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Forex Fibonacci

The Life, Death, and Legacy of Leonardo Fibonacci

Every forex web trader has heard of Fibonacci, but few forex traders comprehend the man’s pervasive influence on price behavior in the currency markets. The few who do know more about Fibonacci, we have found, tend to be more successful forex traders.

To that end, let’s venture a few words about the life, death, and legacy of Leonardo de Pisa, a.k.a. “Fibonacci,” without whom forex charts would be a less rich language.

A Life Spent Among Traders, Looking for Reoccurrence

Born in Pisa around 1175 A.D., Leonardo Fibonacci was exposed to international trade at an early age. At that time, Pisa was a major commercial trading route, and Fibonacci’s father was a customs official. Fibonacci thus became interested not only in mathematics, but in how math could help merchants and traders make more money.

Meanwhile, right around the time of his birth, the tower of Pisa began to lean. Perhaps this oddity contributed to Fibonnaci’s legendary interest in the mathematical concept of “reoccurrence.” Regardless of the reason, Fibonacci obsessed over reliable patterns.

Fibonacci’s relentless endorsement of the well-ordered decimal system, as opposed to the wacky Roman numeral system then in use in Europe, shows how intent Fibonacci was on finding and precisely measuring reoccurring mathematical phenomena.

Every Fibonacci biographer will point out that Fibonacci did not invent many of the concepts that he popularized. Rather, these concepts were birthed by ancient Indian mathematicians; Fibonacci himself viewed his work as rediscovering these truths.

Nevertheless, the focus on combining math and trading, and meanwhile seeking above all to find reoccurring patterns, is uniquely Fibonacci—and, as it turned out, uniquely profitable when applied to the currency markets.

Fibonacci’s Second Act: Computers and Currency Trading

For a long time after his death around 1250 A.D., the world did not quite know what to do with some of Fibonacci’s more esoteric theorems. The adoption of the decimal system by the West was viewed as Fibonacci’s main triumph.

But then came computers and currency trading, and the rebirth of Fibonacci.

On the computer front, Donald Knuth re-asserted the usefulness of Fibonacci’s work in his seminal, multi-volume book, The Art of Computer Programming. Specifically, Knuth’s chapters on “combinatorial algorithms” showed how Fibonacci numbers can be used to create the complex “if, then” statements at the heart of computer programming.

Speaking of complex “if, then” statements, we come now to the subject of online currency trading, where Fibonacci really shines. The forex markets are a representation of nature—human nature. Therefore, it is not surprising that the patterns identified by Fibonacci should reoccur in the financial markets just as they reoccur in nature.

What is surprising, though, is how often Fibonacci is one of the best forex signals out there.

Fibonacci, Meet Online Forex Trading, You Two Will Really Hit It Off

Nearly every currency trader in the world consults Fibonacci before placing forex trades. Some forex traders trust Fibonacci and nothing else. One such trader is Andy Shearman with his FX Money Map system, which relies totally on Fibonacci principles.

Fibonacci ratios assert that the “most important” percentages are 38.2 percent, 50 percent, 61.8 percent, and 75 percent.

Forex traders use those ratios to spot trading opportunities on either the long side or the short side of currency pairs. If a pair dives below its 38.2 percent Fibonacci retracement level, for instance, something “most important” may be happening.

This could be a buy or a sell signal, depending on the individual trader’s read of the pair, but most of all, it’s something to pay attention to—an event.

It is likely that there is a degree of “nature” as to why Fibonacci ratios are so beneficial to making forex trading decisions. Certainly it is natural for currency traders to get excited when a currency pair has declined or risen by percentages so great as 50 and 75 percent. This excitement, fully human in nature, then elicits mass buying and selling.

Beyond the math and science and nature of using Fibonacci for forex trading, though, is the self-fulfilling prophecy aspect of declaring these ratios to be “most important” events. When thousands of bank traders and millions of individual online forex traders act on Fibonacci’s advice on a daily basis—as they do—Fibonacci can’t help but move markets.

Without a doubt, forex traders who don’t know Fibonacci are at a disadvantage in the marketplace.


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