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ng
shocki
truthabout
fibonacci
numbers
ByEdwar
dDobson
8513
213455
89144233377
The Shocking Truth About Fibonacci Numbers
What Are Fibonacci Numbers?
WhyAr
eFi
bonac
ciNumbe
rs“Spe
cial
”?
It is commonly thought and has been widely written about that the numbers
in the Fibonacci series occur and are manifested throughout nature, art,
architecture, financial markets, and many other areas.
Any given number in the series (after 5) approximates 1.618 times the
number preceding it. The higher the number, the closer it approximates this ratio.
Any given number approximates .618 of the number following. Between alternate
numbers, the second higher number approximates 2.618 times the first number
(e.g., 233 versus 89). Between alternate numbers, the second number down has the
ratio of .382 (the inverse of 2.618) to the first number (e.g., 55 versus 144). There are
many other relationships such as these which are consistent between the numbers.
Traders Press publishes a short booklet, authored by yours truly way back in
1984, t it
led “Unde rstanding Fibo nacc iNumbe rs” which furnishes much more
information about Fibonacci numbers, interesting facts about them, how they may
be used in trading, and a bibliography listing other sources of information. This
booklet is available on www.traderspress.com for a nominal price, and is available
only as an e-book at present.
There has been much written about using the numbers themselves in the
markets. For example, if a price low occurs at point A, a subsequent high is
“suppos e
d” t o occur34,55, 89, or 144 price bars later. The actual numbers
themselves are purported to have great significance in many ways. Many who have
wr i
tt
enaboutt hem al mos timbuet he m wi th“magi cal”properties and qualities.
Indeed,whe none“Googl es”t heterms“magi c”and“Fi bonaccinumbe rs
”t ogethe r,
almost THIRTY THOUSAND entries pop up!
One day, years ago, I received an e-mail from my old friend Greg Morris.
Upon r efl
e ctingon whati ts aid and “c he cking i tout ” mys e l
f,Iwas shocked!
Essentially, it said that there is no real significance to the actual Fibonacci numbers
themselves, but only to the ratios and relationships of .382, .618, 1.618, and so on.
Years later, Greg wrote briefly about what he told me in that e-mail in his excellent
book “The Complete Guide to Market Breadth Indicators” ( available on
www.traderspress.com ) …butIdoNOT be li
evewhatheha dt os ayi sc ommon
kno wl edge…. he ncet hi sl it
tlet ongue -in-cheek treatise which has been rattling
around in my head ever since Greg made me aware of the fact that FIBONACCI
NUMBERS THEMSELVES ARE NOT MAGIC…. what is important is the
relationships between them, not the numbers themselves. What I discovered from
my friend Greg is that THE SAME “FI BONACCI ” RELATIONSHIPS exist
between the numbers in ANY NUMBER SERIES constructed in the same manner
as the Fibonacci series, that is, by adding the last two numbers in the series to obtain
the next number! To me, this was in incredible r evelation…. soIqui cklysettowor k
on a spreadsheet to prove this point to myself.
Le
t’sSt
artt
heSe
rie
sWi
th2and19
Greg suggested starting the series with the numbers 2 and 19 rather than 0
and 1. I did so and was amazed at the results…. aft
ergetting a few numbers into the
calculations, it became apparent that the exact same relationships existed between
the numbers thus obtained as existed between the numbers in the Fibonacci series. I
decided to see what would happen if the series were started with random numbers,
evenwhe ret hef irs
tors ec
ondonewasane gativenumbe r…we llloandbe hol
d,the
results were exactly the same: NO MATTER WHAT TWO NUMBERS, POSITIVE
OR NEGATIVE, WERE USED TO START THE SERIES, THE RESULT WAS
ALWAYSTHE SAME…. THE SO CALLED “FI BONACCI ”RELATI ONSHI PS
EXISTED BETWEEN THE RANDOMLY CHOSEN NUMBERS!! Even using two
negative numbers to begin the series gave the same result. See the Excel spreadsheet
below ( Whe r e’stheBe ef?)ifyoudon’ tbe li
evei t!
