Some patterns in nature are so evident that we can predict, with dependable accuracy, when that pattern will again recur. The sunrise is reliably forecast to the minute, every morning. The recurring patterns of the molecular structure of certain naturally-ocurring materials allow us to construct atomic clocks around them, which are predictably accurate to the millionth of a second.

Billions of heliotropic sunflowers grace the planet, the number of upward bending petals of each and every one of them existing in an unerring ratio to the number of their downward bending counterparts.

It may at first seem strange to consider commodity futures or stock trading to be natural phenomena, right alongside the seasons until you look at trading charts: the graphs that plot commodity or stock market price patterns as a simple function of time.

Many of these patterns not only resemble some physical counterpart of nature, but in fact precisely follow the underlying mathematical order found to exist in nature. An order found to exist, by the way, a long time ago.

An Italian mathemetician by the name of Leonardo Fibonacci discovered, in the 13th century, a most unique number sequence that now bears his name. At first glance it doesn’t look like much. It starts like this: you take the number 2 and add to it the previous number in the sequence, 1, to get 3.

Then you take that number 3 and add to it the previous number and now you’ve got 5. The series continues on like this indefinitely and you wind up with the Fibonacci Series: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, and so on. Let’s look at this. If you take any Fibonacci number and compare it to the next higher number in the sequence, you get the ratio 61.8% (acutally it gets closer and closer to this ratio the higher up in the series).

Impressive, eh? OK, remember our billions of sunflowers? What would you say if I told you that every single one of them has 89 curves: 34 petals of which go in one direction, 55 in the other direction (all Fibonacci numbers) with the ratio between both types of petals equalling 61.8%?

Now we’re getting somewhere! Fibanacci claimed that his number sequence and its ratios occur throughout nature and help to explain many of natures’s mysteries. Investigation over the centuries has proven this to be the case again and again.

What does this have to do with futures trading? If markets indeed display the underlying mathematical order found in nature, perhaps everything. And what we find is that after a market has made a strong move up or down, it tends to retrace a certain distance before again resuming the trend direction.

That retrace distance can be measured and is very often found to be, precisely, in a primary Fibonacci ratio to the larger move. In fact an entire body of techinical analysis exists called Fibonacci ratio analysis and practically every charting package includes the “Fibonacci Fan” (which fans out lines in the Fibonacci ratios acting like support or resistance lines with the price bars often bouncing right off of them).

Each morning special “FIB” numbers are sent to floor traders and to other savvy traders worldwide. These are considered critical price levels calculated from Fib ratios that will tend to become important support and resistance levels throughout the trading day.

The daily ebb and flow of supply and demand, and human fear and greed, as seen in any well-traded liquid market, is itself a vibrant part of nature. Not water nature, or planetary nature, or flower petal nature, but human nature. A chart of market action is nothing more than a representation of human psychology, and as that psychology subtly shifts in one group, predictable psychological reactions occur in the other groups.

For example, a commodity fund buying a significant volume of contracts may cause a large upward price movement in that market which will, in turn, produce a certain psychological reaction in those investors who are short that market at the same time.

That reaction will ultimately result in a price reaction to the initial price action. Isn’t that natural? It is so natural in fact that these changes in global trader psychology throughout the day result in repetitive patterns on charts that can be recognized and analyzed in any number of ways as these patterns repeat over and over again.

This is all very good news for us as traders. With the learned ability to recognize and analyze repetitive patterns on charts, along with a sound approach to money and risk management, a trader can literally surf his way to profits on the natural psychological waves of market action.