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The Fibonacci numbers sequence and the golden ratio have fascinated mathematicians for hundreds of years.

While Fibonacci numbers have many applications, they have received considerable interest from traders due to their uncanny accuracy in spotting market turning points in advance.

You can use Fibonacci numbers as a predictive tool and when used correctly they can enhance a your analysis of the market, helping you to increase profits and decrease risk.

The History of Fibonacci Numbers

The Fibonacci number sequence first appeared as the solution to a problem in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to introduce the Hindu-Arabic numerals used today to a Europe still using Roman numerals.

The original problem in the Liber Abaci posed the question: How many pairs of rabbits can be generated from a single pair, if each month each mature pair brings forth a new pair, which, from the second month, becomes productive.

The Fibonacci number Sequence

The resulting Fibonacci numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, are the result of the following equation.

If Fn is the nth Fibonacci number, then successive terms are formed by addition of the previous two terms, as Fn 1 = Fn Fn-1, F1 = 1, F2 =

The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62% is 38%, and this 38% is likewise a Fibonacci retracement number.

Fibonacci Numbers and the Golden Ratio

Fibonacci numbers are found to have many relationships to the Golden Ratio F = (1 /5)/2, a constant of nature which was of constant interest to the ancient Greeks, appearing in both Greek art and architecture.

Fibonacci Numbers and Market Analysis

Changes in stock prices are not simply a tug of war between supply and demand but also reflect human opinions, valuations, and expectations.

A study carried out by mathematical psychologist Vladimir Lefebvre demonstrated that humans exhibit positive and negative evaluations of the opinions they hold in a ratio that approaches phi, with 61.8% positive and 38.2% negative and that Fibonacci numbers are rooted Read more…

Trading using stock index trading systems has become increasingly popular in recent years, as they offer traders a great speculative vehicle to seek above average profits.

There are plenty of stock index trading systems, but which is the best?

Stock Index Trading Systems ? Catch and Follow the Trends!

For profitable stock index trading, you need to be able to lock into, and run the big profitable trends, and the best way to do this is by using technical analysis to spot, and act, on these trends.

The best way to do this is to find a stock index trading system that has stood the test of time.

Stock Index Trading Systems and Gann?s Methods for Profit

W D Gann was a trader and legend in his own lifetime. Even today, a half a century after his death, he remains one of the most influential traders of all time.

Gann had an astounding trading record and amassed a fortune of over $50 million dollars in his trading career. Many of his recommendations are on record, for example:

Each year Gann published a forecast for the following year. In 1928 he published a forecast, which predicted the date of the September 1929 US Stock Market high, and that a black Friday would occur, a year in advance of the actual events.

In 1932, he recommended buying stocks at the all time low in the Dow in June and July.

History repeats itself allowing us to Predict the Future
Gann?s major contention was that certain laws governed not only the markets, but nature as well, and were universal in scope.

He argued that human nature repeated itself and that by looking at the past we could make predictions about the future.

In “Wall Street Stock Selector” Gann said.

“Just remember one thing, whatever has happened in the past in the stock market and Wall Street will happen again. Advances in bull markets will come in the future, and panics will come in the future, just as they have in the past. This is the working out of a natural law ?” and, “It is action in one direction and reaction in the opposite direction. In order to make profits, Read more…

In this report, we will look at the history and background of Fibonacci numbers and The Golden Ratio. We will then outline three specific money management tips that can help increase your profit potential.

Support and resistance levels are an important consideration for most traders to help identify entry and exit points when trading.
Fibonacci percentage “retracement” levels based upon the Fibonacci number sequence and golden ratio are very popular with many traders but what are they exactly?

What are Fibonacci Numbers and the Golden Ratio?

The Fibonacci sequence first appeared as the solution to a problem in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to introduce the Hindu-Arabic numerals used today to a Europe still using Roman numerals.

The original problem in the Liber Abaci posed the question: How many pairs of rabbits can be generated from a single pair, if each month each mature pair brings forth a new pair, which, from the second month, becomes productive.

