# Fibonacci Number Series and Elliott Waves

Fibonacci number series has caught the imagination of almost every serious Elliott Wave trader in the global markets. Unfortunately, many traders seem to think that a knowledge of Fibonacci numbers is the answer to all their trading problems! But first, let us see what this is all about.

Elliott wave analysis of stock market or forex or commodity market would invariably involve the use of some Fibonacci numbers to arrive at targets for corrections or projections. If you had searched the Internet for some information about the Fibonacci number series, you would have found a lot of material, but few explain it clearly enough. So this post aims to fill some of the gaps.

The series takes on a sequence 1,1,2,3,5,8,13,21,34,55,89,144 and so on to infinity. Observe that as we go to larger numbers, the advance becomes closer in ratio to 1.618. (PHI)

Suppose you place two squares of side 1 unit (say 1 inch) side by side, you get a rectangle whose sides measure 1 by 2. Now imagine you have drawn a diagonal on this rectangle, thereby creating two right-angled triangles on either side of the diagonal. If you remember the old Pythagoras theorem that you learned while at school, you will know that the square on the hypotenuse of a right triangle is equal to the sum of the squares on the two sides! So the diagonal

=square root [(1×1)+((2×2)

=square root [1+4]

=square root [5]

=2.236

Now let us just take the first square (of sides 1 unit each) and draw its diagonal. This diagonal will measure square root of 2 = 1.414

These two ratios, 2.236 and 1.414 are sacred roots. The reciprocals of them are 0.447 and 0.707. You will see a lot of my work is using the ratio 0.707!

Now I have a vague suspicion that some of you are more confused than before reading this article. But don’t despair. There are lots of easy stuff that you will learn as we go forward. For example, you could learn how to use Fibonacci Ratios properly by first exploring possible placements of the Fibonacci grids on your Elliott Wave charts.

I wish you good trading!

[…] the second wave corrects the first wave only by 61.8%, which is a highly regarded Fibonacci ratio. See here for a discussion about Fibonacci numbers and its application in Elliott Wave […]

[…] It is interesting to note that the second wave dipped to exactly the 50% retracement level of the first wave. Elliott Wave analysts place a great deal of importance on the use of the Fibonacci number series. […]

I came here from the link in your book. I have just started reading it and have high hopes that I may finally make some sense of Elliot Waves. I have been intensely studying harmonic trading patterns and have gotten quite deeply in the study of Gann. In the course of referring to various material, I have seen harmonic patterns in charts showing the Elliot Waves. So, I am wondering if the two have been melded together or have been recognized as complimentary by someone.

My background is a recent student in the Online Trading Academy for stocks, options and futures and some extended learning tracks. I just feel that there is something more as do some instructors and senior students of OTA seem to feel.

Hello Steve, Welcome to WaveTimes. I am unaware of the kind of relationships you seem to have noticed. My suggestion is unless you are aiming to become a technical analyst, a deep knowledge of Elliott Waves is more than enough to make you quite profitable. Seeking out the unknown and new kinds of edges will be very rewarding when you succeed, but the wait could be quite long. I wish you the best of luck in your pursuits.

hi dear Ramki!

Why do not use 78.6 ratio in your book?

HI Mahdi, The most common occurrences have all been used! I have also used some which are not listed as Fibonacci ratios.

Dear Ramki,

Nice and great work and loved your ebook too.

My software does not support grid and have price extension and we have to choose point a, b and c and then grid comes, so could you throw more light on it.

Sumit

Hi Sumit, I have been working with Thomson Reuters for over 30 years, but don’t think wave analysis needs any special software. The Fibonacci levels can all be computed using the simple excel workbook I have made available in wavetimes.net.

I just started on this with help of your book. One question I have

Wave 2 can never exceed the start of Wave 1

Is it close or low you are referring to? I have a chart where close is not exceeding wave1 but low is.

Please advice

Hi Anil, Even an intraday violation of wave 1 low is not allowed during the impulse wave phase of a cycle.