Fibonacci trading

Fibonacci numbering sequence, also known as Fibonacci trading, trace their origin to India 200 years before the birth of Christ. It starts with 0 and 1. These 2 numbers are added for the next number in the sequence. The new number is added to the number before it for the next number. This process keeps repeating for the next number. It starts like this. 0+1=1 1+1=2 1+2=3 2+3=5 . . . the actual sequence looks like this:

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, and on and on.

This numbering sequence was introduced to western civilization by Leonardo De Pisa, (aka Leonardo Pisano) an Italian mathematician. Many mathematicians and historians consider him the greatest mathematician of all time. He published a book in 1202 a. d. called Liber Abaci or Book of Calculations. It was not the first book to describe Arabic numeral system but it did make it popular in Western Europe. It was actually first used by the hindus. Its 9 digit system and the use of decimals was much simpler and more efficient than the Roman Numeral system which it replaced. De Pisa was known to his friends and fellow mathematicians by his nickname Fibonacci. They gave his nickname to his numbering sequence.

In Liber Abaci De Pisa applied the numbering sequence to a study of rabbit population growth. The sequence itself is not important. It is the ratios of the adjacent numbers was the basis of his analysis. Starting with the number 8 the ratio come close to the decimal fraction .618. This ratio has been observed in nature for hundreds of years. De Pisa used the sequence in his study of Egyptian Pyramids. This also became the foundation of Fibonacci trading.

The fibonacci numbering sequence became popular in the 13th century as a means to predict patterns in nature and today fibonacci trading is one of the most popular strategies. De Pisa also introduced a ratio of dividing the second number of a pair by the first. These ratios came close to the number l.618. This ratio is so commonly observed in nature it became known as the "Golden Ratio".

Stock investors first used Fabonacci trading in the 1930s. Ralph N Elloitt, an accountant by training, devised the Elloitt Wave Theory as a means of technical analysis for stock market investing and forex trading. The basis of his theory is that people are rhythmical in behavior so prediction is just a matter of perceiving these rhythms. He even wrote a book on this called "Nature's laws: The Secrets of the Universe" Most stock traders did not start using Fibonacci trading until the 1990s when improvements in computer technology and software made it feasible as a trading tool.

Fibonacci trading requires an investor to decide what time period s/he wants to research. The software will mark where different parts of the sequence applies to the stock or currency via a price chart. When an important high and low are marked on a price chart and the price hitson the 0.382, 0.50, 0.618 retracement levels,this gives trader an opportunity to enter in the direction of the trend off these three important levels.

Return from fibonacci trading to forex trading strategies