Arguably, the most reliable technical indicator in modern history was created by a twelfth-century Italian mathematician Leonardo Fibonacci. The vast majority of mathematical historians consider him the greatest mathematician of the Middle Ages. In fact, many experts claim that Fibonacci was one of the 10 greatest mathematicians of all time.
Certainly, his greatest contribution to the field of mathematics was the creation of the Hindu-Arabic numeral system. Fibonacci used this numeral system to dramatically simplify commercial bookkeeping, converting weights and measures, calculating interest payments, and exchanging money between merchants. Although the creation of the Hindu-Arabic numeral system was his crowning achievement, Fibonacci will always be remembered for the Fibonacci numbers.
What are Fibonacci numbers? They are a sequence of numbers developed by Fibonacci in circa 1202. Fibonacci numbers are used in the study of nature, music, agriculture, computer applications, price forecasting, and several other fields of study. Stock and commodity traders use “Fib” numbers to calculate support and resistance levels.
The most common Fib levels are:
It’s not uncommon for stocks, commodities, and crypto to fluctuate between Fibonacci support and resistance levels for long periods of time. When a major breakout finally occurs, it usually marks the beginning of a substantial move. As an example, let’s review the recent price action in the gold market (Chart #5).
Gold has enjoyed a substantial rally over the course of the past 12 months. The market recorded a new all-time high on August 7, 2020, @ 2070.5. Gold has since been trading sideways during the past few months, consolidating its recent gains. Please review the current support levels.
Gold support levels
Very often, Fibonacci levels will act as a magnet, as prices fluctuate between support and resistance. This is precisely what is occurring in the gold market. The gold has been consolidating between 23.6% and 50.0%. Most likely, the next big move will occur when gold penetrates 1972.5 (bullish breakout) or 1862.9 (bearish breakout).
Let’s review the recent price action in Bitcoin based on Fibonacci numbers (Chart #6).
BTC resistance levels
As you can see from the chart, BTC has penetrated all of the Fibonacci resistance levels during the past few weeks. Bitcoin is currently enjoying a substantial bull market rally. Eventually, BTC will experience a price correction. These Fib numbers will act as support levels when prices inevitably roll over to the downside.
The Fibonacci ratio remains one of the most reliable indicators for stock and commodity traders. During the past few years, crypto traders have been relying on Fib numbers to generate buy and sell signals. Fibonacci has definitely stood the test of time.
Brief Summary of Fibonacci
- The Fibonacci ratio is a very reliable technical indicator.
- The ratio was created by Leonardo Fibonacci, a twelfth-century Italian mathematician.
- Fibonacci created the Hindu-Arabic numeral system.
- The numeral system dramatically simplified commercial bookkeeping.
- It was also used to convert weights and measures and for calculating interest payments.
- Fibonacci is most famously known for the creation of Fibonacci numbers.
- They are a sequence of numbers developed by Fibonacci in circa 1202.
- Fibonacci numbers are used in the study of nature, music, and agriculture.
- Traders use “Fib” numbers to calculate support and resistance levels.
- Quite often, markets will fluctuate between Fibonacci support and resistance levels.
- These markets include stocks, commodities, and cryptocurrencies.
- When a “Fib” breakout occurs, it usually marks the beginning of a substantial move.