the

ng
shocki
truthabout
fibonacci
numbers
ByEdwar
dDobson

8513

213455

89144233377
 The Shocking Truth About Fibonacci Numbers
What Are Fibonacci Numbers?

Fort he“uni niti

ated”whoar eunfami liarwi t
hFi bonac cinumbe rs,t heyar ea
sequence of numbers (a series, in math parlance) initially discovered by an 11th
century Italian mathematician. The sequence starts with the digits 0 and 1, then
progresses to the next number by adding the last two numbers in the series together.
Hence,t hes um of0and1i s1…t hen1+1=2,2+1=3,3+2=5,5+3=8,8+5=13,
ands oo n…. t
hust hef i
rstseve
ral numbers in the series are 0, 1, 2, 3, 5, 8, 13, 21, 34,
55,89,144,233,377,610,987,1597…….

WhyAr
eFi
bonac
ciNumbe
rs“Spe
cial
”?

It is commonly thought and has been widely written about that the numbers
in the Fibonacci series occur and are manifested throughout nature, art,
architecture, financial markets, and many other areas.

Is There Any Special Relationship Between the Numbers?

Any given number in the series (after 5) approximates 1.618 times the
number preceding it. The higher the number, the closer it approximates this ratio.
Any given number approximates .618 of the number following. Between alternate
numbers, the second higher number approximates 2.618 times the first number
(e.g., 233 versus 89). Between alternate numbers, the second number down has the
ratio of .382 (the inverse of 2.618) to the first number (e.g., 55 versus 144). There are
many other relationships such as these which are consistent between the numbers.

Where Can I Learn More About Fibonacci Numbers?

Traders Press publishes a short booklet, authored by yours truly way back in
1984, t it
led “Unde rstanding Fibo nacc iNumbe rs” which furnishes much more
information about Fibonacci numbers, interesting facts about them, how they may
be used in trading, and a bibliography listing other sources of information. This
booklet is available on www.traderspress.com for a nominal price, and is available
only as an e-book at present.

How Do Traders Use Fibonacci in the Markets?

When a stock, commodity or index makes a price move (either up or down)

from point A to point B, then the price reacts part of the distance traveled in the A-
B move, the extent of this reaction frequently approximates a Fibonacci ratio of the
distance of the preceding move (e.g. .382 or .618). This is known as a Fibonacci
retracement, and the ending point of the reaction is labeled point C. If the original
trend reasserts itself, the distance traveled from point C to the point where this new
price move culminates at point D (the C-D move) frequently approximates a
Fibonacci proportion or ratio (e.g. C-D distance = 1.618 x A-B distance). This is
known as a Fibonacci extension. This is an extremely simplified and incomplete
explanation and example and is shown only to illustrate the types of principles used
by traders who employ Fibonacci concepts in their timing and analysis.

But How About the Numbers Themselves?

There has been much written about using the numbers themselves in the
markets. For example, if a price low occurs at point A, a subsequent high is
“suppos e
d” t o occur34,55, 89, or 144 price bars later. The actual numbers
themselves are purported to have great significance in many ways. Many who have
wr i
tt
enaboutt hem al mos timbuet he m wi th“magi cal”properties and qualities.
Indeed,whe none“Googl es”t heterms“magi c”and“Fi bonaccinumbe rs
”t ogethe r,
almost THIRTY THOUSAND entries pop up!

I Used to Believe That The Numbers We

re“Magi
c”Mys
elf

When I first learned about Fibonacci numbers (and relationships) in the

ear ly1980’ s,Iwasi ntrigued. I spent years observing how consistently Fibonacci
relationshipsa ndr atios“playe do ut”i nmar ketaction.In1979,Iha dwr ittenand
self-publishedabookt i
tled“The Trading Rule That Can Make You Rich*”( before I
had ever learned about Fibonacci numbers and relationships). This book dealt with
a highly consistent pattern of market behavior. When the book was reprinted in
1985, I added a chapter which dealt with Fibonacci relationships and how they
correlated with the main concept dealt with in the book. (Check this book out on
www.traderspress.com …many t raderss ay they havef ound ithe l
pf ulint heir
tradi ng).Infl
uenc edbyt he“popul arwi sdom”,Ibe camet hor oughly convinced that
Fibonac c inumbe rsthe ms e
lveswe rea“bi gde al
”andhe ld“magi calpowe rs
”.

What Changed Your Mind?

