Most people would found familiar with the name Fibonacci, you may be
hearing this in the technical analysis world from your friend, reference
books or accidentally saw it in your charting software.
From the plants to the distance between earth and moon. From your
shoulder to toes. You can find the Fibonacci ratio (1.618 or 0.618) or
numbers (referring 3 5 8 13 21 34 55 89 etc) appear everywhere in the
nature.
The golden ratio was named by its founder Leonardo Fibonacci, a Italian
mathematicians in 13 century. The Golden Ratio was discovered in the
Fibonacci Sequence written in Liber Abaci (Book of Calculation).
For more info: http://www.maa.org/external_archive/devlin/Fibonacci.pdf
The Fibonacci sequence arises when you solve a particular problem Leonardo gave in Liber abbaci
“How Many Pairs of Rabbits Are Created by One Pair in One Year. A certain man had one pair of rabbits together in a certain enclosed place, and one wishes to know how many are created from the pair in one year when it is the nature of them in a single month to bear another pair, and in the second month those born to bear also”.
The table below show an example of Fibonacci sequence:
Each term in this sequence is simply the sum of the two preceding
terms. For example 0+1=1, 1+1=2, 2+1=3, 3+2=5, 5+3=8, 8+5=13, 13+8=21,
21+34=55……
If you use the current number divide by the next number and you will
get 61.8% (34/55=61.8%), as the number go larger, 61.8% were constant
found as the the sequence progress toward infinity. It was called the
Divine Proportion, Golden Ratio or Fibonacci Ratio.
Branching plants exhibit Fibonacci numbers.
Human fingers exhibit Fibonacci numbers. Each bone in the index finger of your hand is approximately 1.618 times larger than the bone preceding it.
The ratio of hand to forearm approximates the Golden Ratio.
The golden ratio in our body.
So, does the market move in the 61.8% extent. YES, because buying
selling activities were part of the universe. This blog will using this
natural phenomena in price analysis moving forward.
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