Updated: Sep 15, 2020
In the early 1200's, the Italian mathematician Leonardo Pisano Fibonacci uncovered a secret about this ancient civilization that would revolutionize the entire mathematical world... including the financial markets! While studying the Great Pyramid "Gizeh" in Egypt, Fibonacci made a startling discovery and uncovered a unique mathematical sequence of numbers that changed several theories of trigonometry, algebra & geometry. He developed the famous Fibonacci sequence of numbers, which has become the foundation of many effective trading systems.
Now these Fibonacci numbers which are used in art, music, biology and architecture, are also used in the financial markets to identify strong support/resistance levels.
The sequence, shown below, simply says that the third number is effectively the sum of previous two numbers - 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.
In this series, the real value lies in the fact, that the ratio of any number to the next higher number is approximately 0.618, and the lower number is 1.618.
The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.
The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.
It can accuratel