The Fibonacci sequence first appeared as the solution to a problem in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to introduce the Hindu-Arabic numerals used today to a Europe still using Roman numerals. That in itself is one of the greatest innovations the world has ever seen.
Fibonacci was an Italian mathematician and he’s finest remembered by his globe popular Fibonacci sequence, the definition of this sequence is always that it is formed by a series of numbers in which each amount may be the sum from the two preceding numbers; 1, 1, two, 3, 5, 8, 13….
What is incredible that mathematics from 800 years ago, today is used in Financial Markets. [and no, Asad Karim does not use an abacus to calculate his ‘low net worth’ !!!]
The case of foreign exchange dealing, Fibonacci mathematics is essential for that foreign exchange market, as the Fibonacci ratios derived from this sequence of numbers, that i. e.. 236,. 50,. 382,. 618, etc etc, are related to the direction of foreign currency exchange market movements. The Fibonacci retracements is a method of technical analysis for determining support and resistance levels in foreign exchange markets. Fibonacci retracement is based on the idea that markets will retrace a predictable portion of a move, after which they will continue to move in the original direction. Hedge funds and foreign exchange trading use Leonardo Fibonacci’s genius.
The original problem in the Liber Abaci posed the question: How many pairs of cute fluffy rabbits can be generated from a single pair, if each month each mature pair brings forth a new pair, which, from the second month, becomes productive. [when I was 17 I had a grey pet rabbit called Norman who sadly died the night before I left home for The University of Liverpool to read Applied Mathematics & Theoretical Physics.]
These ratios are mathematical proportions prevalent in several areas and structures in nature, as properly as in several man made creations like financial markets.
After the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the lower number is 1.618. These two figures are the golden mean or the golden ratio. Its proportions are pleasing to the human senses and it appears throughout biology, art, music, and architecture. A few examples of natural shapes based on the Golden Ratio include DNA molecules, sunflowers, snail shells, pineapples, galaxies, and hurricanes.