The Golden Ratio

After the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the lower number is 1.618. These two figures are the golden mean or the golden ratio.

Its proportions are pleasing to the human senses and it appears throughout biology, art, music, and architecture. A few examples of natural shapes based on the Golden Ratio include DNA molecules, sunflowers, snail shells, galaxies, and hurricanes.

Important Retracement Levels

The two Fibonacci percentage retracement levels considered the most important in trading are 38.2% and 62.8%. Other important retracement percentages include 75%, 50%, and 33%.
Three Profit Tips for Using Fibonacci Numbers

1. Fibonacci Defines Stop Loss Levels

A trader can use Fibonacci numbers to set stop loss orders.

For instance, if at least three Fibonacci price levels come together in a relatively tight zone, a stop loss placement just below or above the zone may be set.

A Fibonacci number helps define stops in the following way, if a trader trades against a support zone, if the support zone is violated and the price trades below that zone, the reason Read more…

Mechanical trading systems are, as you would expect, systems that make trading decisions for you.

The thought of having mechanical trading systems you can simply use to generate automatic profits, is obviously very attractive to many traders.

Most traders however, end up disappointed with mechanical trading systems, as they never seem to live up to the sales hype, and the performance figures used to sell the system never seem to be repeated in real life.

Why do most mechanical Trading Systems fail to live up to the Hype?
There are two main reasons for this:

Black Box Systems

These are systems where the vendor does not reveal the logic of the system. Of course, for a trading system to be successful it needs following rigidly with discipline.

If however, you don?t know the logic of a mechanical trading system, you will probably not have the discipline to follow it when a losing period occurs. If you don?t have the confidence to follow a mechanical trading system, you don?t have a system at all!

Curve Fitting and Optimization

Another problem is curve fitting or optimization of mechanical trading systems. These systems yield extraordinary performance in back testing because of the tweaking of the system rules to make them fit the data. A trader once likened this to shooting holes in a barn door, and then drawing circles around every hole to make each shot a bull?s eye!

Of course, anyone can make a mechanical system make money if it is already know what happened in the past.

You will never see a hypothetical performance that fails! Most vendors achieve this by making the system fit the data, which of course will lead to disappointment in the brutal world of trading.

The fact is that most mechanical trading systems don?t deliver the results they promise and traders end up disappointed. This is not to say that there are not good mechanical trading systems to buy, but you need to do your research first, and the following checklist will give you the salient points to look Read more…

The fact is the majority of traders lose because they cannot control their emotions. Trading psychology is one of the keys to investment success.

A simple fact will illustrate the influence of trading psychology:

Why the majority of traders lose

There is one statistic that has remained constant since the beginning of investment records – the ratio of winners to losers has remained constant over time.

On reflection, this would seem a startling fact; despite the massive advance in communications and economic forecasting methods, the ratio remains the same.

The conclusion from the above is that the successful trading is dependant on something else. That something else is our trading psychology.

The influence Of Hope and Fear

In trading psychology, two emotions that are constantly to the fore are hope and fear. One of the traders who recognised this was the legendary trader W D Gann.

?Hope and fear: I have written about this often in my books and I feel I cannot repeat it too often. The average person buys commodities because they hope they will go up, or because someone advises them, they will go up. This is the most dangerous thing to do, never trade on hope. Hope wrecks more people?s lives than anything else. Face the facts, and when you trade, trade on the facts, eliminating hope?

?Fear causes many losses. People sell out because they fear commodities are going lower, but they often wait until the decline has run its course and sell near the bottom – never make a trade on fear?

Control Emotions and Become a Disciplined Trader
Gann, like all successful traders, realised that the only way to trade successfully was to remove emotions from trading, and trade on the facts and realised the significance of trading psychology on price movements.

To do this, he applied mathematical principles to investing that would give him the ability to trade without emotion, with discipline Gann was extremely successful, amassing a fortune of over $50 million in his trading career.

