Can You Make More Money Using Fibonacci Formula?
Author: RichardU.Olson Total views: 5 Word Count: 580
The mathematician Fibonacci or Leonardo of Pisa in 1202 first published his Fibonacci sequence. In order to calculate the number of pairs of rabbits he would have at the end of a year based on their behavior of breeding, Fibonacci developed this famous sequence of numbers. Forex traders find this type of no-nonsense approach very profitable.
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.
How can this be applied to investing? Very astute investors understand that there are hidden patterns in the stock market--based on the mass of investors' behavior. "Buy low and sell high" and "The best time to buy is when there's blood in the streets" are but two investment aphorisms that not only work, but also come from understanding hidden patterns of the investment markets.
These patterns cannot be seen by a day to day observation of market conditions, but reveal themselves when you step back and take a look at the big picture. Short term fluctuations in the market are nearly impossible to accurately forecast. However, the trends which occur over time most certainly are predictable. Investors of all stripes, including Forex traders have used the Fibonacci sequence to plan their investments and make large profits in the currency exchange markets.
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.
Next is the retracement - this is when the movement of a stock or other traded commodity reverses direction; this is a reversal which is stronger than the prevailing trend of the stock's movement. Retracement patterns are looked at closely by investors; a Fibonacci retracement can be used to analyze the odds of a commodity's price having a larger than average retracement before continuing back on the direction it had before reversal. The trendline is typically drawn between two extremes and is divided vertically by the Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
Traders use Fibonacci retracements to determine strategic points for placing their transactions, target prices and stop-loss points. There are other tools which use retracement techniques, chief among them Elliott Wave Theory, Gartley patterns and Tirone levels.
The reason that the Fibonacci sequence is used in investing is simple: it works! Forex traders in particular in particular seem to find it useful in making profitable trades.
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Richard U. Olson recommends the incredibly accurate Forex Robot Software that he uses to make consistent profits in the Forex markets. Grab his FREE e-course on Forex Trading Tips to achieve your financial freedom. You can get a unique content version of this article from the Uber Article Directory.
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