An Introduction To Fibonacci Forex Trading

By Author: moneytec
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How could I use fibonacci numbers in FOREX trading successfully and what are their advantages in trading?. These are two of many questions we got asked everyday by traders about Fibonacci numbers and the golden ratio.

At first we need to know who is Leonardo Fibonacci?. He was an Italian mathematician, considered by many people to be the greatest mathematician of the middle ages, is best remembered by his famous Fibonacci sequence. The definition of this sequence is that it's formed by a series of numbers where each number is the sum of the two preceding numbers; 0, 1, 1, 2, 3, 5, 8, 13 But in the case of currency trading and really stock market trading as well is the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc.

FOREX traders use these numbers to their advantage due to the fact that the oscillations observed in FOREX charts, where prices are visibly changing in an oscillatory pattern, are known to follow Fibonacci ratios very closely as indicators of resistance and support levels. This has been studied and re-studied for over a hundred years now with the stock market ...
... also, but it is so close as to be really amazing. It is believed by many that nature can be explained mathematically and this is another example.

Additionally, one important thing needed to know is that Fibonacci technical analysis is a leading method to analyze and predict market moving direction. What this means is that by learning the correct Fibonacci trading strategy and techniques you will be able to detect the most probable turning points in the market before the price gets there. You can know what the FOREX market will do in later.

One of the commonly used Fibonacci ratios is the 0.618 ratio which is also known by The Golden Ratio. As it can be easily seen on any FOREX chart, prices are continually changing and they follow an oscillatory pattern with peaks and valleys. The limit of the peak is usually called a resistance level while the valley is usually called a support.

To detect the 0.618 ratio level what you do is, first; measure the size of the drop or rise over your time of interest. Once you have that value you multiply this by 0.618. Now depending on what you are looking at, a rise or a drop on the price of the particular currency pair you are trading, you will add the last value you calculated to the total drop or subtract the value from the total rise. Most common trading software has Fibonacci ratios as part of its analyzing tools and indicatrs.

When you have the value you can then start planning the strategy you will follow in order to make a high probability profit from this important information. For the 0.618 ratio level calculated for a recent rise in the currency pair exchange price, your calculated level will be a highly probable support and for the case of a level calculated for a recent drop of the prices your level will be a highly probable resistance.

Many professional investment people try to make this type of technical analysis overly complicated, thus scaring away many new FOREX traders that are just beginning to understand how the FOREX market works and how to make a profit in it. But this is not how it should be. It should be a quite understandable tool for any trader once he or she has grasped the basics and has had some practice trading using Fibonacci levels along with other secondary indicators that will help you to improve the accuracy of the entry and exit point for every particular trade.
It is not that hard, Fibonacci numbers are easy to be applied to any kind of markets, just you need to observe and wait for a retracement for the price. The best resource for FOREX trading is MoneyTec MoneyTec, - Active Traders Community Forum, Chat. MoneyTec is an online trading community that promotes mature, intelligent & respectful discussion in a positive & safe environment for everyone.