Taking A Look At The Rules Of Trading Fibonacci
The Fibonacci principle is one of the most used tool in finance. Successful money and stock traders applied this principle for a long time, and it is only now that even the laymen are understanding the working of Fibonacci and how this can apply to your financial success. Trading Fibonacci is designed to be scalable. Complexity and simplicity is what you can expect this to be. Trading fibonacci appears to work for most people. However, the advanced variant is useful for people who want their bases covered.
The Fibonacci series was first discovered the 12th century mathematician Leonardo Pisano. This number series first tackled the hypothetical growth of the population of rabbits over time. In this sequence, you start from 0 then add the succeeding number. Then add the sum of the first addition to its succeeding number up to infinity. Biology and natural sciences are avenues where such a sequence was used a lot. But by extending the principle to get the ratio of succeeding number, we get a constant ratio of 0.618. The resulting outcome is a constant yeild of 1 when you divide the latter number from the former number.618. This is called the Golden Ratio.
What are the reasons that this Golden Ratio is important? This ratio is what explain natural phenomena like the growth of ferns, patterns in mollusks and more. This ratio has been a constant throughout nature.
The same thought is then applied to finance in what we call trading Fibonacci. This method was first found in the futures market during the 90’s. This is the time when the futures market have developed the most advanced charting system. Almost 20 years later, the same charting tools are now available to the public and more people are using this principle to study markets. Trading Fibonacci is used to predict price levels, apply price corrections, and model time projections.
You would highly unlikely be depending on this general rule when the stock market is volatile, despite the fact the ratio looks pretty good. But it certainly is interesting to see constants in a chaotic system such as the financial markets.