Business and trading can be a lot about strategies. Many organisations will try to create, adopt, and follow the best ones to maximise their chances of success. This can enhance their return on investment.
One of the most popular methods to follow is the Fibonacci Strategy.
How Does the Fibonacci Strategy Work?
The strategy can also known as the Fibonacci sequence and has been used across many different industries in various ways. The gambling sector is just one example.
Players in roulette betting games or wager on sports may have deployed it as a wagering strategy. There is no guarantee that it increases any chances of winning, though this sometimes providers players with a way to structure gameplay by working as a negative progression system. This means players will add the two previous digits together (betting units) to determine the next wager. After each wager, players will either add or subtract depending on the outcome of their bet.
The sequence also takes other forms in biology and architecture.
In biology, it’s present in numerous ways, from plants to the human body. It can be used to analyse and describe patterns that occur. It has also been used to describe the reproduction patterns of creatures such as bees and rabbits. In architecture, the sequence is used to create balance and visual harmony in their designs, with many famous buildings having been created using the maths behind it.
In simple terms, the strategy involves a set of numbers that will increase at a set rate. Each number that is next in the sequence will be the sum of the two numbers that were before it. A basic way in which the sequence may look is:
- 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on.
What Are the Origins of the Fibonacci Strategy and How is It Applied in Trading?
The strategy is argued to have been introduced to Europe between the 12th and 13th centuries. It was named after Leonardo Fibonacci, an Italian mathematician, who published it in his book Liber Abaci in 1202.
However, there are suggestions that it originated long before he discovered it. Some believe it was originally used in Indian mathematics to calculate how syllables should be arranged in different patterns of poetry. Some have suggested that it existed between 700 BCE and 100 AD in ancient India, or between 480-410 BCE, with Acharya Pingala credited with the theory.
In the trading business, the strategy has become extremely useful for traders trying to make informed decisions. It can help them identify support and resistance levels, anticipate market movements, and make informed decisions. The strategy involves entering a trade when the price shows signs of reversal near a Fibonacci level and placing stop-losses just beyond the next retracement level. These levels are two points that can be connected in which a trader views as being the high and low points of whatever is being tracked. Stocks, commodities, and foreign currency exchanges are examples of when Fibonacci retracements are used.
It can also be used to project what might happen in the future. Traders in forex, stocks, commodities, and other financial markets use Fibonacci projections to make informed investment decisions.
