|
|
|
|
|
|
|
|
|
Many of you have heard the terms "Fibonacci", "Fibonacci Retracement", "Fibonacci Support Level", "Fibonacci Extensions" before and wondered what the heck is that all about and what does it have to do with my trading? It sounds similar to reading tea leaves, but it's a very valuable tool that can improve your trading and add confirmation and confidence to your trade entries and exits. Leonardo Fibonacci was a 13th century mathematician who introduced a series of numbers as a solution to a mathematical problem involving the reproduction of rabbits. This series was formed by adding two consecutive prior numbers beginning with 0 and 1, which yields the following sequence of numbers: 0,1,1,2,3,5,8,13,21,34,55,89,144,233,377,610,987……and on and on. This series of numbers became known as Fibonacci numbers. Now, get out your calculator and note something interesting about this series. When any individual number of the series is divided by the next higher number of the series, the result will approximate .618 as the series progresses. For example: 1/2=.500, 2/3=.667, 3/5=.600, 5/8=.625, 8/13=.615, 13/21=.619, 21/34=.617, 34/55=.618……..and so on. Conversely, the inverse of this ratio is 1.618, which means that when each number of the series is divided by the next lower number of the series, 1.618 is approximated as the series progresses. .618 became known as the "Golden Ratio". Before we get into the value this has for us traders, it's also important to know that this ratio is seen throughout nature and human civilization. The Greeks used it in the construction of the Parthenon and the Egyptians used it in the construction of the Great Pyramid of Gizeh. Just a few interesting facts………… The Pyramids of Gizeh have 5 surfaces and 8 edges, for a total of 13 surfaces and edges. There are three edges visible from any one side. The ratio of the elevation to the base is .618. The spirals of a Nautilus' shell and many other shelled animals like snails grow in accordance with a 1.618 ratio. The human body has 5 major projections( head, 2 arms, 2 legs). Each arm and leg have 3 sections. There are 5 fingers and toes, each with 3 sections(except the thumb and big toe). Humans have 5 senses. In music, an octave means eight, with 8 white keys and 5 black keys, totaling 13. There are 3 primary colors. And the list goes on and on. |