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Leonardo Fibonacci was a mathematician who lived from about 1175 AD. He made significant contributions to mathematics and his Fibonacci number sequence is legandary and used frequently in forex trading, to increase profit potential - let’s look at it.
The Fibonacci number sequence first appeared as the solution to a problem in the Liber Abaci, a book written in 1202.The original problem in the Liber Abaci led to this question:
How many pairs of rabbits can be generated from a single pair, if each month each mature pair produces a new pair, which, from the second month, becomes productive?
The Fibonacci number Sequence set out to solve the question
The resulting Fibonacci numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, are the result of the following equation. 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% is also used as is 0.500
Fibonacci Applied to Forex Trading
These numbers help to calculate "retracement levels" In currencies, by many traders.
The Fibonacci number sequence can be seen throughout nature and many traders believe that these retracements allow them to enter markets with good risk/reward – just as science orders the natural world, it must order the world of trading as well.
Making Money With Fibonacci
This is one of the dumbest trading indicators out - the fact is, it’s been hijacked by the investment community, when it was really devised to solve a mathematical problem to do with the copulation of rabbits!
Fibonacci, if he were alive today, would probably laugh at the application of his theory in this way -if you want to try using these retracements - get ready to lose your equity.
If there is natural order in the world of trading, they should work all the time and they don’t.
Sure, you will see the levels hold on occasions but on most occasions you will see them break. The far out investment crowd love this mystical nonsense - but it’s a sure fire way to lose.
It has been made popular by vendors on the net, who see it as a good story to sell and it’s often found in tandem with Elliot wave. Its promoters say will help predict prices with scientific accuracy – of course, this theory doesn’t work either and these vendors forget to tell you - Elliot made no money with it and he devised the theory!
Think about it:
If there was a natural order to the market and we could predict it with scientific accuracy, we would all know the answer in advance and there would be no market.
This is common sense, as a market price moves because of uncertainty and anyway, if anyone really had found the theory that predicted markets, they wouldn’t bother selling it to you - they would be busy making to much money!
A scientific theory by its nature should work all the time, if it doesn’t then its not scientific – period.
The problem with Forex traders, is many are naive or lazy and want to believe these theories work, so they don’t have to put any effort into their trading – but life is simply not like that.
If You Want To Win Remember This!
If you want to make money you need to put in the effort.
Forex trading can make you a lot of money - but understand one important point about trading:
You are trading odds not certainties.
So leave theories like Fibonacci and Elliot Wave to the far out mystical trading community and concentrate on a logical system that trades the odds. Keep in mind - if you trade the odds correctly, you can make a lot of money and you dont need nautrual order or science on your side to it.
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