Fibonacci Number Series and Elliott Waves

Fibonacci number series has caught the imagination of almost every serious Elliott Wave trader
in the global markets. Unfortunately, many traders seem to think that a knowledge of Fibonacci
numbers is the answer to all their trading problems! But first, let us see what this is all about.
Elliott wave analysis of stock market or forex or commodity market would invariably involve the
use of some Fibonacci numbers to arrive at targets for corrections or projections. If you had
searched the Internet for some information about the Fibonacci number series, you would have
found a lot of material, but few explain it clearly enough. So this post aims to fill some of the
gaps.
The series takes on a sequence 1,1,2,3,5,8,13,21,34,55,89,144 and so on to infinity. Observe that
as we go to larger numbers, the advance becomes closer in ratio to 1.618. (PHI)
Suppose you place two squares of side 1 unit (say 1 inch) side by side, you get a rectangle whose
sides measure 1 by 2. Now imagine you have drawn a diagonal on this rectangle, thereby
creating two right-angled triangles on either side of the diagonal. If you remember the old
Pythagoras theorem that you learned while at school, you will know that the square on the
hypotenuse of a right triangle is equal to the sum of the squares on the two sides! So the diagonal
=square root [(1x1)+((2x2)
=square root [1+4]
=square root [5]
=2.236
Now let us just take the first square (of sides 1 unit each) and draw its diagonal. This diagonal
will measure square root of 2 = 1.414
These two ratios, 2.236 and 1.414 are sacred roots. The reciprocals of them are 0.447 and 0.707.
You will see a lot of my work is using the ratio 0.707!
Now I have a vague suspicion that some of you are more confused than before reading this
article. But dont despair. There are lots of easy stuff that you will learn as we go forward. For
example, you could learn how to use Fibonacci Ratios properly by first exploring possible
placements of the Fibonacci grids on your Elliott Wave charts.
I wish you good trading!