Exploration of the Fibonacci

sequences and Golden Ratio in

Stock market predictions and Art
Introduction and Rationale :

From trading commodities to watching countless movies on financial markets and even reading
about successful hedge-fund managers, for over three years now, I have studied the financial
markets and have had a deep interest in the topic.Over this period, I have come across countless
styles and ways to predict the paradigm shift in the markets and my inquisitiveness has further
increased with each new piece of information. Through this research I have identifies that a
majority of concepts revolves around the renowned mathematical concept of Fibonnaci ratios and
in this case in particular. Throughout the course of this exploration I will be analysing various
charts to explore how the concept of Fibonacci retracements are able to showcase recurrence in
data analysis and further gain an understanding into the applications of the Fibonnaci Ratios.
Moreover, having an avid interest in art from a very young age and from exploring countless
galleries , I have been inspired on highlighting the various other application of this concept in
other areas such as art and architecture as the concept has inspired countless artists that
revolutionised our generation into creating master pieces that are known all over the world.

The Theory behind Fibonacci sequences and Golden Ratio

The Golden Ratio is often referred to as Phi , denoted by the sign (Ø) . It was first identified around
the period of 300 BC by a greek philosopher named Euclid who compared dividing a line at the
0.618039 point to “dividing a line in the extreme and mean ratio.” and therefore though this
coining the term golden mean. The concept of fibonacci sequences however and the respected
sequences it follows was identified by a mathematician named Leonardo Fibonacci ,an Italian
born in 1175 AD. From this it was shown that golden ratios and phi existed within the design of
objects in fields including science, arts, business, nature, beauty and countless other elements
making it seem as though this number lives in ubiquity and influences many fundamental aspects
of human existence.

In order to be able to fully appreciate the pervasiveness of Fibonacci Numbers, the concept
behind the derivation of the sequence must be explored. Fibonacci numbers are created through
a recursive mathematical sequence. It works through an addition operation in which a number is
added to the number that precedes it. This can further be understood using Figure 1.

Fibonacci numbers are created by beginning with the number 0, to which one adds 1, which
results in the number 1. The resulting 1 is added to the previous number 1, resulting in the number
2. Following this pattern, each new Fibonacci Number is derived from adding the current number
to the preceding number. The first ten Fibonacci Numbers are shown and can be understood
using the table below. The third row of Figure 1 illustrates the simple calculations required to
derive the following Fibonacci Numbers.

Figure 1

The magnitude with which the Fibonacci sequences are entwined with the Golden Ratio can also
be seen using the first ten Fibonacci numbers as a reference and the calculation can be seen
through Figure 2 below:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55

It can be observed in the figure that if the first number is divided by the successive number and
this calculation is repeated multiple times, each time brings us closer to an approximation of the
Golden Ratio or Ø (1.618). This example explains the co-dependent nature between the
Fibonacci sequences and the golden ratio. From this , it can also be taken that one cannot exist
independently of the other. For this reason, the terms Fibonacci sequences and Golden Ratio are
regularly used interchangeably throughout the discussion as in essence , they can be looked at in
the same manner.

Fibonacci
0 1 1 2 3 5 8 13 21 34 55
Number

Calculati
0 1 2 1.5 1.66666666666667
1.6 1.625 1.61538461538462
1.61904761904762
1.61764705882353
on

0 1 2 1.5 1.6666671.6 1.625 1.615385

1.619048
1.617647 1.617647059
Ø

Figure 2

Exploration and Analysis

In the analysis , there will be an exploration into the aesthetic appeal of the Golden Number in
fields such as business in which these concepts can be seen in industrial designs such as the
making of consumer products and company logos and also the use of Fibonacci sequences to
predict stock market change and predict shifts using a concept known as the Elliott wave Theory.

Following this , the analysis will also include a discussion of various art works from renowned
artists including Dali, Michelangelo along with photographic examples of the relevance of the
topic in their respective masterpieces.

