Our Friend, Fibonacci

Leonardo Pisa was a brilliant 12th century mathematician, who described the natural mathematical order inherent in a wide range of systems.

To over-simplify his work, one premise was that we can divide organic systems into segments of two-thirds and one-thirds (as to Harry’s point above). Specifically, he based his work on Fibonacci numbers, sequences, and ratios.

Over the years, scores of investors have adopted the relationships he identified, syncing themselves with the market’s wave-like moves.

I reference the technique often in my analyses. When I explained it in some detail last October, I showed how the 38.2% Fibonacci retracement helped investors join the bull market that began in March 2009. Here’s the chart I showed…

See larger image

As the technique instructs, and to the point about the market’s need to inhale and exhale, after strong uptrends (the inhale), it’s wise to wait for a pullback (the exhale) before buying into the trend.

Fibonacci retracement levels give traders a useful way of estimating just how deep the pullback will be. The rule of thumb is that a pullback will retrace a minimum of 38.2% – about one-third – of the predominant trend.

Lucky for us, Fibonacci patterns recur frequently. Here’s a more recent example…

See larger image

Despite the bearish commentary, 2013 started with a bang. By May, sidelined investors had missed the opportunity to grab 17% gains. That, of course, was the “inhale” phase.

True to form, the market couldn’t continue this rise without first letting off some steam. A move back down to the familiar 38.2% Fibonacci retracement level was sufficient to reinvigorate the trend. This gave investors too skittish to commit in January, the chance to join the uptrend.

This is another classic example of the market’s natural rhythm and a great way to profit from being in tune with it.

Harry Dent’s Most Disturbing Prediction in Years

Harry Dent, one of the most respected economists in the industry, has uncovered a disturbing market event that could soon devastate millions of investors. In short, he has undeniable proof that one of the market’s safest and most popular investments is about to get slaughtered… and it will have dire consequences for those who don’t prepare right away.

For full details on the event Harry’s dubbed as the “Safe-Asset Slaughter”… and to ensure you escape the coming carnage, I urge you to watch this special presentation.

Click to Learn More
Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.