Learning Fibonacci Trading (Part I)

August 16, 2009 | Posted by Andrew

What is Fibonacci Retracement?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. First practice on your forex demo account. Learn about forex managed accounts.

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.

What is so fascinating about this series is that there is a constant found within the series as it progresses to infinity. 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. This constant is known as the Golden Ratio, Golden Mean or Divine Proportion.

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.

The Golden Ratio can be found in many places in nature like flowers, shells, fossils etc. 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.

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.

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. 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.

Custom Search

• Forex Trading Programs Worth Of Your Attention The most beneficial stock investors frequently work on inner data, or data about the market that the ordinary trader doesn't informed of or even have access to it. This isn’t the reality of the forex currency market. All the data required to examine the market and implement well-examined deals is......
• Buying Forex Magic Machine And Other Automated Forex Trading Tool Online Forex law is really popular now. Going hand in hand with the popularity is the use of automated robots, such as Forex magic machine. The promises of easy profits are hard to ignore. However, you should be aware that the results of economic activity could well be very different......
• Get Rich - Zero-stress - Forex Trading On Days when the Stock market is without trend look for Forex Trading in a Box with a robot. There is a special way to Forex trading software. One thing I can say for sure about the markets is that they never move straight up or straight down continuously. Prices......
• Forex Trading System- FAQ About The Forex Megadroid The Forex Megadroid is a popular Forex trading system that was launched on March 2009. It was invented by two men named Albert Perrie and John Grace, who are both Forex trading veterans. Ever since this robot was introduced to the currency exchange business, it has never ceased to catch......
• Success Of Forex Trading Forex trading can be somewhat daunting, especially for someone new to the game. Many traders, Forex may worry from information surcharge due to the huge number of trading systems, books, studies and indicators that are available. Top tag course Forex trading can break through this big pile of information and......

• My Prosper Internal Rate of Return Update (End of October 07) = (0.57)% This is a RateLadder only IRR update. (An IRR lender “game” update is in the works.) Here is my permanent tracking page: http://rateladder.com/my-prosper-irr/ My Prosper IRR is defined as: Monthly cash flows with one extra month using the current account value minus any loans 1 month or more late. Current......
• Diamond Peak Ski Resort, Incline Village, NV Diamond Peak Ski Resort is located in: Incline Village, NV Phone: (775) 832-1177 Website: http://www.diamondpeak.com/ About the Resort: Located just over the border from California in Incline Village, the Diamond Peak Ski Resort is a world-class facility that offers non-stop fun for skiers and snowboarders. They have gone to great......
• Why is my elbow still sore 3 days after general anesthesia injection? Don't worry , I will call my doctor tomorrow when their office reopens. I just had my wisdom teeth taken out last Thursday, and my face is fine, but the injection site on my elbow is sore and I am basically out of comission as far as my normal exercise......
• Why does my elbow hurt when I serve in tennis? After about 10 serves or so the area around my elbow begins to ache. The ache is mostly on the muscle in between my bicep and my elbow. Is this from improper serving mechanics? (I have never been coached) If so, what are the correct mechanics to serving without hurting......
• Snow Summit Ski Resort, Big Bear Lake, CA Snow Summit Ski Resort is located in: Big Bear Lake, CA Phone: (909) 866-5766 Website: http://www.snowsummit.com/index_winter.php About the Resort: If you love Alpine skiing, this is the resort to visit. Dedicated almost entirely to this type of skiing, the resort offers a great chance to get away from it all......

Categories: Forex Trading Robot  |  Tags: fibonacci extension, fibonacci extensions, fibonacci retracement, fibonacci retracements, fibonacci trading  |  Leave a reply