EDU Articles
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What are Fibonacci Numbers?
Fibonacci numbers are part of the Fibonacci sequence, where the two previous numbers are added together to calculate the next number in the sequence. The ratio of two Fibonacci numbers is the Golden Ratio, or 1.61803398875, which has been used since ancient times as the perfect proportion in architecture and other design. The Golden Ratio is also known as Phi (pronounced “fee”). Because Fibonacci numbers are found throughout the natural world, they have been integrated into some traders’ strategies for market analysis.
Modern computing power has uncovered plentiful examples of the Golden Ratio in nature, from Nautilus shells to musical harmonics, as well as in mathematical fractal patterns. Fibonaccii numbers are related to the study of chaos theory, which seeks to find order in complex systems. Since the markets have so many variables, but no lack of data, they are an excellent place to search for Fibonacci patterns.
Many traders use Fibonacci Retracements to predict or interpret the swings of the market, and many compelling examples exist of Fibonacci retracements seeming to indicate where trends would start and stop.
Retracements are defined as points where a strong trend “retraces its steps” and is momentarily set back by a smaller reverse trend before continuing the previous stronger trend. The theory behind Fibonacci Retracements is that complex systems will exhibit orderly behavior to some extent. The so-called random walk of stock prices has been shown to fit on occasion into the parameters of Fibonacci lines and arcs.
The use of Fibonacci numbers in trading is still in its early stages, but ever-growing computing power available to traders increases their ability to find the common threads that will make this investment theory more usable, accurate, and reliable. These include artificial intelligence services from Tickeron, which provide traders with powerful ways to evaluate trade ideas, analyze signals, and provide key confirmation to help investors make rational, emotionless, and effective trading decisions.
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