Ratio. Many forex and commodity traders swear by the magic of these numbers and their accuracy

in predicting price movement. In the 12th century, when Leonardo Fibonacci,

an Italian mathematician, created his numerical sequence there was no such thing as the financial

markets and these numbers were based on how rabbits multiplied. What is intriguing about

the Fibonacci sequence is not the numbers in the series but their ratios. The Golden

Ratio, roughly 1.618, appears to be prevalent among us in nature. It is said that even the

behavior of the financial markets conforms to this ratio.

Pertaining to Forex, these numbers help analysts to determine specific changes in the trends

of the market. The numbers in the sequence are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89,

144..... All these numbers tend to lie near the lines

of market graphs. These lines are called Fibonacci lines. There are four major types of studies

done on Fibonacci's work -- fans, time zones, arcs and retracements with retracements being

the most popular. A retracement in forex is the likelihood that

a specific financial assets price will revert to a prior move or not. The number is evaluated

based on whether it supports or rejects the various levels and numbers before it continues

back to where it was intended. Analysts study retracements by drawing various

trend lines between a variety of points on a graph. After choosing two points, they divide

them by the difference in the distance by ratios that Fibonacci has determined are 23.6%,

38.2%, 50%, 61.8% & 100%. Traders use these numbers and the analysis from them to determine

where profits can be made in the market. Ultimately, utilizing Fibonacci lines is a key strategy

in success in Forex.