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Fibonacci Numbers
The Secret Of Better Market Timing & Profit
Potential
The Fibonacci number sequence and golden
ratio is important throughout nature, but traders such as W D Gann made great
use of the sequence as a trading tool.
The numbers helped make Gann
millions in profits and are useful for any trader to maximize profits.
So what are they and how are they applied to trading?
Let’s find out: Support and resistance levels are important for
traders as they help identify entry and exit points when trading.
Fibonacci percentage "retracement" levels based upon the Fibonacci
number sequence and golden ratio are used by many savvy traders to improve
their entry and exit points.
Fibonacci Numbers and the Golden Ratio
The Fibonacci sequence was printed in the Liber Abaci, written by
Leonardo Fibonacci in 1202. It introduced Hindu-Arabic numerals for the first
time To Europe, which are at the time was still using roman numerals.
The Fibonacci number sequence came about from the following question:
How many pairs of rabbits can be generated from a single pair, if each
month each mature pair produces a new pair, which, from the second month,
starts producing?
While the Fibonacci number sequence and golden ratio
came about form the above question it produced a number sequence that has
importance throughout nature.
After the first few numbers in the
sequence, the ratio of any number to the next higher number is approximately
.618, and the lower number is 1.618. These two figures are referred to as the
golden mean or the golden ratio.
The golden mean and golden
ratio
The proportions reflected in these numbers are pleasing to the
human senses and appear throughout biology, art, music, and architecture.
A few examples of natural shapes based on the Golden Ratio include:
Snail shells, galaxies, and hurricanes DNA molecules, sunflowers and many more.
Many traders have found these numbers important in trading as well and
such traders as W D Gann for example, used them to amass huge profits.
Retracement Levels
The two Fibonacci percentage retracement levels
considered the most important for traders are: 38.2% and 62.8%. Other important
retracement percentages are: 75%, 50%, and 33%. Fibonacci Numbers 3 Uses For
Traders
1. Fibonacci numbers Define exit numbers
For example,
if three or more Fibonacci price levels come together in a tight zone, a stop
loss can be placed above the area which denotes important support or
resistance.
Setting stops using Fibonacci retracements give important
areas that act as support or resistance, allowing traders to set pre defined
exit points in a disciplined manner.
2. Fibonacci levels Decide
Position Size
Depending on the risk you are prepared to take per trade,
Fibonacci numbers can also define the size of position taken. This is because
the distance from the stop is different in monetary terms on all trades.
A stop close to resistance and support may warrant a bigger position
than one where support or resistance is further away.
3. Fibonacci
numbers Define Profit Objectives
With Fibonacci numbers, once a pattern
completes against a Fibonacci price area traders can use them for profit
objectives. This clear view of where trades may go helps traders to lock in
profits at set levels.
The advantage of Fibonacci numbers are: They
allow traders to have specific stop loss and profit objectives IN ADVANCE.
One of the keys to trading any market is discipline most traders simply
don’t set profit and loss objectives in advance. They therefore let
emotions take over, they get greedy or rely on hope and this creates losses
over the longer term. Profits are run to long and lost and losses become bigger
than they should.
“Run your profits and cut your losses is the way
to make longer term capital gains and Fibonacci numbers incorporated in your
trading plan will help you do this.
W D Gann was a trader who
understood that using Fibonacci numbers could make large profits and used them
with stunning success.
Fibonacci numbers combined with the techniques
of WD Gann can help any trader achieve long term capital gains. Check out these
great profit tools and incorporate them in your trading as they will help you
increase your profit potential.
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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