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Fibonacci Numbers and the Golden Ratio -
3 Tips for Greater Trading
Profits!
In this report, we will look at the history and
background of Fibonacci numbers and The Golden Ratio. We will then outline
three specific money management tips that can help increase your profit
potential.
Support and resistance levels are an important consideration
for most traders to help identify entry and exit points when
trading.
Fibonacci percentage "retracement" levels based upon the
Fibonacci number sequence and golden ratio are very popular with many traders
but what are they exactly?
What are Fibonacci Numbers and the Golden
Ratio?
The Fibonacci 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 Golden Ratio
After the first few numbers in
the Fibonacci 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 the
golden mean or the golden ratio.
Its proportions are pleasing to the
human senses and it appears throughout biology, art, music, and architecture. A
few examples of natural shapes based on the Golden Ratio include DNA molecules,
sunflowers, snail shells, galaxies, and hurricanes.
Important
Retracement Levels
The two Fibonacci percentage retracement levels
considered the most important in trading are 38.2% and 62.8%. Other important
retracement percentages include 75%, 50%, and 33%.
Three Profit Tips
for Using Fibonacci Numbers
1. Fibonacci Defines Stop Loss
Levels
A trader can use Fibonacci numbers to set stop loss orders.
For instance, if at least three Fibonacci price levels come together in
a relatively tight zone, a stop loss placement just below or above the zone may
be set.
A Fibonacci number helps define stops in the following way, if a
trader trades against a support zone, if the support zone is violated and the
price trades below that zone, the reason for the trade is negated and the
position should be closed.
Setting stops using Fibonacci retracements
takes the emotion out of trading and gives a pre defined exit
point.
2. Fibonacci Defines Position Size
Depending on the
risk you are prepared to take per trade, Fibonacci numbers can also define
position size. For instance, if prices are right on a specific level, you may
wish to have more positions than if the price is further away.
3.
Fibonacci Defines Objectives
With Fibonacci numbers, once a pattern
completes against a Fibonacci price zone you can use them to set profit
objectives to bank partial profits or tighten stop loss levels. This clear
objective for traders helps them to lock in profits.
The great
advantage of Fibonacci numbers and the golden ratio is the fact that they take
the emotion out of trading and can define not only stop losses to exit a
market, but also set profit objectives as well.
W D Gann and
Fibonacci
The Perfect Trading Combination! One trader who incorporated
Fibonacci numbers and The Golden Ratio into his trading was the legendary
trader W D Gann.
We feel that the use of Fibonacci numbers with the
Gann trading method provides traders with the best possible combination to seek
long term trading profits.
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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