Fibonacci numbers - meaning
If you have been trading for a while, you may have heard of Fibonacci numbers. Many chart traders in https://online-exness.com/payment-methods/ count them among their tools of the trade. And not only that: there is even an unofficial "Fibonacci Day" in the USA for the series of numbers and their namesake Leonardo Fibonacci - 23 November. A good occasion to take a closer look at the subject. In the following, we will get to the bottom of the secrets of these special numbers and their significance for traders.
The Basics: Fibonacci Numbers and the Golden Section
The Fibonacci series starts with two ones, all further numbers are created by adding the two preceding values. This results in the sequence: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ... and so on. The fact that Fibonacci Day falls on 23 November has to do with the American way of writing dates, where the month is in front: "11/23" is an allusion to "1, 1, 2, 3".
The series can be continued ad infinitum. Fibonacci used it in the 13th century to describe the dynamics of a growing population of rabbits. So far, so simple. But on closer inspection, this simple sequence of numbers has fascinating properties.
Divide a number by the next number and you approach the ratio 0.618 to 1, the famous golden ratio: 5 / 8 = 0,625; 8 / 13 = 0,6154; 13 / 21 = 0,619; 21 / 34 = 0,6176 ...
If you skip a number, you arrive at the ratio 0.382. Example: 34 / 89 = 0.382.
If you skip two numbers, you get a ratio of 0.236: Example: 34 / 144 = 0.236.
This results in a self-similar structure. For example, divide a distance of one metre in length according to the golden ratio. Then the total distance (100 cm) relates to the larger section (61.8 cm) in the same way as the larger section relates to the smaller section (38.2 cm): 100 cm / 61.8 cm = 61.8 cm / 38.2 cm = 1.618. Incidentally, the latter is the reciprocal of 0.618. And a distance of 23.6 cm results if you divide the smaller section again accordingly.
The golden section and the proportions derived from it are considered to be extremely harmonious. They can be found in art, in nature and even in the human body: on average, the navel is 61.8 % of the height of the body.
Is it all hocus-pocus or a trading tool to be taken seriously?
For those who have never heard of Fibonacci trading, this may seem rather esoteric. In fact, the approach is controversial.
The study "A computational exploration of the efficacy of Fibonacci Sequences in Technical analysis and trading" found some evidence of predictive power, but no proof. A frequent objection from critics: with the various Fibonacci supports and resistances in a chart, a level can always be found in retrospect that would have worked. Thus, the tool remains a question of faith for the time being. This means that anyone who wants to make trading decisions according to Fibonacci numbers would do well to test the method thoroughly beforehand.