How to Use Modified Fibonacci Sequence in Financial Analysis

Modified Fibonacci Sequence in Financial Analysis

Have you ever heard of the Modified Fibonacci Sequence (MFS)? It is a mathematical tool that can be used infinancial analysisto identify potential levels ofsupport and resistanceinasset prices. In this article, we will delve into the details of MFS and how it can be used in financial analysis.

What is the Modified Fibonacci Sequence?

The Fibonacci Sequence is a series of numbers where each number is the sum of the two preceding ones. For example, 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on. The Modified Fibonacci Sequence, on the other hand, is a series of numbers where each number is the sum of the three preceding ones. For example, 0, 1, 1, 2, 4, 7, 13, 24, 44, 81, 149, 274, and so on.

How to Use MFS in Financial Analysis

MFS can be used in financial analysis to identify potential levels of support and resistance in asset prices. These levels are based on the ratios of the MFS numbers. The most important ratios are 38.2%, 50%, and 61.8%. These ratios are derived from the Fibonacci Sequence and are known as the Fibonacci retracement levels.

When an asset's price is trending upwards, MFS can be used to identify potential levels of support where the price may find buying interest. These levels are usually found at the 38.2%, 50%, and 61.8% retracement levels. When an asset's price is trending downwards, MFS can be used to identify potential levels of resistance where the price may find selling interest. These levels are also usually found at the 38.2%, 50%, and 61.8% retracement levels.

Example of Using MFS

Let's take a look at an example of how MFS can be used in financial analysis. Suppose you are analyzing the price of Apple Inc. (AAPL) stock. You notice that the stock has been trending upwards and you want to identify potential levels of support. You calculate the MFS numbers and find that the 38.2%, 50%, and 61.8% retracement levels are at $140.26, $133.90, and $127.54, respectively. You then plot these levels on a chart and see that the stock has found support at the 50% retracement level multiple times in the past. You decide to use this level as a potential buying opportunity.

Conclusion

MFS is a mathematical tool that can be used in financial analysis to identify potential levels of support and resistance in asset prices. These levels are based on the ratios of the MFS numbers, which are derived from the Fibonacci Sequence. MFS can be a useful tool for traders and investors to identify potential buying and selling opportunities. However, it should be used in conjunction with other technical and fundamental analysis tools to make informed investment decisions.