Understanding Fibonacci Trading (Part I)
What is Fibonacci forex? 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.
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? The Fibonacci number series were made famous by an Italian Leonardo de Pisa. 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.
You will find the Golden Mean 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. The inverse of 1.618 is 0.618.
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.
Why use Fibonacci ratios in your trading? 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 Ration 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.
You should be proficient with using the technical analysis program if you want to use the Fibonacci ratios in your trading. 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 since you are trying to look into a type of technical analysis.
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.
Support and resistance are two very important concepts used in trading. 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. Fibonacci support and resistance levels as known as the leading indicators! - 23208
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? The Fibonacci number series were made famous by an Italian Leonardo de Pisa. 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.
You will find the Golden Mean 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. The inverse of 1.618 is 0.618.
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.
Why use Fibonacci ratios in your trading? 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 Ration 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.
You should be proficient with using the technical analysis program if you want to use the Fibonacci ratios in your trading. 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 since you are trying to look into a type of technical analysis.
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.
Support and resistance are two very important concepts used in trading. 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. Fibonacci support and resistance levels as known as the leading indicators! - 23208
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!
posted by X - Men @ 8:19 AM
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