One day, years ago, I received an e-mail from my old friend Greg Morris.
Upon r efl
e ctingon whati ts aid and “c he cking i tout ” mys e l
f,Iwas shocked!
Essentially, it said that there is no real significance to the actual Fibonacci numbers
themselves, but only to the ratios and relationships of .382, .618, 1.618, and so on.
Years later, Greg wrote briefly about what he told me in that e-mail in his excellent
book “The Complete Guide to Market Breadth Indicators” ( available on
www.traderspress.com ) …butIdoNOT be li
evewhatheha dt os ayi sc ommon
kno wl edge…. he ncet hi sl it
tlet ongue -in-cheek treatise which has been rattling
around in my head ever since Greg made me aware of the fact that FIBONACCI
NUMBERS THEMSELVES ARE NOT MAGIC…. what is important is the
relationships between them, not the numbers themselves. What I discovered from
my friend Greg is that THE SAME “FI BONACCI ” RELATIONSHIPS exist
between the numbers in ANY NUMBER SERIES constructed in the same manner
as the Fibonacci series, that is, by adding the last two numbers in the series to obtain
the next number! To me, this was in incredible r evelation…. soIqui cklysettowor k
on a spreadsheet to prove this point to myself.
 Le
t’sSt
artt
heSe
rie
sWi
th2and19

Greg suggested starting the series with the numbers 2 and 19 rather than 0
and 1. I did so and was amazed at the results…. aft
ergetting a few numbers into the
calculations, it became apparent that the exact same relationships existed between
the numbers thus obtained as existed between the numbers in the Fibonacci series. I
decided to see what would happen if the series were started with random numbers,
evenwhe ret hef irs
tors ec
ondonewasane gativenumbe r…we llloandbe hol
d,the
results were exactly the same: NO MATTER WHAT TWO NUMBERS, POSITIVE
OR NEGATIVE, WERE USED TO START THE SERIES, THE RESULT WAS
ALWAYSTHE SAME…. THE SO CALLED “FI BONACCI ”RELATI ONSHI PS
EXISTED BETWEEN THE RANDOMLY CHOSEN NUMBERS!! Even using two
negative numbers to begin the series gave the same result. See the Excel spreadsheet
below ( Whe r e’stheBe ef?)ifyoudon’ tbe li
evei t!

Gr
eg’
sWonde
rfulSe
nseofHumor

Il ovemyf r
ie ndGr eg’s“dr y”s ens eofhumor …whe nIas kedhim why he
had chosen the numbers 2 and 19 to illustrate his point, he told me to reflect on
what the 2nd and 19th l ett
ersoft heal phabe twe re….We ll
,the y ar
e“B” and
“S”…. B.S. Apparent l
yt hisi swhathet houghtoft he“magi c
”ofFi bonac ci
numbers themselves, as opposed to the relationships between them.
 Whe
re’
stheBe
ef?
This Excel s
pre
ads
hee
tqui
ckl
yil
lus
trat
est
hepoi
nt…c
hec
kitoutyour
sel
f!

Where's The Beef?

