Fibonacci Numbers, “Golden Ratio” – and Global Financial Markets
Elliott waves often relate to each other via the Fibonacci sequence
by Bob Stokes
Updated: August 22, 2019
Fibonacci numbers follow a sequence that begins with 0 and 1, and each subsequent number is the sum of the previous two (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so on).
After the first several numbers in the sequence, the ratio of any number to the next higher is approximately .618 to 1; its ratio to the next lower number is approximately 1.618 to 1. This is known as the Golden Ratio.
Fibonacci ratios appear throughout nature, from the shape of galaxies and seashells to molecules and even the human body:
The Wall Street classic book, Elliott Wave Principle by Frost & Prechter, explains why these ratios should be of keen interest to global investors:
The Fibonacci sequence governs the numbers of waves that form in the movement of aggregate stock prices...
Long- and short-term market charts are often filled with Fibonacci relationships. Here's an example from the same book:
Showing the 1930-1942 sequence, the market swings cover approximately 260, 160, 100, 60, and 38 points respectively, closely resembling the declining list of Fibonacci ratios: 2.618, 1.618, 1.00, .618 and .382.
What does a discussion of Fibonacci have to do with today's global stock market action?
Well, here's an example from our August Global Market Perspective:
You'll notice how the Asia Infotech Index began an upward turn right at the point that wave (circle ii) reached 61.8% of wave (circle i). This is just one example of how stock markets the world over often conform to the Golden Ratio.
Fibonacci ratios are also revealing other opportunities elsewhere around the globe.
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