The Fibonacci sequence may be a more common term in circles involving mathematics. But the more traders gain experience in the market that they belong, the same term seems to also become common among trading circles. In fact, the Fibonacci sequence has been used quite often by many experienced traders as a trading tool, mainly to help determine certain changes in trends affecting stocks as well as other investments.

What Is it?

The Fibonaccci numbers in mathematics are a sequence of numbers where each number is the sequence is the sum of the previous two numbers. The Fibonacci sequence is stated commonly as: 0,1,1,2,3,5,8,13,21,34,55,89,144…..and so on and so forth. In itself, the Fibonacci sequence may not amount to much at first glance. But there is something quite unique about these numbers that may be of interest to traders the more that they get to understand it.

Origins

The Fibonacci sequenced was named after its famous western author, Leonardo of Pisa, more commonly known for his nickname as Fibonacci. Fibonacci introduced the sequence in his book Liber Abaci in 1202, the first time it appeared and were known in Western European mathematics. But the sequence already were largely known by mathematicians in ancient India.

Characteristics

The Fibonacci sequence is known to be closely related to the golden ratio, which is an irrational ratio commonly stated as 1.618. The Fibonacci sequence is said to have a unique relationship with the golden ratio.

In the Fibonacci sequence, the relationship or ratio of a number in the sequence to the succeeding one seems to fluctuate around the value of 1.618, either to a lesser or to a greater degree. Going towards the higher values in the sequence seems to approach nearer towards the golden ratio.

What makes this relationship quite interesting is that many mathematicians as well as ancient thinkers believe that the golden ratio seems to appear in many instances in many things, from man made structures to some of Nature’s creations.

Many also believe that humans subconsciously seek out the golden ratio in everything. It seems to govern what humans perceive as appealing. This appeal seems to have found its way into the way traders try to determine changes in the market.

Fibonacci Sequence In Trading

The Fibonacci sequence is used by many traders as a tool to help them get a more or less logical view of the trading market. Chart analysis has been known to have a lot in common with nature. And with the golden ratio seemingly found governing the natural environment in many aspects, many traders believe that it might also govern market activity in some way.

As a tool, the Fibonacci sequence has been used in trading tools such as determining arcs, retracements, fans, extensions and even time zones. What the lines that are made by the Fibonacci sequence in these tools are known to be signs that show changes in trends as the prices draw near to them. Many traders believed that if the Fibonacci sequence is correctly applied, it has the means to predict market behavior 70 percent of the time.

But this belief of using the Fibonacci sequence in predicting market movements may also have its detractors as the complexity of the relationship between price changes with the Fibonacci sequence may always be open to dispute.

But nevertheless, the use of the Fibonacci sequence have made its way into various tools that many traders have used to help them gauge the market. For the most part, what these tools do is more or less aid in dispelling the uncertainties in the trading market.