Fibonacci Numbers refer to a numerical sequence of numbers that may link to the natural in a very interesting way. Created by 12 century mathematician Leonardo Fibonacci, Fibonacci Numbers are now widely used in all sorts of trading market.
In brief, this is Fibonacci Numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ....
Note what's the relationship in this series of numbers? The answer is each number is the sum of the previous two numbers: 0+1= 1, 1+1= 2, 1+2=3, 2+3= 5 ....and so on. The series of number seems like just another numbers game but there are infinite proves that show natural phenomena tends to go according to Fibonacci Numbers (for example bee lines).
Another term that often goes along with Fibonacci Numbers is 'The Golden Ratio'.
In Fibonacci Numbers series, if we take the ratio of two successive numbers in the Fibonacci series (that is, we divide each number by the number after it in the sequence) we will move towards a particular constant value. That value is 0.6180345 which has been referred to as “the golden ratio”. If you also calculate the ratios using alternate numbers in the Fibonacci series (that is, do the same calculation but skip over a number) the resulting ratios approaches 0.38196.
In technical trading, these two figures are widely used to predict the market movement (0.382 and 0.618 retracement). Commonly known, a 0.382 retracement indicates a 'follow' or 'continuation' in trend; while for 0.618, it is normally refers to a change in trends. For more reading on Fibonacci Numbers, I recommend: The Mathematical Magic of the Fibonacci Numbers
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