Fibonacci Numbers

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 The first record of Fibonacci Numbers (Divine Proportion Numbers) dates back to 200 BC.  They were again discovered by Leonardo of Pisa in 1202 as he pondered the end “family” result of a pair of rabbits. Yes, right, they multiply.  Now I know this seems to have nothing to do with the stock market, but in a way it does because those numbers are found throughout nature and all of creation.  It is hard to find a number that doesn’t fit.

Fibonacci numbers are 1 + 2 = 3, 2 + 3 = 5, 3 + 5 = 8, and so on-  so, we have 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233…

These numbers relate to our DNA. It is found in the number of leaves on a stem, petals on a flower, tree branches, insect body parts, portions of our human body (1 nose and mouth, 2 eyes, arms and legs, 1 belly button, etc. The numbers are found in seashells, spirals of galaxies, harmony of music, genealogy of a bee, chemical elements, the behavior of light and atoms. It goes on and on, so why not incorporate these Universal numbers into our option trading chart set-up?

So, rather than select a moving average (MA) or an exponential moving average (EMA) of 7, 9, 10- long ago I decided to use 8, rather than 15, I use 13.  The difference is minimal, but for me I am aligning my trading chart with Universal principles.  There is little difference between an 8 or 9 or 10 EMA, but in my head, I am incorporating Universal principles that put me and my trading with Divine Proportion Concepts.

Having used these EMAs for years, I am still amazed how they can work like exact ceilings and floors and when they cross it is significant.

Look at the charts below with candlesticks and note the areas where the lines touch, but don’t cross or when there is a cross, perhaps of a candlestick, it then draws back.  This information, seeing an EMA overhead, below, or a cross imparts information that can be incorporated in your trading decisions.

Check out these charts:

Stockcharts.com


Stockcharts.com

Again, it is interesting how these Fibonacci numbers act as ceilings (overhead resistance) and floors (support).  Because the Fibonacci tell a story about price moves and their strength and possible areas that will stop a move upward or offer support in a drop, I want those lines on my chart to share the details and tell their story.

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