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December 7, 2017

Fibonacci Explained

I wanted to quickly elaborate on the Fibonacci sequence and why it relates to trading as many people do not understand the link.

The Fibonacci sequence is relevant because it relates directly to the “golden mean”. The golden mean is a fractional curve that tapers based on the Fibonacci sequence and can be found in all organised systems. All living things are organised systems as well as many inanimate structures.

You can find the golden mean everywhere around you, from the aspect ratio of an A4 page to the curve of a shell, the length of your arm or the position of your nose on your face. By implementing Fibonacci sequences on a leaf we will be able to tell where the next stress point is and if it has enough impetus to to continue on it’s tangent or will it run out of steam.

With that simplified explanation behind us it might help to understand how this can be used on trading exchanges.

No matter what commodity is being traded on the exchanges… People are the ones doing the trading. People are living creatures and in a collective they behave as an organised system.

The Fibonacci bands represent the impetus of the collective and can therefore be used to predict stress points.

It also helps that it is part of the academic curriculum which adds another level of predictability to the mix.

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