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A New Study of Fibonacci Numbers in the Financial Market

Srgio Spilari Filho

Universidade Paulista

ABSTRACT This study aims to show a new approach of Fibonacci numbers in the financial market in assets with high volatility and liquidity and observe graphically if the result obtained with the new study may be useful for market participants who use technical analysis for intraday decisions.
Keywords: Fibonacci, foreign exchange, modern technical analysis.

INTRODUCTION Leonardo de Pisa described in his book Liber Abaci of 1202, the population growth of rabbits using a numerical sequence which was obtained by the sum of two previous numbers infinitely.

The sequence discovered by Leonardo de Pisa also appears on the biological growth of tree branches and leaves (S. Douady and Y. Couder, 1996), in the fern unroll (A. Brousseau, 1969), the formation of cones in pineapple, artichoke and several elements, including in our body. With this intriguer information, the numbers have been used in many industries, and in the financial markets, where human nature is in evidence, resulting emotions of euphoria and fear in crisis time, the Fibonacci sequence have been used for a long time by investor for presume the price of an asset with tools like Fibonacci Retracement and Pivot Point calculation based on the Fibonacci numbers.

THE NEW STUDY Unlike existing studies, that were made based on values from the past, the new financial market approach is the result of addition and subtraction of Fibonacci numbers only on the first quote of the day, that is, the opening day price, the first bid/ask made in the Asian session, resulting in fixed resistances and supports areas for intraday trading. Calculation:
Support=S1(Open-0.0034);S2(Open-0.0055);S3(Open-0.0089);S4(Open-0.0144);S5(Open0.0233) Resistance = R1(Open+0.0034); R2(Open+0.0055); R3(Open+0.0089); R4(Open+0.0144); R5(Open+0.0233)

APPLICATTION The new study was applied in two highly liquid and volatility assets in the foreign exchange market: EUR/USD

(Fig 1 EUR/USD with vertical lines of sessions and new study on horizontal lines)

In the figure above, we can observe the currency pair EUR/USD and your graphical formation in 30 minutes timeframe during the Aug. 23, 2011 trading day. The blue vertical line is the European session and the red vertical line is U.S. session. The values obtained by the new study of the Fibonacci sequence are the horizontal lines. It is clear that the currency pair seems to respect the Fibonacci support and resistance throughout the day. In the left corner, when the Asian session begins, the price followed in progressing to the first Fibonacci Resistance, which formed a reversal candlestick (Steve Nison, 1994) and returned to the opening price. In the Europeans session, the price increased with favorable news in Europe (Services and Manufacturing PMI), the Euro currency rose to the fourth Fibonacci Resistance,

where the currency appears to respect and lose strength. In the U.S. session, the price dropped to a resistance with New Home Sales bad news.

GBP/USD

(Fig.2 - GBP/USD during the day Aug. 26, 2011)

Another currency pair with high trading volume and volatility has been observed with the new study. The currency also appears to respect the fixed areas created by the Fibonacci numbers. In the Asian session, the currency pair tried to keep the price of opening and climbed to the first resistance in the European session. When retail sales were reported, the currency dropped to the first support and the candlestick has formed a morning star candlestick pattern. In the U.S. session, the Sterling Pounds rose against the US Dollar when bad data from Unemployment Claims were reported, keeping the price above the fourth resistance of new Fibonacci study.

CONCLUSION According to the data obtained by addition and subtraction of Fibonacci numbers in the opening price, the new study shows that regardless of the volume, the news of economic situation and even with the different trading strategies made by institutional investor, large investors and small speculators, the price of currency seems to respect the support and resistance of Fibonacci numbers, showing graphically that the new study, with a graphic formation of the price, can be useful for market participants who use technical analysis for investments decisions, especially for day-trades.

REFERENCES S. Douady and Y. Couder (1996). "Phyllotaxis as a Dynamical Self Organizing Process A. Brousseau (1969). "Fibonacci Statistics in Conifers" Nisson, Steve (1994). Beyond candlesticks:New Japonese charting techniques revealed http://www.maths.surrey.ac.uk/hosted-sites/R.Knott/Fibonacci/fibnat.html