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FIBONACCI NUMBERS on forex treading.

This is part- 1


Thirteenth-century Italian mathematician Leonardo Fibonacci concluded
that a number sequence reflected human nature and that patterns repeated
themselves in a certain order. The
Fibonacci series,
as it is called, is an in-
finite series of numbers that adds each number to the previous number such
that 1 + 1 = 2, 2 + 1 = 3, 3 + 2 = 5, 5 + 3 = 8, and so on to get a number se-
quence of 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,
....
These numbers are used
to help cycle analysts time market turns and lengths of price moves. Major
tops or bottoms are often calculated by starting with the event of a high or
low and then calculating out in time and price increments that correspond
to the Fibonacci series.
Fibonacci’s work can be applied to trading in various ways. You can look
at time cycles, searching for a coincidence of a reoccurring pattern that de-
velops on a historic basis such as every 21, 34, 55, or 144 days or perhaps 3,
13, 21, 34, . . . weeks. If you do a little math, you will see that the numbers,
other than the first few smaller ones, all have the same consistent ratio to
each other. These ratios—0.382, 0.50, 0.618, 0.768, 1.00—show up often in
analysts’ research as price retracement levels, wave lengths, time projec-
tions, and in other ways. For example, you can take the distance in time
from price peak to peak and then apply these ratios to help predict the tim-
ing of the next potential peak or smaller or larger peaks.
Figure 8.10, the S&P 500 futures chart, shows a five-month cycle count.
Not only did the low on July 24, 2002, fall on the five-month number but also
on the day of a full moon. The significance of the five-month cycle is that it
is a Fibonacci series number and is approximately 100 trading days, which
is a Fibonacci ratio figure and the length of a moving average that many
traders watch. Not all of the lows on the chart are monumental lows, but
more times than not they are distinctive lows. Pivot point analysis pinpointed
the R2 target weekly low for the July low at 781.67, close to the actual figure