News You Can Use 7/25/00

What is Fibonacci?

     Occasionally investors will hear the term Fibonacci tossed around. What is Fibonacci? Is Fibonacci an investor who tells a lot of white lies, or is it something a wealthy investor would park next to his restored Bugatti roadster? Actually it's neither. If you do research on Fibonacci, life can quickly become extremely involved before you find any clarity. You will find books with titles like: "Linear Recursions and Fibonacci Numbers", "Fibonacci Entry Points and Periods for Primes 100,003 to 415,993", and "Encyclopedia of Mathematics: Fibonacci Method H". On the Internet there is an official Fibonacci web site. There is a newsletter call "Fibonacci Quarterly" that people pay good money for. There is even a 7-volume set of books published that discusses Fibonacci and no other topic. But what or who is Fibonacci? Why do we occasionally hear the term in financial circles, and what does it have to do with making you a wiser and wealthier investor?

    Fibonacci was the greatest European mathematician of the Middle Ages. He was responsible for Western Europe's shift from Roman Numerals to the Hindu-Arabic system we use today. He was born Leonardo of Pisa, in the town with the famous leaning tower, Pisa, Italy around 1175 AD. His father was Guglielmo Bonaccio, and he called himself Fibonacci, short for filius Bonacci that means son of Bonacci in Latin. He traveled extensively around the Mediterranean coast. In his travels he met many merchants and soon realized the advantages of the Hindu-Arabic system over all the others. He was one of the first people to introduce the Hindu-Arabic number system into Europe - the positional system we use today - based on ten digits with its decimal point and a symbol for zero. His book on how to do arithmetic in the decimal system, called Liber abbaci (meaning Book of the Abacus or Book of Calculating) completed in 1202 persuaded many European mathematicians of his day to use this "new" system. The book describes (in Latin) the rules we all now learn in elementary school for adding numbers, subtracting, multiplying and dividing, together with many problems to illustrate the methods. In his lifetime, Fibonacci did exhaustive research on some of the naturally occurring number sequences in nature such as the exponential multiplication of rabbits and the spiral structure of a snail shell. He did research into wave patterns, what would become called fractals, prime numbers, and numbers theory. Mathematical principles recorded by Fibonacci are apparent in the works of inventor and artist Leonardo DaVinci, composer Bartok, and violinmaker Stradivarius. The principles are used extensively in art, music, and architecture.

    Fibonacci numbers and related principles primarily derive from nature and are applied to the movements of the investment markets. Fibonacci is usually used in a phrase such as a Fibonacci Number or a Fibonacci Retracement or Correction. These numbers or percentages are frequently presented to quantify the scope of a likely market correction or market advance. In addition to the size of a particular market move, Fibonacci Numbers are also used to try to develop the timing of market movements. By combining scope and timing Fibonacci models also try to calculate exact turning points in the markets. Many books are available that present Fibonacci research in the modern context of the financial markets, and methodically bring the complete novice to a more advanced knowledge of how Fibonacci can be a useful tool for the diehard investor utilizing technical analysis in their investment research.

QUOTE:  "In life you're remembered for the problems you created or the problems you solved" - unknown

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