First, let me present an excel table to show how the golden mean 1.618 can be observed in large values in the fibonacci series. By the way Fibonacci Numbers is a series wherein the next number can be obtained by adding the previous successive numbers hence 1 1 2 3 5 8 13 . . . 5 is obtained by adding 2 and 3. 8 from 3 and 5, 13 from 5 and 8. Here is the table:
In fibonacci application to technical analysis, there are levels called retracements that are observed to be respected by the collective decisions of buyers and sellers in the market. These are 61.8%(0.618), 50% (0.5), 38.2%(0.382), 23.6%(0.236).There are also extensions like 161.8%(1.618), 261.8%(2.618)and 127.2%(1.272)
Notice that in a system composed of many elements all the retracements are very evident.
There are very important applications for fibonacci in nature and architecture. Shell formations, branching in plants, flowers, petals, bee hive. Even the great pyramids are applications of fibonacci numbers.
What I observed is the alignment of previous levels and the current levels and the applications are mostly in groups or crowds.
The very nature of price action whether it is in market for consumer goods, forex or the stock market is a result of collective behaviour of buyers and sellers. This, I believe is the very reason why fibonacci levels are respected in the stock market.
Below is an example Philippine stock that really shows respect on the fibonacci levels. This is the recent chart of AEV:
Right now I believe AEV is ready to move up again and based on the fibonacci bands the level it could hit before consolidation could be 18.2. However this is not 100% sure. No stock ever rises eternally. That uncertainty is the risk the reader must take when buying this stock.
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