CHARTING
Analyzing Fibonacci Level Behavior
Combining Fibonacci Retracements and the RSI
by Ingo W. Bucher
Combining the two can help identify significant support and resistance
levels.
Many of you have used the relative strength
index (RSI) and Fibonacci retracement levels independently, but have you
ever considered analyzing the behavior of Fibonacci retracement levels
on the RSI? It may seem remote, but this technique could have some advantages
over the commonly used 70-30 overbought-oversold level of the RSI. In addition,
there is a great deal of information between the overbought and oversold
levels that could be exploited more effectively by combining traditional
charting and Fibonacci ratios. I'll start by defining RSI.
THE RELATIVE STRENGTH INDEX (RSI)
The RSI compares the strength of price advances with respect to price
declines over a specific time period. In 1978, J. Welles Wilder Jr. developed
this indicator to overcome some of the inaccuracies of the simpler momentum
oscillators. The term "relative strength" can be slightly misleading,
because the indicator does not show the relationship between two different
securities. Instead, it measures the internal strength of one security.
The calculation of the RSI is provided in detail in the sidebar, "Relative
strength index calculation."
FIGURE 1: CALCULATING FIBONACCI NUMBERS. Here you see how the
Fibonacci summation series, retracement, and extension levels are calculated.
...Continued in the March 2003 issue of Technical Analysis of
STOCKS & COMMODITIES.
Excerpted from an article originally published in the March 2003
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
