Stocks & Commodities V. 29:9 (24-30): Trading The Golden Ratio by Gareth Burgess

Stocks & Commodities V. 29:9 (24-30): Trading The Golden Ratio by Gareth Burgess
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Trading The Golden Ratio by Gareth Burgess

You can apply this technique to forex pairs to confirm price direction and anticipate when price will reach a certain point.

The golden ratio to chart analysis is useful, and you should try to incorporate it within your strategy wherever possible. In this article I want to discuss one simple way of doing this. I will not go into much detail here about the origins of the ratio, except to say it has been used throughout written history and perhaps before, and that it has been found within architectural designs and construction methods of the ancient Egyptian pyramids and the Greek Parthenon and can be seen in the growth and form of many plants. So itís been around a while.

The golden ratio is certainly a number that has significance in everyday life, even if we are not always aware of it. And just like the early architects who took the ratio from nature and applied it to their structures, we as traders can take the natural occurrences of the market and apply the same golden ratio to create our own technical plan.

It is primarily the actions of the crowd that create many of the well-known chart patterns, and as a consequence of these patterns, there can be highly emotional and distraught moments in the marketplace. As a result, the response of these emotions can be seen as reflective of human nature, a response that is heightened when faced with the prospect of a loss or gain in the financial markets. The markets are reflective of human nature, and where natural occurrences happen, so can the golden ratio appear. There are many ways to use the golden ratio in the market, and here is one of the simpler applications.

APPLYING IT

For the purposes of this article I will first demonstrate the significance of this number by plotting the ratios on a graph and then show how to use it in the financial markets.




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