Forex Code

Did anyone see the Da Vinci code this weekend?? I did! No, I have not read the book, but every time I got on an airplane the past 2 years there was always someone reading this book!

Did you notice the references to Fibonacci all over the movie? I did, and was counting the sequence right along with John Langdon (aka Tom Hanks)! That got me thinking a little more about one of my favorite trading tools and what it all means. So I went hunting for some facts and this is what I found.

Leonardo Fibonacci was the Italian mathematician who was born around the year 1170 AD. His real name was Leonardo Pisano, but was better known by his nickname Fibonacci (“son of Bonnacci”). Fibonacci’s father was a diplomat and his son traveled with him during his formidable years studying mathematics and accounting.

In 1202, Fibonacci wrote Libre Abaci, a book about the mathematics he had learned on the road with his father. That book led to his famous number sequencing when measuring the ratios for which rabbits reproduce.

His sequence 0,1,1,2,3,5,8,13,21,34,55,… is that each number is the sum of the two preceding numbers. The interesting thing is that each of the successive numbers is equal to 1.168 of the prior number.

Check this out!

When looking at this geometrically you find that when you measure a triangle by 1.00 as the hypotenuse the opposing side ratios are .786 and .618. Hey, I have seen those ratios before!

When we make .786 the hypotenuse than the opposing side ratios are .618 and .486. No way!!

If we make .618 the hypotenuse then the opposing side ratios are .486 and .382. Right on!!

The Fibonacci ratios that I always focus on in my trading are:

Retracements:
38.2%
50.0%
61.8%
78.6%

Extensions and Expansion:
61.8%
100%
127% (note that INDU turned almost on this extension last week!!)
162%

Want some more or have you had enough? I thought you would want one more example of FIBOs in nature!

Look at your own hand:
You have...
2 hands each of which has ...
5 fingers, each of which has ...
3 parts separated by ...
2 knuckles

All Fibonacci numbers! How about this, the bones in your finger are all in Fibonacci ratios to each other too! Is this just a coincidence or not??

OK, OK I think I just gave everyone a headache. You are all probably thinking that I need to get away from my trade station more often! Bottom line is that you don’t really need to know the details of Fibonacci’s life or all the examples in nature.

The bottom line is that we all know how important these ratios are to our trading and it will pay huge dividends to learn how to apply these principals to our trading!!