1. Money

Fibonacci Numbers

By

Fibonacci Retracement Chart

Fibonacci Retracement

Description

The Fibonacci numbers are a series of numbers that correspond to a mathematical principle known as the golden ratio. The Fibonacci numbers were introduced to Europe in 1202 by Leonardo of Pisa (also later known as Leonardo Fibonacci). The Fibonacci numbers are said to appear throughout the natural world, including the branching of trees, pineapples, and the structure of pine cones. There are several different methods of trading that use the Fibonacci numbers, and they are usually displayed on the same chart as the price bars. The example chart (view full size chart) shows the Fibonacci numbers being used in a Fibonacci retracement trading system.

Calculation

  • Description: The Fibonacci numbers (F) are a series of numbers where the next number is the sum of the previous two numbers.
  • Calculation:
        Fn = Fn-1 + Fn-2
  • Sequence:
        1 1 2 3 5 8 13 21 34 55 89 ...

Trading Use

The Fibonacci numbers are used in many different trading systems, including Fibonacci Retracements, Arcs, and Fans. Whichever trading system is used, the Fibonacci numbers are usually used to calculate support and resistance points. For example, Fibonacci Retracements expect that during a trend, the price will move against the trend (retrace) back to a level identified by the Fibonacci numbers, and then continue the trend in the original direction. The Fibonacci numbers also have relationships with non Fibonacci trading systems, such as Elliott Waves, which were created before they were discovered to include the Fibonacci numbers.

  1. About.com
  2. Money
  3. Day Trading
  4. Technical Indicators
  5. Fibonacci Numbers - Day Trading Using Fibonacci Retracements, Arcs, and Fans

©2014 About.com. All rights reserved.