What a fancy name… sounds like a great italian dish you must try!

and thats all about there is to be honest. the great name that has (as most italian words) a beatiful sound when you say it (Fonic).

But does it belong to trading? well, that is not my answare to give to you but i might can enlight you a bit about the mentality of people and why this Name of this very old Italian mathematician became so famous in the last 40 years.

everyone who is familiar with the Fibonacci knows its origin so i will not go into details about ths. I will only tell you the truth about why it is in trading.

In plain and simple words it is a abstract/variation of the much older “one third”, “two third” and “half (50%)” retracement psychology that is beeing used in trading ever since famous Dow briefly wrote about his “Dow theory” more than 100 years ago.

we all know the retracements.

38,2%

50%

61,8%

but why these numbers? well in simple explanation: those are the numbers of the Fibbonacci mathematician formula he developed a few hundret years ago.

the true and really important numbers thou are:

33%

50%

66%

keep those numbers in your mind, we will come back to them… now:

those are the “one third”, “2 third” and “half” retracements that are being used in trading ever since.

it is coincidence that these numbers are so close together but it is not coincidence that people use “Fibbonacci” instead of the “one third, two third and half” retracement.

Why you may ask?

see the name. doesnt fibbonacci sound much more mysterious and fancy than “one third, two third and half”? doesnt it soundmuch more complicated than “one third, two third and half”?

doesnt the name and the added value in complexity add some sorf of free interpretations to it and doubt of your own trading decition in case it does not work out with the Fibbonacci?

that is the reason why. people love to overcomplicate things and there are people who like to make things complicated and fancy so the masses (you, dear reader) buys the complex version of the simple knowledge.

Why? simply because a complicated explanation to a simple practice/theory/procedure explains much easier why you fail at applying it. everybody rather fails at something that is complicated than on something that is very easy.

So the next time you try to use the famous fibonnacci rather think of the infamous “one third, two third and half”-retracement theory and the different percentage numbers added to it.

and here, just for fun, i added a fibonacci and added the 33% and 66% of the “one third, two third and half”-retracement theory as blue lines to it. the schooled eye will see how much better these 2 blue lines worked together with the (anyways strongest retracement line the 50%) in comparison to the fibonacci percentages (38,2 and 61,8).

and now a trick: you now saw those 2 slightly different theories and different numbers. you can use these differences (38,2 and 33% / 61,8 and 66%) as “reversal zones” in which there should occure some sort of price action and indecition when you switch to the next lower time frame. if there is indecition and price action you may find a great and low risk entry point into the developed trend (not counter trend) and a confirmation that the original (not counter trend) is resuming anytime soon. if it creates no price action and undecition (in a lower time frame) in this “zone” and looks like its shooting right thrugh it might not be wise to enter any positions at that time.