Summary of Fibonacci

Leonard Fibonacci, also known as Leonardo of Pisa, was a famous Italian mathematician who discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe.

The sequence of the Fibonacci numbers is 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 … to infinity. Starting with zero and adding 1 begins the series.

After the first few numbers in the sequence, if you calculate the former by the latter number to that of the next higher number you’ll get .618. For example, 55 divided by 89 equals 0.618.

This is called the golden ratio or golden mean. If we reverse the procedure and divide the latter by the former, we get  1.61804. These numbers are reciprocals.

We use Fibonacci Retracements to find predictive areas of support or resistance.  We use Fibonacci Extensions to find predictive areas for targets and areas of confluence (which we’ll get to later)

The typical retracement numbers we use are 0.382, 0.50, 0.618, and 0.786

The typical extension numbers we use are 1.272, 1.414, and 1.618

So, what can we take from this?  Most Traders will agree the Fibonacci Retracements and Extensions are present in the markets.  However, most Traders do not know how to properly use these tools.  It is very easy in hindsight to draw Fibonacci Retracements and Extensions.  It’s only when you have Rules and a Trading Plan to go with this, that you can take real advantage and be consistently profitable with them.