Fibonacci # Ratio Start Ratio Start Ratio Start Ratio Start Ratio
1 2 29 -15 -11
1 19 5 -32 7
2 21 34 -47 -4
3 1.500 40 1.905 39 1.147 -79 1.681 3 -0.750
5 1.667 61 1.525 73 1.872 -126 1.595 -1 -0.333
8 1.600 101 1.656 112 1.534 -205 1.627 2 -2.000
13 1.625 162 1.604 185 1.652 -331 1.615 1 0.500
21 1.615 263 1.623 297 1.605 -536 1.619 3 3.000
34 1.619 425 1.616 482 1.623 -867 1.618 4 1.333
55 1.618 688 1.619 779 1.616 -1403 1.618 7 1.750
89 1.618 1113 1.618 1261 1.619 -2270 1.618 11 1.571
144 1.618 1801 1.618 2040 1.618 -3673 1.618 18 1.636
233 1.618 2914 1.618 3301 1.618 -5943 1.618 29 1.611
377 1.618 4715 1.618 5341 1.618 -9616 1.618 47 1.621
610 1.618 7629 1.618 8642 1.618 -15559 1.618 76 1.617
987 1.618 12344 1.618 13983 1.618 -25175 1.618 123 1.618
1597 1.618 19973 1.618 22625 1.618 -40734 1.618 199 1.618
2584 1.618 32317 1.618 36608 1.618 -65909 1.618 322 1.618
4181 1.618 52290 1.618 59233 1.618 -106643 1.618 521 1.618
6765 1.618 84607 1.618 95841 1.618 -172552 1.618 843 1.618
10946 1.618 136897 1.618 155074 1.618 -279195 1.618 1364 1.618
17711 1.618 221504 1.618 250915 1.618 -451747 1.618 2207 1.618
28657 1.618 358401 1.618 405989 1.618 -730942 1.618 3571 1.618
46368 1.618 579905 1.618 656904 1.618 -1182689 1.618 5778 1.618
75025 1.618 938306 1.618 1062893 1.618 -1913631 1.618 9349 1.618
121393 1.618 1518211 1.618 1719797 1.618 -3096320 1.618 15127 1.618
196418 1.618 2456517 1.618 2782690 1.618 -5009951 1.618 24476 1.618
317811 1.618 3974728 1.618 4502487 1.618 -8106271 1.618 39603 1.618
514229 1.618 6431245 1.618 7285177 1.618 -13116222 1.618 64079 1.618
832040 1.618 10405973 1.618 11787664 1.618 -21222493 1.618 103682 1.618
1346269 1.618 16837218 1.618 19072841 1.618 -34338715 1.618 167761 1.618
2178309 1.618 27243191 1.618 30860505 1.618 -55561208 1.618 271443 1.618
3524578 1.618 44080409 1.618 49933346 1.618 -89899923 1.618 439204 1.618
5702887 1.618 71323600 1.618 80793851 1.618 -145461131 1.618 710647 1.618
9227465 1.618 115404009 1.618 130727197 1.618 -235361054 1.618 1149851 1.618
14930352 1.618 186727609 1.618 211521048 1.618 -380822185 1.618 1860498 1.618
24157817 1.618 302131618 1.618 342248245 1.618 -616183239 1.618 3010349 1.618
39088169 1.618 488859227 1.618 553769293 1.618 -997005424 1.618 4870847 1.618
63245986 1.618 790990845 1.618 896017538 1.618 -1613188663 1.618 7881196 1.618
102334155 1.618 1279850072 1.618 1449786831 1.618 -2610194087 1.618 12752043 1.618
165580141 1.618 2070840917 1.618 2345804369 1.618 -4223382750 1.618 20633239 1.618
267914296 1.618 3350690989 1.618 3795591200 1.618 -6833576837 1.618 33385282 1.618
433494437 1.618 5421531906 1.618 6141395569 1.618 -1.1057E+10 1.618 54018521 1.618
701408733 1.618 8772222895 1.618 9936986769 1.618 -1.7891E+10 1.618 87403803 1.618
1134903170 1.618 1.4194E+10 1.618 1.6078E+10 1.618 -2.8947E+10 1.618 1.41E+08 1.618
1836311903 1.618 2.2966E+10 1.618 2.6015E+10 1.618 -4.6838E+10 1.618 2.29E+08 1.618
 Le
t’sNotGe
tTooCar
rie
dAwayHe
re…

Before you completely dismiss the usefulness of Fibonacci, let me say this
about i t…I have studied Fibonacci relationships in the markets for many
years…. and I have found few other concepts or tools that are as helpful or as
consistent. I’
ms peakinghe reoft hemaj orr el
ations hi
ps ,s uchas. 618,. 382,1.618
and so forth (there are others), and not the numbers themselves. As a matter of fact,
using these relationships is one of the major inputs that I use to this day in my own
trading…andIhi ghlyr ecomme ndt hatifyouar enott hor oughl yf a mil
iarwi t
ht he
associated concepts, that you take the t imeandt r oublet ol ear nabo utthe m…t he n
decide whether or not they deserve a place in your own approach to trading. There
are a number of excellent books on the subject which I highly recommend, all of
which are available on the Traders Press website, www.traderspress.com . You can
searchf ort hef ol l
owingt i
tlest herebyt it
leorbyt heaut hor’sl astname .Is ugge s
t
that you take a look at these and consider adding one or more of them to your
trading library:

Carolyn Boroden, Fibonacci Trading

(http://www.traderspress.com/detail.php?PKey=592 )
Michael Jardine, New Frontiers in Fibonacci Trading
(http://www.traderspress.com/detail.php?PKey=266 )
Connie Brown, Fibonacci Analysis
(http://www.traderspress.com/detail.php?PKey=601 )

There are a number of other worthwhile items available on Fibonacci as it

relates to trading.Toche
ckt hem out ,doas ear
c hoft he“Fi bonac ci”categoryont he
website:
http://www.traderspress.com/categoryResults.php?S_CatID=40&Submit=Search+Categories

I’m hopingt hislitt

le“tongue he
-in-c ek”ar ti
clebr oughtas mi letoyourf ace,
made your day a bit more enjoyable, and contributed in some small way to further
your understanding and knowledge of Fibonacci numbers and relationships.