Gr
eg’
sWonde
rfulSe
nseofHumor
Il ovemyf r
ie ndGr eg’s“dr y”s ens eofhumor …whe nIas kedhim why he
had chosen the numbers 2 and 19 to illustrate his point, he told me to reflect on
what the 2nd and 19th l ett
ersoft heal phabe twe re….We ll
,the y ar
e“B” and
“S”…. B.S. Apparent l
yt hisi swhathet houghtoft he“magi c
”ofFi bonac ci
numbers themselves, as opposed to the relationships between them.
Whe
re’
stheBe
ef?
This Excel s
pre
ads
hee
tqui
ckl
yil
lus
trat
est
hepoi
nt…c
hec
kitoutyour
sel
f!
Before you completely dismiss the usefulness of Fibonacci, let me say this
about i t…I have studied Fibonacci relationships in the markets for many
years…. and I have found few other concepts or tools that are as helpful or as
consistent. I’
ms peakinghe reoft hemaj orr el
ations hi
ps ,s uchas. 618,. 382,1.618
and so forth (there are others), and not the numbers themselves. As a matter of fact,
using these relationships is one of the major inputs that I use to this day in my own
trading…andIhi ghlyr ecomme ndt hatifyouar enott hor oughl yf a mil
iarwi t
ht he
associated concepts, that you take the t imeandt r oublet ol ear nabo utthe m…t he n
decide whether or not they deserve a place in your own approach to trading. There
are a number of excellent books on the subject which I highly recommend, all of
which are available on the Traders Press website, www.traderspress.com . You can
searchf ort hef ol l
owingt i
tlest herebyt it
leorbyt heaut hor’sl astname .Is ugge s
t
that you take a look at these and consider adding one or more of them to your
trading library:
51
RSI: The Complete Guide ……………………………… John Hayden
RSI: Logic,Signals and Time Frame Correlation ……… Walter Baeyens
Short Term Trading with Price Patterns ………………. .. Mi chael Harris
Stock Patterns for Day Trading ………………………………. ..Ba r
ryRu dd
Stock Trading Techniques Based on Price Patterns …….Michael Harris
Taming Complexity ……………………………………. .Dennis McNicholl
Technical Trading Systems for Commodities & Stocks ... C. Patel
Technically Speaking …………………………………… Chris Wilkinson
The Amazing Life of Jesse Livermore …………………. .Richard Smitten
The Crowd/Extraordinary Popular Delusions …………… Lebon & MacKay
Handbook of Global Securities Operations ……………. .Jer r
yO’ Conne ll
The Opening Price Principle …………………………….Larry Pesavento
The Taylor Trading Technique ………………………….Douglas Taylor
The Trading Rule That Can Make You Rich …………… Edward Dobson
Trading Secrets of the Inner Circle ……………………. .Andrew Goodwin
Understanding E-Minis ………………………………… Bauer & Williams
Understanding Fibonacci Numbers ……………………. .Edward Dobson
Un derstandingGa ps……………………………………. .Sc ottAn dr
ews
Understanding MACD ………………………Gerald Appel & Edward Dobson
Understanding RSI ………………………….Edward Dobson & Roger Reimer
Understanding Spreads ……………………. .Edward Dobson & Roger Reimer
Wall St. Ventures and Adventures thru 40 Years ……… Richard Wyckoff
When Supertraders Meet Kryptonite …………………… Art Collins
Winning Edge 4 ………………………………………. ...Adrienne Toghraie
Winning Market Systems: 83 Ways to Beat the Mkt …… Gerald Appel
52
Edwar dDobsonwasbor ni nCal if
or ni
a
andr ai
sedi nSout hCar olina.Atage12,hi s
fatherinstill
edi nhi m ani nterestfor
i
nvest i
ngi nstocks.Thi sbecameal if
el ong
passi on,whi chcamet oencompasst rading
i
nsecur iti
es,opt ions,andf utures.Af ter
collegeandmi l
itarydut y,hewasabr oker
wi t
hSmi t
hBar neyandPai neWebberf or23
year s,speciali
zingi nopt ionsandf utures.
I
n1992,hel eftthebr oker agebusi nesst o
devot efulltimet ohi spubl ishingbusi ness,
Trader sPr ess(foundedi n1975) ,andt o
trading.Hei scur rent
lyanact ivet raderand
stil
lact i
vei nhisbusi ness.