Human Nature Is Constant ? Exploit It for Trading Success

It doesn?t matter what market you trade: commodities, stocks, currencies, or what type of trader you are, a day or position trader, Read more…

How to Make BIG Profits with Currency Trading Systems

FOREX markets turn over trillions of dollars per day and are the world?s biggest investment medium.

In recent years, FOREX trading systems using technical analysis to predict trend changes have become increasingly popular as a way of catching the big profitable trends.

Catching the Longer Term Trends for Big Profits

The longer-term trends in FOREX markets mirror the underlying health of the economy. As periods of expansion and contraction take years, so do currency trends and a good FOREX trading system can help you lock into, and profit from, these trends.

When picking a currency to trade, it is important to have good long-term trends and liquidity.

Good major currencies to trade include the US Dollar, Swiss Franc, Euro, Japanese Yen, British Pound, and Canadian Dollar.

FOREX trading systems remove the emotional component from trading, which is the major reason the majority of traders lose.

Removing the Emotion from Trading with Systems

One of the best starting points on the effect that emotions have in trading, are the works of legendary trader W. D Gann, whose works on the subject are essential reading.

Other authors worth reading are: Edwin Lefeurve, Jake Bernstein, Larry Williams, Ken Roberts, Van Tharpe and Jack Shwager whose book ?Market Wizards

W D Gann was a prolific writer and trader, and created a fortune of over 50 million dollars (equivalent to 500 million today!).

Many of his trading predictions were the subject of public record. For instance, he correctly predicted the 1929 crash a year in advance!

Gann died in 1955, but he still holds legendary status as a technical innovator.

By predicting the market using Gann angles, you can add a valuable tool to your trading strategy.

Assumption: By Studying the Past, We Can Predict the Future
Gann based predictions of price movements on three premises:

1. Price, time, and range are the only three factors to consider.

2. The markets are cyclical in nature.

3. The markets are geometric in their design and in function.

Gann believed that human nature was constant, and this showed up in repetitive price patterns that are identifiable, and which can therefore be acted upon to increase profit potential.

Gann?s Strategy for Trading Success

Based on the above assumptions, Gann’s strategies revolved around three areas of prediction:

1. Price study? This study uses support and resistance lines, pivot points and angles.

2. Time study ? This studies historically reoccurring dates derived from natural order.

3. Pattern study ? These study market swings using trend lines and reversal patterns.

Constructing Gann Angles

Predicting the market using Gann angles requires subjective judgment and practice. Here is what you need to do:

1. Determine the time units – One common way to determine a time unit is to study the chart and look at the distances in which price movements occur. Then, put the angles to the test and see how accurate they are. The intermediate-term time frame (one to three-month) tends to produce the optimal amount of patterns compared to short term daily, or multi year charts.

2. Determine the high or low from which to draw the Gann lines – The most common way to accomplish this is to complement it with other forms of technical analysis i.e. Fibonacci levels or pivot points. Gann used what he called “vibrations” or “price swings.” He determined these by analyzing charts using theories such as Fibonacci numbers.

3. Decide which pattern to use – The two most common patterns are the 1×1, the 1×2, and the 2×1. Read more…

Legendary trader W D Gann amassed a fortune of $50 million dollars in the first half of the last century, although he died in 1955, his commodity trading systems are still used today by traders all over the world.

Successful commodity trading systems have the ability take the emotion out of trading, liquidating losses quickly and spotting and holding the big longer-term trends and that?s exactly what Gann?s Commodity trading systems did.

Gann?s Commodity Systems Track Record

Gann?s commodity trading systems allowed him to make some stunning predictions and trading gains such as:

1. He predicted improvements in business in 1921 and the Bull Run in stocks.

2. 1928 he forecasted the end of the Bull Market in stocks a full year in advance of the 1929 crash. He then bought stocks in the Dow at an all time low in 1932.

3. In 1935, of 98 trades in cotton, grain, and rubber, 83 trades showed a profit. His percentage of profitable trades was often 90% or higher.

History Repeats Itself

Gann was a prolific writer and wrote extensively, outlining his thoughts on commodity trading systems in a series of books and courses. Some of his ideas were grounded in empirical studies, while others were more mystical in nature.

