Fibonacci Number and Ratio Analysis
indicators. As a result, the prices associated with such indicators do not vary over
time. This makes it easy for traders to place entry orders at these static price lev-
els, long before prices actually test these levels, allowing the placement of buy and
sell limit entry orders in the market. Horizontal overlay indicators yield identical
values regardless of whether logarithmic or arithmetic scaling is employed, as long
as the values of the Fibonacci levels are numerically determined. If the geometric
approach is adopted, then only arithmetically scaled charts should be used, as
geometrical symmetry is not preserved on logarithmically scaled charts. Finally,
horizontal overlay indicators are not affected by data adjustments, dropouts, or
errors resulting from the removal or addition of non‐trading days like holidays
and weekends from the charts.
Fan line, channel, spiral, ellipse, arc, circle, and Fibonacci‐based moving aver-
age forecasts are dynamic and have both price and time elements associated with
them. This means that the price forecasts vary over time. Some non‐Fibonacci
dynamic overlay indicators include conventional trendlines, rising or falling
channels, Andrew’s pitchforks, and regression lines. Unlike horizontal overlay
indicators, dynamic overlay indicators have an angular component to them, that
is, they tend to move diagonally or at an incline. Consequently, dynamic overlay
indicators like Fibonacci channels, fan lines, arcs, and spirals yield different results
depending on whether logarithmic or arithmetic scaling is employed. Other dy-
namic overlay indicators like Fibonacci‐based moving averages are unaffected by
the type of scaling employed as they are strictly numerically determined and pos-
sess no geometrical element. Refer to Figures 10.38 and 10.39. Notice that price
tests and breaches the first declining fan line when employing arithmetic scaling
but clearly remains above the fan line on the logarithmically scaled chart. This
discrepancy is more pronounced on longer‐term charts. We must also be aware of
the fact that dynamic overlay indicators are affected by data adjustments on the
charts due to non‐trading days. The removal and addition of non‐trading days
from a chart affects the angle of trendlines and may cause inconsistent readings as
the chart contracts and expands over the same period of observation.Figure 10.38 Logarithmically Scaled Fibonacci Fan Lines.