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The mathematician Fibonacci or Leonardo of Pisa in 1202 first published his Fibonacci sequence. In order to calculate the number of pairs of rabbits he would have at the end of a year based on their behavior of breeding, Fibonacci developed this famous sequence of numbers. Forex traders find this type of no-nonsense approach very profitable.

Mistakenly many individuals consider mathematical abstraction as frivolous; however it is rooted into real world mathematical applications. The Fibonacci sequence is useful for making us aware of and then explaining those hidden patterns around us daily.

How can this be applied to investing? Very astute investors understand that there are hidden patterns in the stock market–based on the mass of investors' behavior. "Buy low and sell high" and "The best time to buy is when there's blood in the streets" are but two investment aphorisms that not only work, but also come from understanding hidden patterns of the investment markets.

The reason that investment market patterns are so well hidden is because "up close" they cannot be seen. Day to day, hour to hour fluctuations in the investment markets cannot be predicted with any accuracy. But certain overall trends that extend over longer periods of time definitely can be. And savvy investors, including Forex traders, have successfully been using Fibonacci's number sequence to take advantage and make big profits.

Using the Fibonacci sequence involves a series of numbers. Each following number is the sum of the two numbers before it. It progresses like this 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. Anciently the Greeks found number 1.618 reprehensive of the golden ratio which is the supreme essence of balance. This balance is the fundamental strategy of profitable investing

The most common applications of the Fibonacci sequence for investment purposes are retracements and arcs.

A Fibonacci chart is made of three curved lines which represent support levels, key resistance and ranging. A trendline is first drawn between two points (generally the high and low points over a given period of time). Three curved lines are then drawn which intersect the trendline at the 38.2%, 50% and 61.8% points. Decisions about buying and selling are made at these points (i.e. - when the price of the commodity in question reaches these points).

Next is the retracement - this is when the movement of a stock or other traded commodity reverses direction; this is a reversal which is stronger than the prevailing trend of the stock's movement. Retracement patterns are looked at closely by investors; a Fibonacci retracement can be used to analyze the odds of a commodity's price having a larger than average retracement before continuing back on the direction it had before reversal. The trendline is typically drawn between two extremes and is divided vertically by the Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

The Fibonacci retracement is widely used by sophisticated traders to find: strategic places for transactions to be placed; target prices; and stop-losses. Other technical tools including Tirone levels, Gartley patterns, and Elliott Wave theory all make use of retracement.

The reason that the Fibonacci sequence is used in investing is simple: it works! Forex traders in particular in particular seem to find it useful in making profitable trades.