Fibonacci AnalysisFibonacci Sequence & Golden Ratio
In his second book Nature's Law, Elliott refined his work to incorporate Fibonacci Analysis. Since the beginning of his research, Elliott believed that the wave pattern he discovered was not the product of random chance, but of what he considered a "natural law" that was manifest in different facets of life. Indeed, we take the name of our market service from one of his observations:
| "...the market has its law, just as is true of other things throughout the universe. Rhythm, or regular, measured and harmonious movement, is to be discerned. This law behind the market can be discovered only when the market is viewed in its proper light, and then is analyzed from this approach." |
Through use of the Fibonacci Sequence, Elliott attempted to identify the blueprint of that natural law.
Who was Fibonacci?
Leonardo Fibonacci was a brilliant 13th Century mathematician from the city of Pisa, Italy. While that city is better known for its leaning tower, Fibonacci is much more significant to our modern evolution. It's thanks to him that we use the numerical system popularly called "Arabic," but which was more specifically the work of medieval Moslem mathematicians carrying on the mathematical traditions of the ancient Greeks and Egyptians. This system replaced the cumbersome and inefficient Roman numeral system, and added much needed refinements like decimalization, absolute values and other concepts that underlie our modern mathematics. If this was Fibonacci's sole contribution, it would still have been enough for its impact on western civilization. But this was only part of his contribution.
Much of Fibonacci's work is technical, and so we'll only summarize the key elements, particularly those that Elliott incorporated into the Wave Principle.
The Golden Ratio: The Golden Ratio (also called the Golden Mean or Golden Section) is based on the proportion 1.618-to-1, and its inverse .618-to-1. Through his research, Elliott found that the ratio was manifest in the design of natural structures (everything from snail shells to galaxies) as well as in human creations. The proportions are found to be pleasing to both the eye and ear. Another famous Leonardo, Leonardo Da Vinci, realized the ratio's significance in both art and science, and used it widely in his paintings and scientific drawings. The Ancient Egyptians used it in their art and architecture, including the building the of pyramids. Their contemporaries in what became Latin America also knew the ratio and used it in constructing the ancient pyramids found in Mexico and Peru. After thousands of years, these remain some of the most impressive engineering feats in human civilization. Because the Golden Ratio has a mathematical basis, Elliott felt the Wave Principle was built upon the same basis, and that the stock market, with its statistical records, was a natural place to look for it in action.