Through the use of projections studies, we will be calculating key areas of price support and resistance.
If you've already learned about retracements and extensions, its time to come to the next Fibonacci study. It is called a projection. From the figures above, projections measure the size of previous swings <X;A) in the same direction and project those swings from the current swing beginning at (B). The ratios used in this study are .618,1.00, and 1.618.
Projections can be used to calculate support or resistance. To calculate a projection three points must already be established (X, A, B). For illustration purposes, let's assume X = 40, A = 30, В = 35.
First, let's calculate what the range of X to A is:
Price ® A: $30
Price @ X: $40
Range = $10
Next let's multiply this range by each Fibonacci ratio:
Ratio Points
0.618 $ 6.18
1.000 $10.00
1.618 $16.18
Finally, take the number from each ratio and subtract it from B, which is $35.00. This will provide you with Fibonacci projection levels:
So, if I were to ask you for the 1.618 projection of swing X;A from B, the answer would be $18.82. The price levels in the table above represent Fibonacci price support decisions. The exact same analysis can be done for Figure 3.2 to calculate projection levels acting as resistance. In Figure 3.2, X is $30, A is $40, В is $35. This time instead of subtracting from point B, we would add to В to determine price resistance levels:
Above is an example of a price projection on the daily chart of Johnson & Johnson (JNJ). Swing X to A was measured for a total of 4,11 points. This range was multiplied by our Fibonacci ratios (.618, 1.00, 1.618) and each of the those numbers where then subtracted from swing В high of 64.83 to get the following projection support numbers:
.618 = 62.29
1.000 * 60.72
1.618 = 58.18
Above is an example of a price projection on the daily chart of (QSFT), Swing X to A was measured for a total of 8.4 points. This range was multiplied by our Fibonacci ratios {,618, 1.00, 1.618) and each of the those numbers were then added to swing В low of 13.24 to get the following projection resistance numbers:
.618 = 18.43
1.000 = 21.64
1.618 – 26.83
