butpotential reversal points to watch as prices approach this zone. Fibonacci Time Zones provide a cross between cycle analysis and Fibonacci analysis. Both have a wide following, and turning points can be forecast weeks and months in advance. However, these forecast points serve as alerts for potential trend reversals. As these reversal points approach, chartists should turn to other aspects of technical analysis to confirm the reversal. This could be a bullish or bearish pattern, bullish or bearish candlesticks, bullish or bearish indicators or clues from the price chart itself.
Adding Fibonacci Time Zones in SharpCharts
Select the Annotate button and add the Fibonacci Time Zones from a significant low or high point on the price chart.
Below is an example of a chart annotated with Fibonacci Time Zones.
FAQs Fibonacci Time Zones
Further Study
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