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Fibonacci Numbers -
How to Use Them for Huge Trading
Profits!
The Fibonacci numbers sequence and the golden
ratio have fascinated mathematicians for hundreds of years.
While
Fibonacci numbers have many applications, they have received considerable
interest from traders due to their uncanny accuracy in spotting market turning
points in advance.
You can use Fibonacci numbers as a predictive tool
and when used correctly they can enhance a your analysis of the market, helping
you to increase profits and decrease risk.
The History of Fibonacci
Numbers
The Fibonacci number sequence first appeared as the solution to
a problem in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to
introduce the Hindu-Arabic numerals used today to a Europe still using Roman
numerals.
The original problem in the Liber Abaci posed the question:
How many pairs of rabbits can be generated from a single pair, if each month
each mature pair brings forth a new pair, which, from the second month, becomes
productive.
The Fibonacci number Sequence
The resulting
Fibonacci numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, are the result of the
following equation.
If Fn is the nth Fibonacci number, then successive
terms are formed by addition of the previous two terms, as Fn+1 = Fn + Fn-1, F1
= 1, F2 =
The ratio of any number to the next larger number is 62%,
which is a popular Fibonacci retracement number. The inverse of 62% is 38%, and
this 38% is likewise a Fibonacci retracement number.
Fibonacci
Numbers and the Golden Ratio
Fibonacci numbers are found to have many
relationships to the Golden Ratio F = (1 + /5)/2, a constant of nature which
was of constant interest to the ancient Greeks, appearing in both Greek art and
architecture.
Fibonacci Numbers and Market Analysis
Changes in stock prices are not simply a tug of war between supply and
demand but also reflect human opinions, valuations, and expectations.
A
study carried out by mathematical psychologist Vladimir Lefebvre demonstrated
that humans exhibit positive and negative evaluations of the opinions they hold
in a ratio that approaches phi, with 61.8% positive and 38.2% negative and that
Fibonacci numbers are rooted in a trader's psychology.
Predicting
Market Movements with Fibonacci Numbers
Research shows markets as being
perfectly patterned, explaining that humans, being part of nature, create
perfect geometric relationships in their behaviours, even if they don't realize
it themselves.
The Golden Mean is the number 0.618. In Both Greek and
Egyptian cultures, this number was highly significant. They believed that the
number had important implications in many areas of science and art. This
dimension was utilised in the construction of many buildings - including the
pyramids.
The Golden Mean appears frequently enough in the timing of
highs and lows and price resistance points that adding this tool to technical
analysis of the markets can help to identify key turning points.
W.
D.Gann and Fibonacci Numbers
Gann was a stock and commodity trader who
reputedly made over $50 million trading the markets.
Gann made his
fortune using methods which he developed for trading instruments based on
relationships between price movement and time and his work was heavily
influenced by Fibonacci numbers.
Gann divided price action into eighths
and thirds. This yields numbers such as 1/3, 3/8, 1/2, 5/8, and 2/3. In
percentage terms, these fractions are 33.3%, 37.5%, 50%, 62.5%, and 66.7%.
These five ratios are commonly used retracement values. Gann placed strong
significance on 50% retracements.
Learn More about a Legendary
Trader
Why not attend one of our FREE Seminars held in London and
cheshire. click here to book on-line or
telephone 0161 285 4488.
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