When looking at price patterns to determine your market strategy, some people tend to look at harmonic price patterns to predict the future market movement. The harmonic price patterns use Fibonacci numbers to determine pivot points within the market.
What is Fibonacci?
Fibonacci ratios were discovered by famous Italian mathematician, Leonardo Fibonacci, some time in the 13th century. Fibonacci saw that there were ratios which explained the natural proportions of things in and around the universe. While there is no set mathematical formula, it is the number sequence that has relevance here. He discovered that any given number was approximately 1.618 times the preceding number, but on a line, each number is also 0.618 of the number to the right of it. To simplify, let’s explain this in whole numbers.
Beginning with 0 and 1, we add the first number in the series to the second number to get the third number. You will see ratios emerge from the following series of numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…
0 + 1 = 1
1 + 1 = 2
1 + 2 = 3
2 + 3 = 5 and so on…
The Golden Ratio
To get The Golden Ratio, divide the larger of the two consecutive numbers by the smaller number. Example, 55/34 = 0.618, or its inverse 34/55 = 0.618.
There are different uses of Fibonacci series when applied to time series charts for events like cryptocurrency market trends. To keep things simple, we will stay with Fib-Retracement and Fib-Extension and later deploy these concepts when we explain how it affects Harmonic patterns.