Leonardo of Pisa, aka the mathematician “Fibonacci”, published his Fibonacci sequence in 1202. Fibonacci came upon his now very famous sequence of numbers when he was trying to breed rabbits and figure out how many pairs of rabbits he would have at the end of one year based upon their breeding behavior. This is just the kind of no-nonsense approach that Forex traders are into.

While many think of the Fibonacci sequence as a mathematical abstraction, it is grounded in a real world application. The Fibonacci sequence can be used to predict patterns which would not otherwise be apparent.

How can this be applied to investing? Very astute investors understand that there are hidden patterns in the stock market–based on the mass of investors’ behavior. “Buy low and sell high” and “The best time to buy is when there’s blood in the streets” are but two investment aphorisms that not only work, but also come from understanding hidden patterns of the investment markets.

These patterns cannot be seen by a day to day observation of market conditions, but reveal themselves when you step back and take a look at the big picture. Short term fluctuations in the market are nearly impossible to accurately forecast. However, the trends which occur over time most certainly are predictable. Investors of all stripes, including Forex traders have used the Fibonacci sequence to plan their investments and make large profits in the currency exchange markets.

Using the Fibonacci sequence involves a series of numbers. Each following number is the sum of the two numbers before it. It progresses like this 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. Anciently the Greeks found number 1.618 reprehensive of the golden ratio which is the supreme essence of balance. This balance is the fundamental strategy of profitable investing

Of all the Fibonacci series the two applications in wide spread use by Forex traders and investors are arcs and retracements.

A Fibonacci chart is made of three curved lines which represent support levels, key resistance and ranging. A trendline is first drawn between two points (generally the high and low points over a given period of time). Three curved lines are then drawn which intersect the trendline at the 38.2%, 50% and 61.8% points. Decisions about buying and selling are made at these points (i.e. – when the price of the commodity in question reaches these points).

In the world of investment, retracement relates to the reversal in movements of the price of a stock. An impressive reversal can counter the prevailing trend in the stock. Successful progressive investors focus strongly on the retracement patterns and possibilities. The Fibonacci method of retracement evaluates the prospects of the price of a financial asset being more superior than is average as well as supporting or resisting at key Fibonacci levels before continuing on its original course. Between the two extreme points a trendline is drawn and then its vertical distance by the ratios of 23.6, 38.2, 50, 61.8, and 100 percent, according to Fibonacci.

Multitudes of high-level traders gain with the Fibonacci retracement method. It aids them in finding the most strategic placement of transactions, their target prices and stop-losses. Gartley patterns, Tirone levels and the Elliott Wave theory are other technical tools that make use of retracement.

The Fibonacci formula simply works and is useful while investing. Forex traders worldwide are finding it successful while using it.