The concepts of the golden ratio and the Fibonacci number sequence have been intriguing mathematicians across the globe for many generations now. Uses for both of these mathematical wonders have been found and one of the most advantageous uses of Fibonacci number sequence has been for Forex traders. This sequence, in short, helps traders to spot turning points in the Forex market well in advance.
The Fibonacci number sequence has been used in Forex trading as a predictive tool and when properly calculated and implemented, it helps enhance the analysis of a Forex market, increasing profitability and decreasing risk.
Forex Trading Kurse
History of Fibonacci Numbers
The first instance of the Fibonacci number sequence was as a solution to a problem in the "Liber Abaci", a 1202 AD book authored by Leonardo Fibonacci. The book was a tool to introduce the Hindu-Arabic numerals to the continent of Europe, which was still using the Roman numerals. The book posed a simple mathematical question - What was the number of pairs of rabbits generated from a single pair, if each mature pair produces a new pair monthly, which form the second month would start producing?
Fibonacci number Sequence
The answer to the above question was the sequence of monthly numbers (a.k.a. the Fibonacci numbers) - 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 and are arrived at as follows:
If Fn is the nth Fibonacci number, then the successive numbers are formed by the addition of the previous two numbers - Fn+1 = Fn + Fn-1, F1 = 1, F2 =
The Fibonacci retracement numbers are also of tremendous importance here. If the number sequence is properly analyzed, it is found that the ratio of a number to the next larger number is 62%. The inverse of the same is 38%. These two percentiles are the famous Fibonacci retracement numbers.
Fibonacci number sequence / Golden Ratio
The Fibonacci number sequence has numerous relationships with the Golden Ratio -
F = (1 + ?5)/2, defined as a constant of nature and was used by ancient Greeks, especially in architecture.
Fibonacci number sequence and Financial market analysis - The relationship
Stock prices across the globe fluctuate perpetually not only because of economic changes but also due to supply/demand and human expectations and valuations. The Fibonacci number sequence has another wonderful research behind it to support its assumptive and predictive functionality in ever changing financial markets.
Vladimir Lefebvre, a mathematical psychologist successfully proved and tested that human beings display negative and positive evaluations about opinions they hold in a ratio that approximately culminates in a phi - 38.2% negative and 61.8% positive - around the Fibonacci retracement numbers and these are rooted in a trader's psyche.
Using Fibonacci number sequence to predict market movements
Human beings, without realizing the same, have behavioral patterns that are perfectly geometrical due to the reason that they are a part of the same nature that is symmetrical. This has been proved with time and research over the years. The ancient cultures of Greeks and Egyptians profoundly believed in the number 0.618 and used it in a scientific manner in construction of pyramids and other architectural marvels that stand tall even today. They believed that this number had profound implications in arts and science.
The frequent occurrence of this numbers in the high and low timings and price resistance points of Forex trading makes it an ideal tool that can be used in technical analysis to identify turning points.
Fibonacci Numbers and WD Gann
Gann is one of the most famous commodity traders who are known to have made over million just by trading in the markets. Gann developed his own methods for trading and formed his own relationships between numbers and prices. His work in this field is known to have been influenced by the Fibonacci number sequence. He placed strong influence on 50% retracements and divided his price actions into 1/8ths and 1/3rds.
Any more technicalities in this article would result in the article being only suited to high profile and technical traders. As an introduction, knowing the above facts would help you leverage better profits in the market.
Using Fibonacci Numbers in Forex Trading