When we take a look into stock market analysis, It can be observed in price charts that as price
moves retrace themselves, support and resistance levels are more likely to occur at certain
specific retracement levels . These levels in particular are at 0.0%, 23.6%, 38.2%, 61.8%, 100%,
161.8%, 261.8% and 423.6%. Each of these numbers starting from 23.6% is approximately 0.618
times the succeeding number and each number starting from 38.2% is approximately 1.618 times
the preceding number.This follows the general Fibonacci recurrence required to form a sequence.

The general Fibonacci recurrence relation is shown as follows:

Fn = Fn−1 + Fn−2

By dividing both sides of the equation by Fn−1 we obtain the following form:

Fn/Fn−1 = 1 + Fn−2/Fn−1

As n → ∞, we have Fn/Fn−1 ≈ Fn−1/Fn−2. Putting Fn/Fn−1 as α, we may therefore write as

follows:

limn→∞ α = 1 + 1/α (3)

After solving the above equation for α, we obtain the value for “ α ” to be = 1.618, which is the phi
value of the Fibonacci ratio for infinitely large values of n.

One interesting use of the Golden Ratio in business is the way in which companies control
consumer behavior through design of products. Companies such as Apple incorporate the
Golden Ratio into their design in countless ways. Apple has been seen to use the Golden Ratio in
the design of various signature products such as the Apple Ipod, Iphone and Ipad. Apple
designer, Jonathan Ives, has applied various specific geometric lines , uniform radii and has
made an addition of the proportional grid ”. Moreover ,a study was conducted in 2007 in which
logo design was considered in the context of the Golden Ratio. Many marketers have studied the
appeal of logos on consumers and how the golden ratio might play a role on this.

As an example of this , one of the most influential marketers that have used the golden ratio
theory in order to enhance consumer interest is Dieter Rams who was able to develop a grid
system that all Braun appliances were required to follow. In Figure 3 below, the grid system
applied to a Braun coffee maker can be seen .

Figure 3

We can now see the application of Fibonacci sequences in a concept known as Elliott wave
theory in the prediction of stock market movements. An American accountant named Ralph
Nelson Elliott developed the Elliott wave Theory in the 1930’s. Elliott believed that the stock
markets that were usually believed to move in unpredictable manners , in fact , actually had
recurring patterns and sequences that could be used to predict changes.Elliott eventually
published his ideas in a book he named as ‘ The Wave Principle ’ in the year 1938 .Elliott waves
often correct in terms of the Fibonacci ratio and therefore correct to a Fibonacci number . This
can be seen using the example given below:

On the left side of the chart above, there is a diagram depicting a wave 1 followed by a wave 2. It
is common for second waves to retrace to a level .618 of wave 1 and this type of a retracement is
known as a deep retracement . A retracement of .5, 50% may be seen occasionally but .618 is
very common retracement. Now ,on the right side of the chart it can be seen how fourth waves
commonly retrace a smaller percentage or .382 of wave 3. These retracements show the concept
of how these waves retrace in accordance to a fibonacci sequence.

A live market example of this can be seen by using a wave count on a live chart taken from the
S&P 500 stock index. There are waves labelled 1, 2, 3, 4 and 5. In order to understand better, the
retracement made by waves 2 and 4 can be looked at in greater depth.

From the chart above we can see that wave 2 makes a deep retracement in this scenario. It
comes close to the 0.618 point on the graph. Alongside this , the Fibonacci table that is put up (in
red) includes the fibonacci numbers of 0.382, 0.5, 0.618, and 0.786. Therefore it shows how the
fibonacci number 0.618 is at the point 1087.75 on the chart, and the lowest point on the S&P is
1090.19 , which therefore shows how the retracement almost exactly followed a pattern that
adheres to the fibonacci numbers.

In this situation , it can be seen that that wave 4 makes a shallow retracement of wave 3 as it
goes just beyond the 0.382 retracement. As the graph also shows, the fibonacci number of 0.382
is at the point on the graph numbered 1169.1, whereas, wave 4 actually bottoms at 1163.75
showing the close prediction that can be made.For this reason, it can be said that the Elliott
waves often correct in terms of Fibonacci ratios and therefore allow the shifts in the market to be
predicted.

