What is Fibonacci trading? Fibonacci trading is based on the famous Fibonacci number series. Whether you trade stocks, futures, commodities or currencies, you will find Fibonacci trading techniques highly useful. The good thing about learning the Fibonacci trading techniques is that once you master it in one market you can use it in other markets as well. Did you see the movie, The DaVinci Code? You will find a scene in the movie where the characters talk about the Fibonacci number as part of a clue or code of some sort.
Fibonacci trading techniques are based on a series that was discovered in the 13th century by an Italian Leonardo de Pisa. Over the years many interesting characteristics have been discovered on a few ratios derived from this series. The Fibonacci series starts with 0 and 1 and goes out to infinity with the next number in the series being derived by adding the prior two. What are Fibonacci numbers? For example, 0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, 21+34=55, 34+55=89, 55+89=144, 89+144=233, 144+233=377.
Fibonacci trading is based on using those ratios in your trading entry and exit decisions. What is so fascinating about this series is that there is a constant found within the series as it progresses to infinity. This constant is known as the Golden Ratio, Golden Mean or Divine Proportion. The Fibonacci series is like this; 0,1,1,2,3,5,8,13,21,34,55,89,144,233,377,610, 987..to infinity.
What is so special about the Golden Ratio? You will find the Golden Ratio by dividing the higher number with the lower number by taking any two consecutive numbers in the series after the first few. For example, 89/55=1.618, 144/89=1.618, 233/144=1.618, 377/233=1.618, 610/377=1.618, 987/610=1.618 and so on. Go as higher in the series as you want and you will still find the Golden Ratio by dividing the next higher number with the lower number in the series. The inverse of 1.618 is 0.618. The inverse of the Golden Ratio is also a very important number in Fibonacci trading.
Identifying support and resistance is very important in forex trading or for that matter any other trading. How do you identify support and resistance? Fibonacci ratios are usually used by traders to identify support and resistance. What is most important to forex traders is that applying these ratios can help identify key support and resistance zone in the market and therefore determine key trading opportunities or setups. The Golden Ratio can also be found in many places in nature like flowers, shells, fossils etc.
Thus the application of Fibonacci ratios can give you the edge as a forex trader if you use the Fibonacci trading technique properly. We have already discussed the Golden Ratios 1.618 and its inverse 0.618. The main ratios used in everyday analysis are 0.382, 0.50, 0.618, 0.786, 1.000, 1.272 and 1.618.
Since you are trying to look into a type of technical analysis, it is assumed that you have a computer, a market data source such as quote.com and a technical analysis program to manipulate that data. You should be proficient with the technical analysis program.
There are three types of Fibonacci price relationship namely, retracements, extensions and price projections (sometimes also called price objectives). We will look into each type of these relationships individually. The Fibonacci price analysis calculations can be done by hand as well but they are time consuming and tedious.
Each of these Fibonacci price relationships will be setting up potential support or potential resistance in the chart that you are analyzing. The definition of a support is the price area below the current market where you will look for a possible termination of the decline and where you would consider to becoming a buyer of whatever currency pair you are trading.
Similarly resistance is price where the sellers overcome the buyers and the price starts to decline after reaching a high. It is the price area above the current market where you would look for the possible termination of a rally and consider being a seller. - 31876
Fibonacci trading techniques are based on a series that was discovered in the 13th century by an Italian Leonardo de Pisa. Over the years many interesting characteristics have been discovered on a few ratios derived from this series. The Fibonacci series starts with 0 and 1 and goes out to infinity with the next number in the series being derived by adding the prior two. What are Fibonacci numbers? For example, 0+1=1, 1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13, 8+13=21, 13+21=34, 21+34=55, 34+55=89, 55+89=144, 89+144=233, 144+233=377.
Fibonacci trading is based on using those ratios in your trading entry and exit decisions. What is so fascinating about this series is that there is a constant found within the series as it progresses to infinity. This constant is known as the Golden Ratio, Golden Mean or Divine Proportion. The Fibonacci series is like this; 0,1,1,2,3,5,8,13,21,34,55,89,144,233,377,610, 987..to infinity.
What is so special about the Golden Ratio? You will find the Golden Ratio by dividing the higher number with the lower number by taking any two consecutive numbers in the series after the first few. For example, 89/55=1.618, 144/89=1.618, 233/144=1.618, 377/233=1.618, 610/377=1.618, 987/610=1.618 and so on. Go as higher in the series as you want and you will still find the Golden Ratio by dividing the next higher number with the lower number in the series. The inverse of 1.618 is 0.618. The inverse of the Golden Ratio is also a very important number in Fibonacci trading.
Identifying support and resistance is very important in forex trading or for that matter any other trading. How do you identify support and resistance? Fibonacci ratios are usually used by traders to identify support and resistance. What is most important to forex traders is that applying these ratios can help identify key support and resistance zone in the market and therefore determine key trading opportunities or setups. The Golden Ratio can also be found in many places in nature like flowers, shells, fossils etc.
Thus the application of Fibonacci ratios can give you the edge as a forex trader if you use the Fibonacci trading technique properly. We have already discussed the Golden Ratios 1.618 and its inverse 0.618. The main ratios used in everyday analysis are 0.382, 0.50, 0.618, 0.786, 1.000, 1.272 and 1.618.
Since you are trying to look into a type of technical analysis, it is assumed that you have a computer, a market data source such as quote.com and a technical analysis program to manipulate that data. You should be proficient with the technical analysis program.
There are three types of Fibonacci price relationship namely, retracements, extensions and price projections (sometimes also called price objectives). We will look into each type of these relationships individually. The Fibonacci price analysis calculations can be done by hand as well but they are time consuming and tedious.
Each of these Fibonacci price relationships will be setting up potential support or potential resistance in the chart that you are analyzing. The definition of a support is the price area below the current market where you will look for a possible termination of the decline and where you would consider to becoming a buyer of whatever currency pair you are trading.
Similarly resistance is price where the sellers overcome the buyers and the price starts to decline after reaching a high. It is the price area above the current market where you would look for the possible termination of a rally and consider being a seller. - 31876
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try These 1500 Pips A Day Forex Signals From Heaven. Know Forex Rebellion!
