Can Fibonacci Numbers Predict Markets? Yes, And I Had Lunch Yesterday With The Easter Bunny

Fibonacci numbers in mathematics are a sequence formed by adding the
previous two numbers together to generate the next number. For
example, the series starts off 1, 1, 2, 3, 5, 8, 13, etc. An
interesting property is that the next number is approximately 1.618
times the previous number.A 19th century trading guru named Gann made
a big deal out of them, and traders and investors started believing
that they can predict market movements.In fact, many technical
indicators were developed using these numbers, including:1. Gann lines
- these are angled lines that are plotted on charts. They use 1 and
another Fibonacci number to advance the x and y axis on the chart. For
example, the 1 x 1 Gann line is drawn at 45 degrees (each new point on
the line is moved 1 box horizontally and 1 box vertically). There are
also 1 x 2, 1 x 3, 1 x 5, 1 x 8, etc. Gann lines.2. Retracements - If
a Fibonacci number is divided by the next number in the sequence, you
get 61.8%. If you divide a number by the number 2 places ahead, you
get 38.2%. According to Fibonacci retracement, after a market makes a
big move, it will retrace back 38.2%, 50%, and even 61.8%. These are
supposed to be "mysterious turning points".The truth about Fibonacci
is that it is a combination of "gurus" selling books, selective
examples, and self-fulfilling prophecy.Fibonacci allows trading system
vendors to design systems that seem to be mathematical and scientific,
with a large degree of certainty. People trying to master trading buy
these books and systems because they tend to be well educated
professionals who want trading to be as neat and cut and dry as their
professions.Instead, Fibonacci promoters tend to cherry-pick example
trades that show that it works. They don't include examples where the
market fails to retrace, or else blows right through the number
without turning.Finally, at times when there are no strong fundamental
news events to move prices, a market will turn at Fibonacci points
because so many people use Fibonacci points. Long term, of course,
markets move because of supply and demand.Fibonacci numbers can't
predict the market. At best, they help you manage your trade - to
pinpoint entry and exit points (of course, there is nothing magical
about using a Fibonacci number as a stop - it is as good as any
number. The main thing is to be disciplined to stick to your
plan).Incidently, Fibonacci introduced this number sequence to the
West (it was previously known to Eastern mathematicians) to describe
the theoretical breeding patterns of rabbits - so it turns out to be a
coincidence that I mentioned the Easter Bunny in the title!