Trading is not a game of exacts. Perfectionists need not apply. Markets are made up of many irration...
The Symmetry of the Markets—Beautiful By Any Name (Part 3)
01/30/2008 12:00 am EST
Pythagoras, the Greek father of Geometry said: ‘FIRST OF ALL IS NUMBER’. The Greeks had a very poor number system that used letters of the alphabet without a zero, yet they produced art and architecture that was amazingly beautiful because of their exquisite proportions. Their unique artistry came from their use of complex mental processes, coupled with very direct and simple ways of transferring ideas into wood and stone structures, because they were so well versed in the repeatable patterns found throughout nature.
Translated into today’s language, The Golden Mean can be defined as: ‘the lesser is to the greater as the greater is to the whole’. Now let’s see if we can derive the other popular numbers I cited above:
1 divided by 1.618 = .618
.382 = .618 multiplied by .618 that means it is .618 squared
The square root of 1.618 = 1.272
How do these numbers relate to the number series commonly referred to as the ‘Fibonacci sequence’?
The 61.8 % ratio is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.
You can see that these numbers were well known and used throughout the ancient world well before the birth of Christ. Their derivation came from mathematicians and philosophers studying the recurring beauty and symmetry found throughout nature in such natural phenomenon as the spiral growth of seashells and the number and relative size of petals and leaves on plants and flowers. And it should surprise none of us that if these ratios are pervasive throughout nature, they are also very visible and useful in all the markets.
More tomorrow in part 4.
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