As the application of Fibonacci sequences in finance and marketing have been looked at in
greater detail, we can now move on to the applications of this concept by legendary painters such
as Leonardo DaVinci , Salvador Dali and Michelangelo in the field of art .

The works of the infamous renaissance painter Salvador Dali have always been well - known by
many , however the majority fail to realise the genius planning and accuracy that was undertaken
in creating his pieces . This particular relationship with the golden ratio can be seen in his 1955
painting, “ The Sacrament of the Last Supper ” . It has been recorded with documented evidence
that the size of this painting itself is at a measurement of (105-1/2” x 65-3/4”), this itself is a
Golden Ratio relationship which can be seen by dividing the two values as seen:

(105-1 /2) ÷ ( 65 - 3/4) = 1.6

By doing so the value obtained is 1.6 and therefore it shows the presence of the golden ratio.

Moreover , Dali was also able to incorporate the presence of the golden ratio into the symbolism
present in his painting. The ancient Greeks created complex figures known as Platonic solids that
they believed placed the foundation for all existence .Whether its a coincidence or not, the
Platonic solids are structurally and mathematically linked to the Golden Section and Fibonacci
numbers.

The Sacrament of the Last Supper

As seen in the painting above ,Dali uses the presence of a figure known as a Dodecahedron for
the windows that Plato considered as the most important platonic solid that represented the
entire universe and therefore incorporated the golden ratio as seen below. Moreover , Dali also
positions the table in his work at the Golden Section height of the painting and positions the two
disciples at the Golden Section width and therefore further fulfils the use of the golden ratio .

Alongside Dali , another famous renaissance painter known for his inclusion of golden ratio in art is
Michelangelo. He is well known for his various pieces such as the painting of the ceiling of the
Sistine Chapel. Many mathematicians have analysed the painting of the sistine chapel in order to
understand Michelangelo’s use of golden ratio and how he used it in order to improve the aesthetic
of his paintings and further appeal to his audience.Although it is still not confirmed if he intended to
do so but with he use of digital software it is clearly seen how the number 1.6 is induced through
the measurements and size of the painting and the various different proportions he uses as seen in
the illustration below.

Painting of the Sistine Chapel

Conclusion

As our modern generation continues to find new and unseen discoveries of situations where the
fibonacci sequences and golden ratio continuously happen to recur, we ask ourselves the questions
of whether it is all a coincidence or rather if everything around us has been made to follow the
pattern of phi in order to reach the maximum potential aesthetic and perfection of our surroundings.
Originating from nature itself , it has inspired countless revolutionary minds of architects , painters
and even the titans of business and markets.

The goal of my exploration was to look into aspects of the fibonacci sequence in areas such as
market analysis and stock market predictions as this style of analysis is rarely ever brought out to
the attention of those who find interest in the presence of the Golden number and more than this , by
providing real market examples and illustrations , I have showed the application for these concepts
in the lives of countless traders and even how we as consumers of tech giants like Apple and
companies like Braun have been brought into the magical illusion , attraction and aesthetic that
golden ratio puts forth has also been around these numbers without even realising it. By bringing in
the painting of revolutionary artists , I also wanted to show how it is not something new but rather
has been around for hundreds of years and for this reason , we can even call it the building block of
a masterpiece painting or structure.

Although I have been able to provide instances of the presence of the golden ratio , I found it
difficult to find new examples that have never been explored due to the intensive exploration that
has already been conducted on the topic and moreover , the concept of Elliot Wave Theory is a
much broader concept with many more implications that could not be brought into the investigation
due to the complexity of the concept. From this I also learned the presence of the ratio in places that
I never even knew before and this was possible through the research that was conducted and
moreover , I believe that now I can be more critical of the art of architecture around me rather than
taking it for granted.