of the Fibonaccis saved my financial life. You have no
idea how many times I wanted to throw in the towel because I
couldn’t figure out how the market works. Every new trader
has dreams, and those dreams can quickly turn into nightmares
when you don’t know what you are doing, which is why I am so adamant
about finding a mentor. I didn’t have a mentor, and my dreams quickly
turned into nightmares.
The name Leonardo Fibonacci was airmailed to me straight from
heaven. The understanding of his discoveries changed not only my trading
career but also my life. What he discovered between the late 1100s and
early 1200s explains how nature takes its course and proves that we are
created in a numerical sequence, just like pinecones and pineapples. His
discoveries also prove that the market is not this mysterious chaotic place
that most people fear. It is a place where organized chaos exists, a dynamic
system that is extremely sensitive to the human condition—the ebb and
flow, the yin and yang, the action and reaction, the ups and downs of life.
The Fibonacci Numerical Sequence is the ultimate display in the market of
matter and energy and their interactions with each other.
When I heard about the Fibonacci numbers, back in the early 1990s, no
one seemed to know anything about them. So I called my trading data
provider, figuring that if anyone would know about the Fibonacci numerical
sequence and how to trade it, they would. After all, they provide market
data to more than 200,000 traders worldwide. To my surprise, the customer
service representative had never heard of Fibonacci and suggested I talk to
their programmer. Fortunately, he had heard of the Fibonacci retracement
levels and asked if I wanted them programmed into the software. I was like
a kid in a candy store getting free candy screaming, “Yes!”
As life goes, if it sounds too good to be true, it usually is. The next day,
the programmer called telling me the Fibonacci retracement numbers were
installed into the software. I told him, “Thanks a lot. Now can you show me
how to use them in a trade?”
He was quick to respond, “No, I am just a programmer, not a trader.”
I felt like I was ready to throw up from eating too much “false hope”
candy from the candy store. I once again sat in disbelief that I was no better
off today than yesterday and back at square one.
Things turn out best for those people who make the best of how things
turn out. I figured that once I had the Fibonacci levels installed, I just needed
to learn how to trade them. It looked like it was going to take a bit more
effort than I initially anticipated.
So I started asking everyone I knew about the Fibonaccis again. A
friend of mine told me about a new book by Larry Pesavento, Fibonacci
Numbers with Pattern Recognition, which I raced out to buy.
As time went on, I established a cordial working relationship with
Larry and soon recognized some fundamental differences in how the
Fibonaccis should be traded in the market.
You can always tell who is the more experienced in any conversation.
After everything is said and done, the wiser will always take the positions
that they would rather be happy than right. So as we engaged in healthy
discussion on how the Fibonaccis should be traded, Larry would always
say, “Jared, if that way works for you, then I am happy for you and you need
to keep doing that.”
Learning how to trade the Fibonacci retracement and extension numbers
like I do today started to make my life wonderful and successful. It
became the main life preserver in my trading career as I moved forward.
THE HISTORY OF FIBONACCI
Leonardo de Pisa de Fibonacci, was born in 1170 in Italy and educated in
North Africa, where his father, Guilielmo, held a diplomatic post. His
father’s job was to represent the merchants of the Republic of Pisa who
were trading in Bugia, now called Bejaia (Bejaia is a Mediterranean port in
northeastern Algeria), and Leonardo traveled with him, learning about
math during his father’s stay there. Little by little, he began to recognize the
enormous advantages of the mathematical systems of the countries they
were visiting versus the Roman numerals he had been taught.
One of the mathematical concepts that intrigued Fibonacci was the
nine-digit system (1,2,3,4,5,6,7,8,9) used by the Indians.
Fibonacci’s travels ended around 1200, and he returned to his hometown
of Pisa. It was there that he started to work with the royal families,
introducing the numbers 0 through 9 (a 10-digit system). It was
there that he also wrote many of his texts, including Liber Abaci in 1202,
Practica Geometriae in 1220, Flos in 1225, and Liber quadratorum in
1225. Producing a book during this time was a major task, given there were
no typewriters or computers and everything had to be handwritten. For this
reason, human civilization has unfortunately lost some of his works on
arithmetic, such as Di minor guisa and his commentary on Euclid’s
elements. It is interesting to note that after Leonardo introduced 0, 1, 2, 3,
4, 5, 6, 7, 8, 9 to the Roman mathematical scholars, they debated for more
than 300 years whether or not the number 0 was of any value.
Back in the 13th century, Europe predominately used Roman numerals
for all its mathematical calculations. The problem is that it is virtually
impossible to add, subtract, multiply, and divide using Roman numerals.
And for that reason, historians could not quantify the wealth of a person.
Think about it. How wealthy was King Solomon or King Harrod in Biblical
times? No one knows. No one was able to quantify their wealth using
Roman numerals. All we know today, via the Bible, is that they had more
money than they needed or could spend. Today we can easily quantify a
person’s or company’s wealth, so we know that Bill Gates is currently worth
an estimated $56 billion, down quite a bit from $96 billion prior to
September 11, 2001.
For those not familiar with Roman numerals, they are I = 1, V = 5, X = 10,
L = 50, C = 100, D = 500, and M = 1,000. Fibonacci’s claim to fame was the
introduction of the numerical arithmetic system we know today: 0, 1, 2, 3, 4,
5, 6, 7, 8, 9. One of the most important books Fibonacci wrote was Liber
Abaci, which means “The Book of Calculations” when translated. It was only
after he wrote this book that the Roman numeral system was replaced by the
Indians’ nine digits and the Arabic zaphirum (“zero”).
Read More : The Fibonacci Secret
