The Mystery of Investing’s Golden Ratio
thebadastronomer@Flickr
So far this week…
We’ve hunted for Investing’s Holy Grail.
We were amazed by the Eighth Wonder of the World: Compound Interest.
And we discovered the Secret Number of Finance: 72.
Now in our quest to uncover the secrets and mysteries of investing, we’ll reveal investing’s version of the Golden Ratio.
The Golden Ratio, well known in the fields of science and math, indicates that there’s a symmetry that underlies the universe. In art, it can be seen in the placement of points of interest in art works. Scientists see the Golden Ratio in things as small as the Nautilus Shell, to the immensity of a spiral galaxy.
The Fibonacci sequence is investing’s golden ratio.
The Fibonacci sequence, named after Leonardo of Pisa, who was known as Fibonacci, starts with 0 and 1, and the remaining number is the sum of the previous two. 1+2=3, 2+3=5, 3+5=8, 5+8=13… and so on.
What does this have to do with investing?
Some investors–Fibonacci fans–say that you can use the sequence to predict anything from volatility to volume to price swings. The theory is: if this pattern is omnipresent in nature, then it’s present in the financial world, or, at least, it’s present in the factors that make up finances, like market psychology and economic patterns.
By understanding the Fibonacci sequence, these theorists say that you can better predict market swings.
One of our partners, INO, has videos that refer to the Fibonacci sequence as part of market analysis and forecasting.
If you want to learn more about Fibonacci Numbers, you can check out the video here: INO Education.
(INO offers other tools for traders. You can try out their Trend Trading analysis for free. Just enter your email and you’ll receive access to the site. Enter the ticker symbol and you’ll be able to review INO’s recommendations.)
Related posts:
- Can Fibonacci Numbers Forecast Your Financial Future
- Exploring The Mysteries Of Investing
- What’s the Sharpe Ratio?
- Zoodak: A Place For Investing Animals
- The Eighth Wonder Of The World: Compound Interest
Related posts brought to you by Yet Another Related Posts Plugin.
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
It’s simply amazing how these Fibonacci ratios can be applied to the markets in different ways. Especially the Golden Ratio. Thanks
Hi Melanie–
You’re welcome. I find the whole pattern approach to trading fascinating–and a little intimidating. Mastering it is somewhere between art and science.
Hi, I was wondering what the picture is showing me, I found it somewhere else and I’d like to know what I’m looking at. (aka what part of space?) Thanks in advance.
Hi Olof–
I have to be honest. I really don’t know. I’ll see what I can find out, though.