ForexGen studies past
price and volume changes in order to build up simulations on future price
movements. ForexGen analysts mainly make use of charts and financial formulas
to gather enough information used in technical price speculations.
Leonardo of Pisa was an
Italian mathematician who lived between 1170 – 1250, also known as Fibonacc
i.
In his Book of Calculation (Liber Abaci) he presented a modern number sequence
named after him known as the Fibonacci numbers. The Fibonacci numbers looks
like this:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc
a number being the sum of the preceding two numbers. The Fibonacci sequence can
also be found in natu
re, in leaf buds, spiral seeds, sunflowers, and scales on
pineapples, petals on artichokes, daisy petals, fruits, pears, pine cones, pine
needles, and many more natural objects. The sequence is also found in musical
theory; there are 13 notes in an octave with 8 white keys, 13 follows right
after 8 in the sequence.
If we divide one number in the series by the number that follows it, we will
find out that each number is 1.618 times greater than the preceding number. For
example:
The Fibonacci key points used for trading are being calculated as follows:
First ratio: 8/13 = 0.6153 - 61.8% ratio
Second ratio: to obtain it we divide one number by the number found two places
after it.
8/21 = 0.380 - 38.2% ratio
The third ratio: we divide one number by the number found three places after
it.
8/34 = 0.2352 - 23.6% ratio
For unknown reasons, these numbers represents the support and resistance
points, as you can see from the above chart:
There is no logic behind this market behavior, as there is no logic behind the
appearance of the sequence in natural patterns, but most of the times is
happens, that's why traders are using the Fibonacci indicator. I have found one
logical explanation though. Like any other prophecy, we make it happen by
trading according to its prediction. For example if the trend reaches one of
Fibonacci retracement point, everyone will sell/buy thus making the prophecy
happen.
Fibonacci is being also used for identifying Elliot waves, because most of the times
the waves are formed around Fibonacci retracement point.
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