Fibonacci Numbers and Golden Ratio
For those who are not already familiar with the name
Fibonacci, you may remember hearing something about it in 2006, when the movie
The DaVinci Code appeared in theaters. When Jacques Saunière was found murdered
at the Louvre Museum in Paris, the strange position that this deceased
character was placed in mimicked the famous painting of the Vitruvian Man by
Leonardo da Vinci. This painting has been known to illustrate how Fibonacci
ratios appear in the human form. The film also piqued the curiosity of some people
when the characters in the film started talking about Fibonacci numbers as part
of a clue or code of some sort. For myself, I only chuckled and thought, “It’s
about time someone is taking Fibonacci seriously.”
The Fibonacci number series
and the properties of this series were made famous by the Italian mathematician
Leonardo de Pisa. The Fibonacci number series starts with 0 and 1 and goes out
to infinity, with the next number in the series being derived by adding the
prior two. For example, 55 + 89 = 144, 89 + 144 = 233, 144 + 233 = 377, and so
on (see the following number series): 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,
144, 233, 377, 610, 987 . . . out to infinity What is most fascinating about
this number series is that there is a constant found within the series as it
progresses toward infinity. In the relationship between the numbers in the
series, you will find that the ratio is 1.618, or what is called the Golden
Ratio, Golden Mean, or Golden or Divine Proportion. (For example, 55 x 1.618 =
89, and 144 is 1.618 times 89.) Take any two consecutive numbers in the series
after you get beyond the first few and you will find the Golden Ratio. Also
note that the inverse or reciprocal of 1.618 is 0.618. There are quite a few
Web sites that are devoted to this number series and its properties. Just type
the word Fibonacci into your favorite search engine and you’ll be amazed at the
wealth of information that exists on this subject. The Golden Ratio can be found
in many different places.
The 1.618 ratio is used in architecture in what is
called the “golden rectangle,” as it is known to be pleasing to the eye. There
are actually plastic surgeons who use these ratios to help them sculpt faces of
“perfect proportion.” You can also find the ratio in nature. It can be seen in
flowers, the nautilus shell, ammonite fossils, and many other places. What I
find to be most fascinating is that this ratio shows up in the pentagram , which is known as a symbol for hidden occult knowledge. It
occurred to me that maybe the ratio within the pentagram held a hidden secret
to the market! At one point in my education,
I actually studied Jewish
mysticism. One of my teachers from a Golden Dawn temple in California handed me
a copy of a Disney cartoon called “Donald in Mathmagic Land,” saying that I
might enjoy it. Another student had brought it to his attention, as Donald Duck
had a pentagram inscribed on his hand in this Disney cartoon. In this cartoon,
which was produced to teach children about math, Donald Duck was on an
adventure in Mathmagic land, where he visited with Plato and Pythagoras, talked
about “secret mathematical societies,” and learned about the Golden Section.
The cartoon illustrated where the ratios of 0.618 and 1.618 exist in nature and
architecture. This cartoon, which Disney released in 1959, is still available
via the Internet, and it is well worth watching. The quote at the end of the
cartoon was from Galileo, “Mathematics is the alphabet in which God has written
the universe.” I believe this to be true. If you study the “code” of the
Fibonacci numbers and the ratios derived from this number series long enough, I
think you will begin to agree with, or at least understand, that statement.
This is not something that should just be blindly accepted because I have found
it to be true. It is something that you must discover and then prove to
yourself on your own journey! What is important to most traders is that
applying these ratios can help identify key support and resistance zones in the
market, and therefore determine key trading opportunities or setups. I will
show you how to apply these ratios in any market with adequate data. Thus, the
application can give you a huge edge as a trader, if you use the techniques
properly
you must need to read to be a good Forex trader
step 1 Applying fibonacci ratios to the price axis ot the market
step 2 Fibonacci Price Retracements
step 3 Fibonacci Price Extensions
step 4 Fibonacci Price Projections or Objectives
step 5 Fibonacci Price Cluster Setups: Trade Setup 1
step 6 Symmetry—The Power Tool: Trade Setup 2
step 7 The Two-Step Pattern Setup: Trade Setup 3
step 8 Triggers and Indicators
step 9 The Ideal Trade Setup
step 10 From Analysis to Trade Entry—Putting It All Together