Edward Dobson September 3, 2008

Greenville SC
 Current Publications of Traders Press, Inc.®

12 Habitudes of Highly Successful Traders …………… Ruth B Roosevelt

A Comparison of 12 Technical Trading Systems ……… Lukac & Brorsen
A Complete Guide to Trading Profits …………………….Alexander Paris
A Professional Look at S&P Day Trading ……………. .Don Trivette
A Treasury of Wall Street Wisdom …………………….Schultz and Coslow
Ask Mr. Easy Language ………………………………. .Sam Tennis
Astro-Cy c les:Th eTr ade r’
sVi ewp oint………………… Larry Pesavento
Channels and Cycles: A Tribute to J M Hurst …………. BrianMi llar
d
Chart Reading for Professional Traders ………………. ..Michael Jenkins
Charting Commodity Market Price Behavior ………. ..
…L Dee Belveal
Cyclic Analysis: ………………………………………. .. J.M. Hurst
Dynamic Trading ……………………………………… Robert Miner
Essentials of Trading …………………………………. ..Pesavento & Jouflas
Exceptional Trading: The Mind Game ………………… Ruth B Roosevelt
Fibonacci Ratios with Pattern Recognition …………….Larry Pesavento
Futures Spread Trading: The Complete Guide ………… Courtney Smith
Geometry of Stock Market Profits ……………………. .Michael Jenkins
Harmonic Vibrations …………………………………… Larry Pesavento
How to Trade in Stocks ………………………………… Jesse Livermore
Investing by the Stars …………………………………. .Henry Weingarten
Investor Skills Training ………………………………. ..Rob Ronin
It’
sYourOpt ion………………………………………. .Marvin Zelkin
Keeping a Cool Head in a Hot Market ………………… Ruth B Roosevelt
Magic of Moving Averages …………………………….Scot Lowry
Market Beaters ………………………………………… Art Collins
Market Rap …………………………………………….Art Collins
Mind Over Markets: …………………………………… J.DaltonOption
Strategies for Sophisticated Traders …………………… Mitch Crask
Overcoming 7 Deadly Sins of Trading ………………… Ruth B Roosevelt
Planetary Harmonics of Speculative Markets ………….Larry Pesavento
Point and Figure Charting: The Complete Guide ……… Carroll Aby
Point and Figure Commodity & Stock Trading Techniques . K.Zieg
Precision Trdg with Stevenson Price & Time Targets ….JR Stevenson
Priva t
eThough tsfromaTr ader’sDi ar
y………………..Pesavento & MacKay
Professional Commodity Trader. ……………………… Stanley Kroll
Profit Magic of Stock Transaction Timing ………….…. J.M. Hurst
Profitable Patterns for Stock Trading ………………….Larry Pesavento

51
RSI: The Complete Guide ……………………………… John Hayden
RSI: Logic,Signals and Time Frame Correlation ……… Walter Baeyens
Short Term Trading with Price Patterns ………………. .. Mi chael Harris
Stock Patterns for Day Trading ………………………………. ..Ba r
ryRu dd
Stock Trading Techniques Based on Price Patterns …….Michael Harris
Taming Complexity ……………………………………. .Dennis McNicholl
Technical Trading Systems for Commodities & Stocks ... C. Patel
Technically Speaking …………………………………… Chris Wilkinson
The Amazing Life of Jesse Livermore …………………. .Richard Smitten
The Crowd/Extraordinary Popular Delusions …………… Lebon & MacKay
Handbook of Global Securities Operations ……………. .Jer r
yO’ Conne ll
The Opening Price Principle …………………………….Larry Pesavento
The Taylor Trading Technique ………………………….Douglas Taylor
The Trading Rule That Can Make You Rich …………… Edward Dobson
Trading Secrets of the Inner Circle ……………………. .Andrew Goodwin
Understanding E-Minis ………………………………… Bauer & Williams
Understanding Fibonacci Numbers ……………………. .Edward Dobson
Un derstandingGa ps……………………………………. .Sc ottAn dr
ews
Understanding MACD ………………………Gerald Appel & Edward Dobson
Understanding RSI ………………………….Edward Dobson & Roger Reimer
Understanding Spreads ……………………. .Edward Dobson & Roger Reimer
Wall St. Ventures and Adventures thru 40 Years ……… Richard Wyckoff
When Supertraders Meet Kryptonite …………………… Art Collins
Winning Edge 4 ………………………………………. ...Adrienne Toghraie
Winning Market Systems: 83 Ways to Beat the Mkt …… Gerald Appel

Now Available Through Traders Press, Inc.®

e-Books Available for Immediate Download
Some no longer in print and some NEW
Visit us at www.traderspress.com for a complete listing

52
Edwar dDobsonwasbor ni nCal if
or ni
a
andr ai
sedi nSout hCar olina.Atage12,hi s
fatherinstill
edi nhi m ani nterestfor
i
nvest i
ngi nstocks.Thi sbecameal if
el ong
passi on,whi chcamet oencompasst rading
i
nsecur iti
es,opt ions,andf utures.Af ter
collegeandmi l
itarydut y,hewasabr oker
wi t
hSmi t
hBar neyandPai neWebberf or23
year s,speciali
zingi nopt ionsandf utures.
I
n1992,hel eftthebr oker agebusi nesst o
devot efulltimet ohi spubl ishingbusi ness,
Trader sPr ess(foundedi n1975) ,andt o
trading.Hei scur rent
lyanact ivet raderand
stil
lact i
vei nhisbusi ness.