Gann?s major contention was that certain laws governed not only the markets, but nature as well and were universal in scope. He believed that human psychology was constant and that this manifested itself in repeatable price patterns.

?We cannot escape it (emotion) In the future it will cause another panic in stocks. When it comes both traders and investors will sell stocks, as usual, after it is too late or in the latter stages of a bear market?

He was aware that human nature was constant and influenced the majority of traders.

?Therefore, in order to make a success the trader must act in a way to overcome the weak points that have caused the ruin of others?

For more information on trading psychology excellent books to read any by Jake Bernstein, Jesse Livermore, Larry Williams, Van Tharp and Jack Shwager and you will see why human nature repeats itself.

The Influence of Price and Time

One of the most important thoughts behind Gann?s commodity Read more…

In the entrance to the New York Stock Exchange, stands a life-sized picture of W D. Gann (1878 – 1955) and this is a testament to his standing amongst traders worldwide. Today he remains one of the most influential traders of all time.

W D Gann Methods and Trading Performance

W D Gann employed a staff of 25 draughtsmen to draw charts of all the stocks on the New York Stock Exchange, as well as a variety of commodities. He would then use the charts to look for trading opportunities.

Gann in fact made huge trading profits from his technical analysis of the markets.

There are reports, which indicate that his trading techniques amassed him a fortune of over $50 million dollars, and many of his trades are on record.

W D Gann Trading Philosophy

W D Gann was a prolific writer, and wrote extensively outlining his thoughts and trading methods in a series of books and courses. Some of his ideas were empirical studies, while others were more mystical in nature.

Gann?s major contention was that certain laws governed not only the markets, but nature as well, and were universal in scope.

The Influence of Price and Time

One of Gann?s most important contributions was the concept of combining price and time. Gann believed that crucial price movements happened when price and time converged. These points usually indicated an important trend change was imminent.

However, if price and time were not coordinated, or did not converge, then time always held priority over price.

Therefore time, was considered by Gann as the ultimate indicator, because all of nature was governed by time.

In “Wall Street Stock Selector” Gann said.

“Just remember one thing, whatever has happened in the past in the stock market and Wall Street will happen again.

Advances in bull markets will come in the future, and panics will come in the future, just as they have in the past. This is the working out of a natural law “

“It is action in one direction, and reaction in the opposite direction. In order to Read more…

The art of contrary thinking is one of the most powerful tools a trader can use, and is a trait with which all true great traders are familiar.

What is the Art of Contrary Thinking?

The art of contrary thinking consists in training your mind to ruminate in directions opposite to general public opinions; but basing your opinion in the light of current events and human behaviour.

Humphrey Neill?s book, “the art of contrary thinking,? the best known work on the subject, is based on the simple yet powerful idea that:

“When everybody thinks alike, everybody is likely to be wrong”

Why Contrary Trading Works

By spotting situations when the consensus is either extremely bullish or bearish, then a trend change is imminent, as it is likely the emotions of greed and fear have pushed prices too far away from true value.

This is evident in such events as the 1987 stock market crash.

Here we have a short-term, self-fulfilling prophecy. When the change occurred, everyone changed his or her mind at once, causing a huge move.

Of course, if you can step aside from the crowd and take a contrary view at these turning points you can make big profits.

Why Contrary Thinking will always be Valid

While Humphrey Neil’s work, “the art of contrary thinking,? (published in 1954), is the most famous book on the subject, there existed a century earlier a book on contrary thinking.

Charles MacKay?s book, “Extraordinary Popular Delusions and the Madness of Crowds,? (published in 1854), covered three important financial crashes:

he tulip mania, the Mississippi madness, and the south sea bubble. He reflected upon how investors always pushed prices too far when caught in a consensus:

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

It is clear that to succeed in trading you need to think independently of the majority at important market turning points.

Becoming a Contrary Trader

Gann was one of the greatest traders and traded in the early 20th century. He realized that human nature would always mean that you Read more…