I’m sure you have heard about this sequence before. If not in math class, then I hope you have at least heard of it from either reading or watching “The da Vinci Code.”

But Leonardo da Vinci and Leonardo Fibonacci are very different people.

Fibonacci is respected as one of the greatest of Italian mathematicians. He lived from 1175-1250, and is famous for his significant role in advancing the field of mathematics. One of his seemingly simple accomplishments was to bring the decimal system to the west.

Fibonacci enjoyed examining patterns, and in doing so, discovered one of the most famous of all mathematical patterns that we call the Fibonacci Sequence. It’s actually quite simple. Begin with zero, and every following number in the sequence is the result of adding the two numbers before it:

Here is the sequence: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89. . .

As a renaissance man, Fibonacci applied mathematics to nature. He noticed that this pattern was highly prevalent in the biological world. Everywhere he went, he discovered it represented in geometrical form.

All right. I realize you’re busy trading money. How does this all relate to improving your Forex trading profits? You’d be surprised. The Fibonacci sequence relates to natural growth, and given that there is nothing supernatural regarding the exchange of money, the ratios are found in currency fluctuations.

Let’s get to the point. Write down these three numbers:  0.618, 0.382, and 0.500. I could introduce different ones, but this is a good place to start.

When determining “retracement levels,” traders use the listed numbers to plan their buy/sell orders. This is how it all comes together:

Imagine a currency pair or a stock that is increasing in value. Eventually, we know that it will reach a plateau, experience a small plunge, and finally continue its way up. The stage in which it takes a plunge is where the Fibonacci sequences is factored in.

If you follow downward plunges carefully enough, you’ll see that they work according to the sequence. For those that manage to predict the pattern, they can jump in right at the point where the temporary plunge bottoms out.

The platform that you are already using is probably capable of charting the Fibonacci sequence. Sketch out the graph from low to high, and you’ll see that the retracement levels will be mechanically charted.

Nevertheless, you can’t simply expect to trade as soon as you see the graph land on a Fibonacci number. You cannot forget that many other things that have to be factored in.

For starters, you will not know the retracement level where the price bottoms out. Of the three numbers above, you could make a huge mistake and take a big hit. At the same time, you can easily pick the wrong high points.

Moreover, as much as many swear by it, the Fibonacci sequence is sometimes better in theory than in practice. There is no silver bullet in this game, but the Fibonacci sequence is something to consider. If you have any questions, call your broker and make him work that commission.