The Fibonacci Sequence: Nature’s Hidden Code

You’ve probably seen and heard many times the name of Fibonacci related to trading. Here is a brief explanation of why.

Before we start, a bit of history: Fibonacci, also known as Leonardo of Pisa was an Italian mathematician born in 1170. The first appearance of the sequence was in the book Liber Abaci (The Book of Calculation, 1202) by Fibonacci where it’s used to calculate the growth of rabbit populations.

The Fibonacci sequence is a sequence in which each number is the sum of the two preceding ones. These numbers are known as Fibonacci’s numbers:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ….

The famous Golden ratio 0.618 or 1.618 is obtained by dividing a number by its next in the sequence, for example, 55/89=0.618 or 89/144=0.618 but we can calculate it in reverse too, 89/55=1.618 or 144/89=1.618.

Maybe you would ask “Why are we studying these boring numbers”? Well, this sequence appears in real life, especially in nature. For example, the number of petals in a flower is invariably a Fibonacci number, even in the segments of the pine cones up and down you will find them, also snails use them to grow their shells… and of course, it shows up in markets as a one of the most useful tools in trading, because yes my friends markets are part of the nature too.

When we talk about trading we can use them to calculate the probability of a retracement or project a future swing. The most common retracements are 0.382 – 0.5 – 0.618 (the Golden ratio) – 0.786 and for projections: 0.618 – 1 – 1.618. This works so well in Crypto because of the large number of bots doing trading strategists.

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Hope this helps you understand what Fibonacci means and why everyone in the markets talking about it and remember, we are among Fibonacci’s numbers.