“Fibonacci Time Zones”, present as vertical lines based on the Fibonacci Sequence, is a technical indicator that identifies periods in which the price of an asset will experience a significant amount of movement. This technique contains a series of vertical lines that correspond to the sequence of numbers known as Fibonacci numbers (1,2,3,5,8,13,21,34,55, etc.), where each successive number is the sum of the two previous numbers.
These vertical lines extend along the X axis (date axis) as a mechanism to forecast potential reversal on elapsed time. A major low or high is often chosen as the starting point, and once a trader chooses it on the chart, a vertical line is placed on every subsequent day that corresponds to the position in the Fibonacci number sequence.
In practice, when you draw the Fibonacci Time Zones, sometimes it’s necessary to ignore the first 5 or so time zones because of the tight clustering. After the first five zones, these zones expand quite quickly as the sequence unfolds. According to the theory, potential reversal points can be found by looking ahead 21, 34, 55, 89 and 144 days, all of which are Fibonacci numbers.