Monday, February 11, 2008
Tuesday, February 5, 2008
Fibonacci theory a mental game challenge?
Leonardo of Pisa was an Italian mathematician who lived between 1170 – 1250, also known as Fibonacci. In his Book of Calculation (Liber Abaci) he presented a modern number sequence named after him known as the Fibonacci numbers. The Fibonacci numbers looks like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc
a number being the sum of the preceding two numbers. The Fibonacci sequence can also be found in nature,in leaf buds, spiral seeds, sunflowers, scales on pineapples, petals on artichokes, daisy petals, fruits, pears, pine cones, pine needles, and many more natural objects. The sequence is also found in musical theory, there are 13 notes in an octave with 8 white keys, 13 follows right after 8 in the sequence.
If we divide one number in the series by the number that follows it, we will find out that each number is 1.618 times greater than the preceding number. For example:
5/8 = 0.625
8/13 = 0.615
21/34 = 0.617
55/89 = 0.6179
The Fibonacci key points used for trading are being calculated as follows:
First ratio: 8/13 = 0.6153 - 61.8% ratio
Second ratio: to obtain it we divide one number by the number found two places after it.
8/21 = 0.380 - 38.2% ratio
The third ratio: we divide one number by the number found three places after it.
8/34 = 0.2352 - 23.6% ratio
For unknown reasons, these numbers represents the support and resistance points, as you can see from the above chart:
There is no logic behind this market behaviour, as there is no logic behind the appearance of the sequence in natural patterns, but most of the times is happents, thats why traders are using the Fibonacci indicator. I have found one logical explanation though. Like any other prophecy, we make it happen by trading according to its prediction. For example if the trend reaches one of fibonacci retracement point, everyone will sell/buy thus making the prophecy happen.
Fibonacci is being also used for identifying Elliot waves, because most of the time the waves are formed around fibonacci retracement point.
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc
a number being the sum of the preceding two numbers. The Fibonacci sequence can also be found in nature,in leaf buds, spiral seeds, sunflowers, scales on pineapples, petals on artichokes, daisy petals, fruits, pears, pine cones, pine needles, and many more natural objects. The sequence is also found in musical theory, there are 13 notes in an octave with 8 white keys, 13 follows right after 8 in the sequence.
If we divide one number in the series by the number that follows it, we will find out that each number is 1.618 times greater than the preceding number. For example:
5/8 = 0.625
8/13 = 0.615
21/34 = 0.617
55/89 = 0.6179
The Fibonacci key points used for trading are being calculated as follows:
First ratio: 8/13 = 0.6153 - 61.8% ratio
Second ratio: to obtain it we divide one number by the number found two places after it.
8/21 = 0.380 - 38.2% ratio
The third ratio: we divide one number by the number found three places after it.
8/34 = 0.2352 - 23.6% ratio
For unknown reasons, these numbers represents the support and resistance points, as you can see from the above chart:
There is no logic behind this market behaviour, as there is no logic behind the appearance of the sequence in natural patterns, but most of the times is happents, thats why traders are using the Fibonacci indicator. I have found one logical explanation though. Like any other prophecy, we make it happen by trading according to its prediction. For example if the trend reaches one of fibonacci retracement point, everyone will sell/buy thus making the prophecy happen.
Fibonacci is being also used for identifying Elliot waves, because most of the time the waves are formed around fibonacci retracement point.
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