Do You Know Who Leonardo Fibonacci Is

Category: Finance, Currency Trading.

Do you know who Leonardo Fibonacci is? No, Leonardo Fibonacci was a mathematician who lived from about 1175 to 125He was well known in his day and contributed greatly to the world of mathematics.

Now, when you think of the name" Leonardo, " perhaps you think of Leonardo da Vinci, but unlike Leonardo da Vinci, Leonardo Fibonacci did not paint the Mona Lisa. One of the things he did was that he introduced the decimal system to Europe. Each new number is the sum of the two previous numbers. He also studied a sequence of numbers that are known today as the" Fibonacci numbers. " Alternatively, they are known as the" Fibonacci sequence. " The Fibonacci sequence begins with a zero and one. For instance, zero plus one equals two, one plus two equals three, two plus three equals five, and so on. Fibonacci discovered that this series of numbers and their ratios to each other occurred throughout nature and in fact are incredibly commonplace in the world. Therefore, the first numbers in the sequence appear as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ad infinitum.

So what does this have to do with forex trading? Although it s too detailed to go into here, there are three numbers you need to concentrate on from this sequence. Well, the ratios that the Fibonacci numbers displayed are also apparent in the price movement of currencies, as well as in stocks and other types of investments. They are 382, and 61There are, 500 others as well, but these are the most important. It works like this: Let s assume that the price of a currency pair, or a company stock, is trending upward. These numbers help to calculate what are called" retracement levels. " Many traders use retracement levels when they need to figure out where they should place buy and sell orders.

The history says that prices tend to hit a peak and then go into temporary reversal. This is where Fibonacci numbers come into play. Then, they continue to trend upward. When a currency is trending, the price can be expected to reverse back to one of the Fibonacci numbers. Assuming you forecast this right, you can buy just before the upward trend continues and profit handsomely. Then, it" bounces" back to its original level or nearly so to continue the trend.

Whatever the online trading platform you use, it should give you the means to chart the Fibonacci numbers. Retrace the levels will automatically be mapped on the chart for you. To do this, you draw a line from a low point to a high point. There are the things to consider besides trading when the price hits a particular Fibonacci number. If you choose 382 and it drops to 618, you could lose a great deal. For instance, you don t know at what retracement level the price will stop.

Additionally, if you choose the wrong high or low point, the retracement levels will not reflect what actually happens and will be of no use to you. Again, remember that many variables come into play in the forex market. Finally, even though Fibonacci numbers are a good tool, sometimes they don t forecast accurately at all. Therefore, don t rely just on one method, to predict what, like Fibonacci numbers price movement is going to be.