The Fibonacci sequence and related retracements are well known among stock chartists.
I tend to believe they are now so well known they’ve become self-fulfilling, that is, when a stock price nears a Fibonacci retracement or inflection point, those who follow the patterns will trade in anticipation of the future movement, thus pushing it to behave as predicted.
Okay, so what?
So…it’s been shown countless times that the Fibonacci retracements are a valid method for predicting the general flow of some stocks or sectors. It’s been proven through back-testing etc.
However, there had to be a point in time, during which, these movements/retracements occurred unbeknownst to those in the business of tracking them. At some point in the history of developing charting strategies, someone or several people observed that these stock price patterns fit the Fibonacci sequences. Stock prices certainly weren’t designed to follow them or else we’d all know when to buy and sell.
But before this discovery (I don’t know when this was) many stocks still followed the patterns, it’s just that no one noticed. The question is not, why hadn’t anyone noticed but, why were they moving this way.
That stock prices followed these patterns is certain or else the phenomenon would not be the thing it is today. Yet, I’ve never read anything that explains why stocks might have followed Fibonacci in the first place.
What mysterious or sub rosa or natural cycles triggered brokers, market makers and traders to direct stock prices after hitting these retracement points? Is it something they just felt? How could these points touch so many people contemporaneously so that enough buying or selling moved the price action?
Is it possible that mathematics is such a deep part of the natural world or so deeply integral to the human experience, that we operate based on patterns of which we are not consciously aware?
I’m an atheist, but I wonder if, as stated in the gospels of James, that the secret to knowing god is in understanding certain formulas. His mysticism was deemed heretical but he may have been on to something or as one scholar has suggested, the mushrooms did it.
Maybe he didn’t mean god as a deity. Perhaps it’s not that a supernatural being actually exists, but that a path to enlightenment lies in understanding numbers, like those expressed in the Fibonacci sequence and others that push us, subconsciously, to behave in predictably, irrational ways. What James may have meant is more akin to a Buddhist philosophy of achieving a deeper understanding of the higher order of our intellectual capacity.
I’m drifting off into the metaphysical now, I realize, but I can’t get off this idea that if stocks moved according to the Fibonacci sequence and retracements, almost naturally, before the chartists began their overlays, then math must be a much more important part of self-discovery and yes, self, than we ever imagined.
Good luck with this, y’all.