If you're new here, you may want to subscribe to our Forex Traders Blog RSS feed. Thanks for visiting!
The Fibonacci theory named so after a prominent Italian mathematician of the late twelfth and early thirteenth centuries gives ratios, which play important role in the forecasting of market movements. Fibonacci introduced an additive numerical series that has come to be called the Fibonacci sequence, which consists of following series of numbers:
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,144, 233, 377, 610, 987, 1597, 2584, 4181, (etc.)
These numbers exhibit several remarkable relationships, in particular the ratio of any term in the series to the next higher term. This ratio tends asymptotically to 0.618.
In addition, the ratio of any term to the next lower term in the sequence tends asymptotically to 1.618, which is the inverse of 0.618. Similarly constant ratios exist between numbers two terms apart, three terms apart, and so on. The ratio 0.618, referred to as the Fibonacci ratio, or the “Gold Spiral” which is observed in structures of many natural objects and events – from clam shell construction to the form of whirlwinds and hurricanes. The financial markets exhibit Fibonacci proportions in anumber of ways; particularly they are powerful tools for calculating price targets and placing stops. For example, if a corrective wave is expected to retrace 61.8 percent of the preceding impulse wave, an investor might place a stop slightly below that level. This will ensure that if the correction is of a larger degree of trend than expected, the investor will not be exposed to excessive losses. On the other hand, if the correction ends near the target level, this outcome will increase the probability that the investor’s preferred wave interpretation is accurate.
Learn about Lines of trends, support and resistance
FIBONACCI APPLICATIONS and STRATEGIES for TRADERS
Tags: Fibonacci, Fibonacci ratio
January 4th, 2010 at 6:14 pm
Thanks for the very informative post. I have bookmarked the website as
January 7th, 2010 at 10:30 am
Superb Content, Top Notch, and User Friendly are the best way to describe this post, reading this motivates me.
January 22nd, 2010 at 1:28 am
I have come across a lot of stuff about trading in ebooks and blog posts and the bulk of it seems to be misleading. It’s so hard to identify reliable information that’s based on actual facts and not just the next guy’s opinion.