Fibonacci Time Zones is the subsequent row of vertical lines with Fibonacci intervals 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 etc. Fibonacci Time Zone is used to define significant price changes on the basis of previous price fluctuations.
Building of Fibonacci Time Zones
The main point in drawing Fibonacci Time Zones is to correctly set starting and final points that will determine the length of a singular interval. To build vertical Fibonacci row in the MetaTrader 4 trading terminal, it is necessary to choose "Insert - Fibonacci Time Zones" in the toolbar and mark two pivot points. Starting and ending points are usually marked on extreme values of prices (low- low, high - high, low – high and high - low).
On the basis of the drawn singular cutting, according to Fibo figures, the rest vertical lines will be automatically put on the chart. With each subsequent number, the distance between lines will grow. Significant change of the price is expected on the lines or nearby.
Let's consider the example on the chart EUR/USD:
Singular cutting was laid along two pivots maximum – minimum or high – low. Besides famous Fibonacci sub-sequence, it is also possible to refer to Fibo proportions (1,618; 2,618; 4,236; 6,854; 11,089 and etc.). Pic. 2 shows a clear representation of most part of lines. In addition it is noteworthy that if the price does not show any respond to Fibo line, in majority of cases it means that trend will go on.
Apart from mentioned-above, many traders apply so called “principle of accumulation”. A few (2 or more) rows of Fibonacci Time Zones are put on the chart and zones with accumulation of a few vertical lines are found. The same EUR/USD graph can be taken as an example. We will lay the second time row from the top to the top where a new decline started (on completion of correction)
It is clear that after passing zones of accumulation the trend stops and the price started correction. Also after leaving one of such constellations (21 and 6,854), the tendency has changed.
The problem of many beginning traders is that they wish to see reversal of price upon passing of each vertical line. But it is wrong. As well as potential reversal points, the time zone can supply potential for continuing trend, and that should be taken into account.
Fibonacci Time Zones certainly provide a useful technical tool in forecasting time but it is better to use it as a supplement to other methods rather than a separate entity.
You might also be interested in: