Leonardo de Pisa de Fibonacci was born in Pisa, Italy in or around 1175 AD and died around 1250. He had been called the best European mathematician of the Middle Ages and was one of the very first people to present the Hindu-Arabic number system into Europe. The positional system we use today replaced the use of Roman numerals and is founded upon 10 digits, a decimal point and a symbol for zero.


The Numbers

Among his works introduced the notion that a pair of rabbits in an area require one month to mature and then produce a new pair each month. Assuming they don't escape or perish their breeding pattern will probably be;
1, 1, 2, 5, 3, 8, 13, 21, 34, 55, 89, 144, 233..........

Additional all-natural occurrences also adhere to these rules: the rows of scales on a pineapple, the pattern of these seeds on a sunflower, and the branches on a sneezewort plant all show evidence of this sequential pattern.
Today, it isn't so much these numbers but rather the relationship between them that has fascinated traders over the years to such an extent that they are now regarded as an entirely natural occurring within the Forex trading environment.

Take, by way of instance, these numbers from above.....................55, 89, 144, 233....

We can observe that
89 / 144 = .618....144 / 233 = .618
144 / 89 = 1.618... 233 / 144 = 1.618

And
89 / 233 = .382... 59 / 144 = .382

Also, the square root of.618 is .786

And, the square root of 1.618 is 1.27

The key ratios are
.382 = 38 percent
.50 = 50%
.618 = 62%
.786 = 79%
1.27 = 127 percent
1.618 = 162%
2.618 = 262%

There are many other interesting facts about Fibonaccis, (refer to...”Fascinating Fibonaccis: Mystery and Magic in Numbers” by Trudi Hammel Garland) but the real interest for traders today is to understand how these numbers come to play such an important function in the market.

Current estimates are that the Forex market turnover is coming 1.5 trillion dollars per day. To put some perspective on this number it is 10x the value of shares transacted worldwide on a daily basis and dwarfs nearly all other worldwide markets. The effect of this is that liquidity (the number of buyers and sellers in the market at any given time) is very significant. Let's compare the Forex market with what occurred in the dotcom boom period in equities of the late 1990s. Equity prices were firstly driven higher by holders not ready to market their stock also cheaply (and remember the amount of stock available for any one company is finite). Secondly, and more crucially for trader-investors, share prices were pushed lower by those compelled to sell at any price. Gaps appeared in the market as traders and investors looked to liquidate their positions. From this example we can observe the positive impact the liquidity factor will have for the Forex trader.

The major currency pairs (EUR v USD, GBP v USD, USD v CHF, USD v JPY) will almost certainly have prices in the market which are extremely close to where the market perceives it ought to be. If a gap appears it will be filled very quickly by some of those tens of thousands of traders that are ready to accept a little risk and enter a bid or an offer.


A More Structured Approach

it's fair to state on one hand the way in which the market operates is very simple; folks produce a”market” by being ready to buy or sell at a particular price. However, it is equally right that the market has become increasingly sophistied; it is less true now that individuals are ready to buy since they”feel like it” or ”I think that it goes up”.

Traders analyse over where certain chart points are and therefore where they'd like to enter and exit the market. If we accept the sophistiion argument it follows that more traders are looking to take a slightly more scientific approach. Acceptance of the importance of chartpoints by sufficient traders will eventually mean that they become a self-fulfilling prophecy as the market orientates itself towards these factors.

Let Us Examine an example:https://www.cliqforex.com/trading-sy...ps-2008-a.html
Regions of support ( where a market believes”supported” because some sort of base is created ) or resistance (where the market is”resistant” to attempts to push higher) are generally dictated by price action across the specified area.

There could any number of reasons for this (herd mentality can be mentioned; traders, as human beings, feel much more secure in the knowledge that they are in accore with others and not out on a sidewalk where they feel vulnerable and much more open to greater risk) but what becomes interesting is gaining the knowledge to use this info to our very best advantage.

It's a simple fact that the market moves in waves rather than linear fashion from point A to B: the picture below demones this to be the case. https://www.cliqforex.com/general-fo...es-better.html
By using points A and B traders armed with understanding of Fibonacci retracement and projection theory can try to project where point C and D will be. For instance, if we state a B is 100 and we accept that point B is a resistance region (we also accept the market moves up and down in short swings which can sit within the larger swings) we can project the point C could be anticipated at 100 -- (minus) 38.2, 100 - 50,or 100 - 78.6. More importantly, perhaps we can expand this thought to project where point D will probably be; in an upwardly trending market it will generally be the largest move thereby increasing our odds of making more money.

Why can we suppose that these points will be reached?

Well, as we've seen these numbers evolve from a natural habitat and should we accept that the huge majority of traders are human then similar rules apply. This concept gets increasingly strong if we include the notion of these points becoming self fulfilling as an increasing number of traders awake into the thought they are important points in almost any market.


A Dead Cert?

At this juncture we need to analyze the possibility that this isn't a foolproof system.... .if it were the market as we all know it would cease to exist. External aspects will always play a part in ruining any theory. To expect the unexpected would be a smart thing for any trader to remember when entering a trade, since it is going to happen. Unexpected deaths of politicians, Central Bank intervention, unexpected macro economic figures can all help to change the market's perception and direction. Nor is it an specific science regardless of Fibonacci's accepted genius for a mathematician.

Where one individual (using a specific chart) will draw on a line may be wholly different to where another will, apparently using exactly the exact same info. Precise projection points being hit will be the exception rather than the rule but broadly speaking the framework will be useful for a trader and the knowledge invaluable. As traders become more knowledgeable and experienced in the market they will be better able to distinguish what points to draw the lines from and to and so have higher clarity and accuracy consequently improving their profitability.


By MTI Europe http://www.mtieurope.net/