The Stock Market, Phi and the
Fibonacci Series
Human expectations occur in a ratio that approaches Phi
Changes in stock prices largely reflect human opinions, valuations and
expectations. A study 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.
Phi and Fibonacci numbers are used to predict stocks
Phi
(1.618),
the
Golden Mean and the numbers
of the
Fibonacci series (0, 1,
1, 2, 3, 5, 8, ...) have been used with great success to
analyze and predict stock market moves.
Forbes ASAP featured a story on the work of scientist
Stephen Wolfram in cellular automata (underlying rules that determine
seemingly random phenomenon) stating "
This seashell may hold the secret
of stock market behavior, computers that think and the future of science."
Markets may be as geometrically perfect as a spider's web
Ermanometry
Research shows the markets to be perfectly patterned, explaining that
humans, being part of nature, create perfect geometric relationships in
their behaviors, not unlike a spider spinning a geometrically perfect web
with no conscious awareness of its amazing feat. Ermanometry applies
the logarithmic spirals found in sea shells with dynamic ratios in 3D to
relate one market move to others.
Phi, or Golden Ratio, patterns often define the timing of highs and
lows and price resistance points
The golden ratio, or phi, appears frequently enough in the timing of highs and lows
and price resistance points that adding
this tool to technical analysis of the markets may help to identify key
turning points. The photos below illustrate
how the
Golden Mean Gauge and
Phi-based analysis
software can be used to identify these turns in the market. The middle arm of the gauge keeps the
phi point of the outer arms as the gauge is opened and closed. The
lines of the phi-based software are all in phi relationship to one
another. The
ratios of Fibonacci numbers, commonly used in technical market analysis,
converge on phi as explained on the
Fibonacci Series page. Click on each
photo to enlarge.
 |
 |
DJIA Daily Chart
from
1/2004
through 11/04
using PhiMatrix
software |
DJIA Monthly Chart
from
1/2000
through 6/2003
using a Golden
Mean Gauge |
Phi and Fibonacci numbers define the price movements of stocks in Elliott Wave Theory
Fibonacci numbers were used by W.D Gann and R.N. Elliott,
pioneers in technical analysis of the stock market. In
Elliott
Wave Theory, all major market moves are described by a
five-wave series, adding to the potential to identify the turns described
above. The classic
Elliott Wave series consists of an initial wave up, a
second wave down (often retracing 61.8% of the initial move up), then the third wave
(usually the largest) up again, then another retracement, and finally the fifth wave,
which would exhaust the movement. In addition, each of the major waves (1, 3, and 5) could
themselves be separated into subwaves, and so on, and exhibit other Fibonacci
relationships.A sample stock price wave analysis could look something like this:
|
Major, minor and
sub waves are shown in RED, YELLOW and GREEN and the total number
of increases and decreases (2, 5
or 8) is a Fibonacci number. Note too that the
predicted end result is based in the Fibonacci series as well as the end price is 61.8% of
the high and 0.618 is equal to 1/  and 0.382 is 1/ 2. |
Here is a 'Fibonacci series'.
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, ..
If we take the ratio of two successive numbers in this series
and divide each by the number before it, we will find the following
series of numbers.
1/1 = 1
2/1 = 2
3/2 = 1.5
5/3 = 1.6666...
8/5 = 1.6
13/8 = 1.625
21/13 = 1.61538...
34/21 = 1.61904...
The ratio seems to be settling down to a particular value,
which we call the golden ratio(Phi=1.618..).
The golden ratio is an irrational mathematical constant,
approximately 1.6180339887.
Flower Patterns and Fibonacci Numbers
Why is it that the number of petals in a flower is often one of
the following numbers: 3, 5, 8, 13, 21, 34 or 55? For example, the
lily has three petals, buttercups have five of them, the chicory has
21 of them, the daisy has often 34 or 55 petals, etc. Furthermore,
when one observes the heads of sunflowers, one notices two series of
curves, one winding in one sense and one in another; the number of
spirals not being the same in each sense. Why is the number of
spirals in general either 21 and 34, either 34 and 55, either 55 and
89, or 89 and 144? The same for pinecones : why do they have either
8 spirals from one side and 13 from the other, or either 5 spirals
from one side and 8 from the other? Finally, why is the number of
diagonals of a pineapple also 8 in one direction and 13 in the
other?
Are these numbers the product of chance? No! They all belong to
the Fibonacci sequence:
1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
(where each number is obtained from the sum of the two preceding). A
more abstract way of putting it is that the Fibonacci numbers fn are
given by the formula f1 = 1, f2 = 2, f3 = 3, f4 = 5 and generally f
n+2 = fn+1 + fn . For a long time, it had been noticed that these
numbers were important in nature.
The Golden Ratio is a universal law in which is contained
the ground-principle of all formative striving for beauty and
completeness in the realms of both nature and art, and which
permeates, as a paramount spiritual ideal, all structures, forms
and proportions, whether cosmic or individual, organic or
inorganic, acoustic or optical; which finds its fullest
realization, however, in the human form.
NOW, OBSERVE THE MOVING AVERAGES :
TAKE TWO MOVING AVERAGES 21 AND 34, apply to the daily charts using 5 min charts or 15 min charts depending upon your trading style whether you trade for intraday or positional.
If you find crossovers of 21 crossing 34 from below, means a buy signal generated.
If you find crossovers of 34 crossing 21 from above, means a sell signal generated.
MOVING AVERAGES WORK BETTER IN TRENDING STOCKS OR INDICES.
TAKE SIMPLE MOVING AVERAGES, WORKOUT FOR CHARTS DAILY FOR A MONTH, THEN YOU WILL NOT NEED A TECHNICAL ANALYST OR A BROKER.
YOU ARE THE MASTER OF STOCK MARKET , IF YOU FOLLOW IT RIGHT AWAY AND WITH A DISCIPLINED APPROACH.
PATIENCE IS NEEDED TO MAKE MONEY IN STOCK MARKETS, YOUR TRADE GOES WRONG, YOU WILL JUST GET OUT OF THE STOCK, BUT USE SOME COMMON SENSE AND APPLY THE ABOVE SAID INDICATORS THEN SEE THE RESULTS FOR YOURSELF.
THE END OF MAYAN CALENDER:
