Leonardo Fibonacci was an Italian mathematician who first observed certain ratios of a number series which can describe the natural proportions of things in the universe.
The Fibonacci numbers are the following sequence of numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987 ……
The first two Fibonacci numbers are 0 and 1, then the Fibonacci sequence is formed by getting the sum of the two previous numbers to obtain the next number.
The number sequence generates some mathematical relationship and the most well known and widely used is the ratio of any number to its next higher number which approaches a constant value of 0.618, e.g.:
- 13/21 is 0.619, 55/89 is 0.6179
- 377/610 is 0.61803, and,
- the higher pair of number you get, you will have a result closer to 0.618
Another percentage is the ratios of alternate numbers which approaches a constant value of 0.382, e.g.:
- 13/34 is 0.3823
- 55/144 is 0.3819
- 377/987 is 0.382
- again the higher pair of number you use, you will get a result closer to 0.382
In addition, 0.382 is also the inverse of 0.618 (1-0.618=0.382). Finally is the ratio of 0.5, which only occurs between the relation of the 2 numbers 1 and 2, nevertheless, this ratio is also considered as one of the very important Fibonacci ratio especially in technical analysis.
II. FIBONACCI RETRACEMENTS
- GUIDELINES ON USING FIBONACCI RETRACEMENTS
- Guideline 1: To identify the High and Low first
- Guideline 2: Plotting the Fibonacci retracement levels
- Guideline 3: Take reference of Historical Behavior
- Guideline 4: Always have a Plan B
III. FIBONACCI PROJECTIONS