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10 Although this equation might seem complex, it is actually quite simple. The sequence of the Fibonacci numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,144, 233, 377 up to infmity Starting with zero and adding one begins the series. The calculation takes the sum of the two numbers and adds it to the second number in the addition. (0+1=1)...(1+1=2)...(1+2=3)...(2+3=5)...(3+5=8)... ...(5+8=13)...(8+13=21)...(13+21=34) After the eighth sequence of calculations, there are constant relationships that can be derived firom the series. For example, if you divide the former number by the latter, it yields .618. 34/55 = .618181  .618 55/89 = .617977.618 89/144 = .618055.618 144/233 = .618025 .618 Dividing the latter number by the former number derives another relationship firom the sequence. This relationship yields approximately 1.618. 55/34= 1.617647 1.618 89/55 = 1.618181  1.618 144/89 = 1.6179771.618 233/144= 1.618055 1.618 The 0.618 and the 1.618 are two of the four Fibonaccirelated numbers that I use to consider price action harmonic. The other two numbers that are derived from the series, the 0.786 and 1.27, are the square root of the 0.618 and the 1.618, respectively.
These four numbers have been found to exist in many natural and manmade phenomena. The .618 and the 1.618 constants from the series are found in the Great Pyramids. Comparing the height to 1/2 its base derives these relationships. 1/2 BASE = 1 Fibonaccis additive series is based upon the equation: Phi + 1 = Phi squared Base = 2.00 HalfBase = 1.00 Height = .618 Slope = 1.618 Not only do these constant numeric relationships occur in the Fibonacci series, there are also universal examples that exhibit this phenomenon. For example, Venus takes 225 days to complete a revolution around the sun. As we all know, the Earth requires 365 days to complete one revolution. If you divide 255 by 365, the result is approximately .618 of a year. (255/365 = .6164 ~ .618) Thats amazing! Although these concepts might seem difficult to grasp, these examples demonstrate that there is something very peculiar about this mathematical phenomenon. I want to emphasize that I am not any sort of mathematician,
astronomer or astrologer. In fact, the first time that I studied this information, I was completely confused. But, as I researched these subjects more thoroughly, I realized that these numbers did possess unusual relationships to the universe. As I began to utilize these numbers in my trading, I realized that these numbers frequently occur in stock charts. So, the primary concept to grasp is that these numbers exist for a reason. As you begin to study these numbers in relationship to stock charts, you will realize that they are effective tools in gauging price action.
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