There is a lot of contention and discord regarding the accuracy and reliability of Fibonacci trading. The reason is because it is based on a very high minded theory that the universe is full of patterns derived from the Fibonacci number series and the Golden Ratio, both of which are the basis for the same elements used in Fibonacci trading.

The theory goes that supposedly elements in nature and in the universe are subject the a series of ratios derived from the Fibonacci number series, which goes like this: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on and so forth. Basically the pattern takes the two numbers prior to it and adds them for each successive number. Derivatives of this ratio can be seen in nature such as the proportions of the human body and the shape of a nautilus shell.

So why is all this important to trading? Because we can draw out what are called Fibonacci retracement lines to measure where support and resistance will form based on the ratios of the price levels and accurately forecast what will happen if those levels are broken. This means that you can accurately predict where a stock will make a turnaround based on its pattern within the Fibonacci theory.

In some ways, Fibonacci trading is a self fulfilling prophecy, like a lot of technical analysis patterns. This is because there is no scientific reason to explain why or how a price pattern should fall into these ratios, yet it seems to rather often. This is due in part to the fact that a lot of traders use Fibonacci trading techniques while trading various stocks in order to determine it, thus leading to support and resistance levels being created at the points where they are meant to be in Fibonacci trading simply because traders are anticipating them.

For best results, apply Fibonacci theory to a market that has an excellent amount of liquidity and volume such as the Forex markets, because it takes a very well drawn out trend to complete a Fibonacci sequence.

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