# Fibonacci - what is it and is it relevant?

### Anyone who completed high school should've at least heard of "Fibonacci". In this post, we will discuss not only what it is, but how it's used in trading.

## What is the Fibonacci sequence?

Before delving into Fibonacci, it's crucial to acknowledge the origin of the Divine Proportion, which forms the foundation of natural phenomena and has been embraced by humans for designing and calculating geometric shapes. The concept of the golden ratio, attributed to the mathematical pioneer Pythagoras, plays a role in the enigma surrounding structures like the Great Pyramids. This ratio, expressed as 0.618, manifests in various natural formations, such as the spiral of a cyclone, the cross-section of a seashell, the unfurling of a fern, and even in the structure of your own cochlea.

Additionally, the proportion is evident in straightforward geometric shapes. This connection to natural occurrences and its integration into human design and mathematics underscores the significance of the golden ratio and lays the groundwork for understanding Fibonacci.

Leonardo Fibonacci, an Italian mathematician born around 1170 AD, is renowned for his work in modeling the population growth of rabbits, which has become known as the Fibonacci sequence of numbers. The sequence, represented as 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, and so on, follows a pattern where each successive number is the sum of the previous two.

An intriguing aspect of the Fibonacci sequence is its connection to the golden ratio, approximately 1.618. Numbers in the sequence, beyond 13, can be considered approximate multiples of 1.618. This is derived by dividing the larger number by the smaller, and 0.618 is obtained by dividing the smaller number into the next one in the sequence.

The primary ratios derived from the Fibonacci sequence, including 0.618 and 1.618, play a fundamental role in various aspects of trading. Complementary ratios such as 0.382, 0.5, 0.707, 1.414, 2.0, 2.236, 2.618, 3.141, and 3.618 offer additional insights for effective trading strategies. Understanding these ratios and their relationships provides traders with a valuable tool for technical analysis in financial markets.

There are many resources out there explaining Fibonacci - Iβm not going to reinvent the wheel, so hereβs a simpler explanation from Wikipedia:

In mathematics, the

Fibonacci sequenceis a sequence in which each number is the sum of the two preceding ones. Numbers that are part of the Fibonacci sequence are known asFibonacci numbers, commonly denotedFβ. The sequence commonly starts from 0 and 1, although some authors start the sequence from 1 and 1 or sometimes (as did Fibonacci)_{n}from 1 and 2. Starting from 0 and 1, the sequence begins

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ....

## Thatβs cool, but how is it relevant to trading?

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