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How to Trade Fibonacci & The Golden Ratio (Video)
Fibonacci is a natural phenomena of nature. So are financial markets.
A core tenant of successful trading is pattern recognition. There many ways to recognize price patterns, like the Cup & Handle, Double Bottom / Tops, etc.
Price patterns lead to high probability trade set-ups, because many traders have their eyes on those levels.
One pattern that often emerges in financial markets is the Fibonacci number sequence.
What is Fibonacci? The Miracle Sequence
Also known as “nature’s code”, Fibonacci is a number sequence that miraculously appears in many aspects of life.
The Fibonacci Sequence is the series of numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34,… etc.
The next number is found by adding up the two numbers before it.
1 + 2 = 3
2 + 3 = 5
3 + 5 = 8
5 + 8 = 13
8 + 13 = 21
13 + 21 = 34
21 + 34 = 55
so on and so forth…
What is the Golden Ratio?
Well, for the most part, every number divided by the number before it gives us roughly the same ratio. This is called the Golden Ratio:
3/2 = 1.50%
5/3 = 167%
8/5 = 160%
13/8 = 162.5%
21/13 = 161.5%
34/21 = 1.62%
The Golden Ratio as a Natural Phenomena
Fibonacci and the Golden Ratio is found everywhere. From the number of female bees in a hive relative to male bees; the number of sunflower petals facing one direction vs. those facing another direction; in reproduction habits of bunny rabbits; to the pattern of tides in the ocean.
Simple put, the Golden Ratio is found almost everywhere in the natural order of affairs, and trading is no different.
Financial Markets as a Natural Phenomena
Financial markets are made up of tons of individual and institutional actors. Every single individual actor in financial markets makes a decision based on the current available news and information. Yes, some have access to better, faster, or inside information, but for the most part, everyone has access to the same thing. And actors make their decision on such information.
As a result, patterns emerge from this collective conscience (what I like to refer to as the Mind of the Market). Fibonacci helps us read that mind.
How to Use Fibonacci in Stock Trading
Here’s how you use it:
Happy Trading 😊