Inside the Hidden Market

Anyone who has ever looked at a stock chart knows that price moves up and price moves down as time marches on. This truism operates on all time frames from those calibrated with miniscule time increments—30-second, 1-minute, 2-minute, and so on—to those with very large time increments—1-week, 1-month, or even 1-year. Price moves up, price moves down, this much is always true. Still, questions remain: How does price move in one direction or the other? Are there patterns behind price movement? If there are patterns, can they be perceived by an individual trader? And if so, are these perceived patterns reliable?

Deep Roots

These questions and more have been thoroughly investigated by countless market observers, commentators, and traders at least since Munehisa Homma devised a method of trading in the rice markets of eighteenth-century Japan that over time evolved into what is known today as candlestick trading. Homma's method is not the only one with ancient roots, however. Enter Mr. Fibonacci.

Leonardo Pisano Bigollo was a brilliant mathematician who lived in thirteenth-century Italy. Like many of his time, he was known by several different names, the most famous of which is Fibonacci (fih-buh-NAH-chee). During his lifetime he was widely known through his Book of Calculation, in which he advocated the use of Arabic numbers (0–9), a radical notion for the Europe of that time. In addition, he discussed the series of numbers we now call the Fibonacci ...

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