In the previous lesson about Elliott Wave Theory you already encountered Elliott correction waves that retraced to a Fibonacci level. In this chapter I will take an in-depth look into Fibonaci levels. But first we go to the early 1900’s.

**Gann**

A trader named W.D. Gann found out that in **many of his trades the correction (retracement) waves found support around 50% of the length of the original impulse wave**, like in this example.

He stated that the 50% level was very important, because if price dropped below it, it often meant a full 100% reversal. And if price managed to stay above the 50% level, it often indicated trend continuation.

He also recognized the 25% level as an often occurring support zone.**When price drops 100%**, then **it forms a double-bottom **(as mentioned in the chart pattern lesson), thus still a bullish formation.

**Fibonacci Sequence**

This Gann method was an earlier and more simplistic theory about retracements (correction waves). Fibonacci is another more widely used theory. It is based on the **Fibonacci number sequence**, named after the 13th century mathematician. The Fibonacci sequence goes like this:

### 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, …

The next number is found by adding up the two numbers before it. Theoretically it continues to infinity. **The ratio between any 2 consecutive numbers is: 1.618 (or its inverse 0.618). This is also called the “Golden Ratio”.**

It is actually an exponential sequence. A growth pattern. That’s why you see it often in nature, as growth is a key part in nature and evolution.

**Fibonacci and Elliott Waves**

**Elliott found out that his wave patterns were related to this Fibonacci sequence.**

“The Fibonacci Summation Series is the basis of The Wave Principle”.– Ralph Nelson Elliott

In trading we usually use the **fibonacci ratios** instead of the Fibonacci numbers themselves. As said you get these numbers by dividing one Fibonacci number by another one. In Elliott Wave Theory you use ** Fibonacci ratios as potential levels where impulse and correction waves begin and end**. These are common levels:

**0.236****0.352****0.5****0.618****0.786**

0.5 (50%) is not a Fibonacci level, but is used often. Probably the legacy of Gann 🙂

You use these ratios to determine retracement levels, you want to measure where a retracement will find support. For impulse waves you just add 1 to the ratios:

**1.236****1.352****1.5****1.618****1.786**

In the example below, the December 2017 Bitcoin bullrun. It’s very clear to see, that after the all-time-high (at the $19k zone), when price retraced back, the first support it ran into was the Fibonacci 1.618 level (at the blue arrow):

But also the 50% level played an important role, as it actually closed its daily candles at that level short thereafter.

Below another example on a lower 4h timeframe, also respects the 0.618 level in the first retracement:

Below 2 examples that show charts where many Fibonacci levels seem to play a role as support or resistance:

**Final Word**

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