1. Fibonacci Numbers

The Fibonacci sequence was devised by Leonardo Fibonacci in 1202, since then, his theory has been applied to many different applications.

“The quotient of the adjacent terms in the series possesses an amazing proportion, roughly 1.618, or its inverse 0.618. This proportion is known by many names: the golden ratio, the golden mean, PHI, and the divine proportion. The dimensional properties that adhere to the ratio of 1.618 occur repeatedly in nature. Examples are as various as mollusk shells and the shapes of gallaxies containing billions of stars.”

The Fibonacci number sequence was based around the following equation:

How many pairs of rabbits can be generated from one single pair, if each month each pair produces a new pair, which, from the second month, starts producing more rabbits?

The result was a number sequence popular throughout the natural world and the equation is as follows:

If Fn is the nth Fibonacci number, then successive terms are formed by addition of the previous two terms, as Fn+1 = Fn + Fn-1, F1 = 1, F2 =

The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62% is 38%, and this 38% The two levels considered the most critical by traders are therefore: 38.2% and 62.8%. Other important percentages are: 75%, 50%, and 33%.

Is to assume that markets move to a scientific theory its obvious they don’t because if they did we would all know the price in advance and there would be no market!

This is common sense. Furthermore, prices are determined by humans and they are not logical, when trading markets and certainly not predictable.

Using Fibonacci Targets is a great way to indicator of where price of a pair “might” go, not where it is guaranteed to go. Therein lies the major problem with the theory, it can not take into account human reaction to news events, and quite often, you might see a fib target level broken quite easily without even the slightest resistance or support. In which case, we can deduce the market was so weak or so strong, that there were not enough traders using fib targets to outweigh the amount of pressure pushing the price through the target.

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