Leonardo of Pisa, aka the mathematician “Fibonacci”, published his Fibonacci sequence in 1202. Fibonacci came upon his now very famous sequence of numbers when he was trying to breed rabbits and figure out how many pairs of rabbits he would have at the end of one year based upon their breeding behavior. This is just the kind of no-nonsense approach that Forex traders are into.
Mistakenly many individuals consider mathematical abstraction as frivolous; however it is rooted into real world mathematical applications. The Fibonacci sequence is useful for making us aware of and then explaining those hidden patterns around us daily.
So how is the Fibonacci sequence applicable to currency investing? Savvy investors know that there are patterns to the movements of the stock and currency markets which can be seen by studying the past behavior of investors. The market truisms “buy low, sell high” is based on an understanding of these market patterns.
Hidden patterns of investment marketing cannot be seen up close. There is no accurate sense in trying to predict the hourly or daily fluctuations of investment markets. However, overall extended trends very well can be. Increased profits are taken advantage of when investors and Forex traders confidently use the number sequence of Fibonacci to reach their gains.
Using the Fibonacci sequence involves a series of numbers. Each following number is the sum of the two numbers before it. It progresses like this 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. Anciently the Greeks found number 1.618 reprehensive of the golden ratio which is the supreme essence of balance. This balance is the fundamental strategy of profitable investing
The most common applications of the Fibonacci sequence for investment purposes are retracements and arcs.
Fibonacci charts are created through a technique comprising three curved lines that are drawn for the purpose of anticipating key resistance and support levels as well as areas of ranging. First, an invisible trendline is drawn between two points (typically these are the high and low for a given time period). Then, three curves are drawn so as to intersect this trendline at the key Fibonacci levels of 38.2%, 50%, and 61.8%. Transaction decisions are made at the point where the price of the asset crosses through these key levels.
In the world of investment, retracement relates to the reversal in movements of the price of a stock. An impressive reversal can counter the prevailing trend in the stock. Successful progressive investors focus strongly on the retracement patterns and possibilities. The Fibonacci method of retracement evaluates the prospects of the price of a financial asset being more superior than is average as well as supporting or resisting at key Fibonacci levels before continuing on its original course. Between the two extreme points a trendline is drawn and then its vertical distance by the ratios of 23.6, 38.2, 50, 61.8, and 100 percent, according to Fibonacci.
Multitudes of high-level traders gain with the Fibonacci retracement method. It aids them in finding the most strategic placement of transactions, their target prices and stop-losses. Gartley patterns, Tirone levels and the Elliott Wave theory are other technical tools that make use of retracement.
The Fibonacci formula simply works and is useful while investing. Forex traders worldwide are finding it successful while using it.
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