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CHAPTER TEN

FIBONACCI RATIOS

ribonacci ratios are named after a 17th Century mathematitiyn who discovered that dividing certain odd numbers resulted in a ratio of .618. Th is ratio is also known as the Golden ratio. Here is how Fibonacci came up with the Golden ratio. Three is divided by five, then three is added to five, and five is then divided by eight. Five is then added to eight and the resulting number thirteen divides eight. This pattern continues, each time adding the previous nuiriber to the current number and the new number dividing the previous number. Below are some examples.

3/5 = .600

5/8 = .625

8/13 -.615

13/21 =.619

. . . and so on.

The average of these ratios is .618. Besides the Golden ratio number as a popular support or resistance point, there are derivatives thai are equally popular. These derivatives are as follows: .26, .38, ,50, .618, .73, .85, The idea is that the markets retrace to one of these ratios before continuing their trend. Of the above ratios, the most popular ones are the 50% retracement and the 627o retracement; however, in my research I have found the 73% retracement to be as powerful if not more powerful than either of the previous tv.o ratios. Following are illustrations of how to calculate the ratios using the charts.

Use the range between a major support and a resistance price to calculate the ratios. In Illustration 10-1, the Eurodollars market is used for illustrating a proper way of calculating the potential Fibonacci support prices. Tlie range between a key support and resistance price is calculated, and then this range is multiplied by the Fibonacci ratios. In illustration 10-1, a major support and a tnajor resistance price are labeled. The next step Is to use this range to calculate the possible percentage of retracement. Support is at $95.09 and Resistance is at $97.01, and by subtracting $95.09from $97.01 wegeta range of $1.92. At thispoint we will calculate several different Fibonacci ratios:



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