The Fibonacci number series is ubiquitous. It is everywhere, whether one is aware or not. Not only was it prevalently found in older cultures (Greek,Egyptian, and Hebrew), in elements of life (DNA molecule and the human body), and even in recent studies of the entire universe, Fibonacci numericalrelationships play a very significant yet subtle role in market action and hence, trading. Even more, Fibonacci Forex trading has actually become theplatform of a majority of Forex trading systems and is used by numerous professional Forex brokers all over the world. Yet, it may well be asked whya relatively simple series of numbers would play such a strong role in the Forex market with traders quite often separated by culture and greatdistances. The difficulty in perceiving the possibility of this at least in part comes from a human tendency to believe itself to be independent andsomewhat separated from nature. Certainly, when we are injured, sick, or close to death, the influence of nature in our lives is quite obvious.However, under 'normal conditions", our intelligence gives us a sense of being "above" the control of nature, especially in a collective sense and blindsus to elements of the truth.
The truth under discussion is that changes in market prices largely reflect human opinions,expectations, and valuations.A series of studies, published in the 1980s by mathematical psychologist Vladimir Lefebvre, demonstrated that humans exhibit positive and negativeevaluations of the opinions they hold with 61.8% positive and 38.2% negative. If you recall, these two numbers (61.8%/ 0.618 and 38.2%/0.382) areimportant Fibonacci ratios. This as well as other related studies suggest that Fibonacci numbers are intrinsically rooted in a trader's psychology.Furthermore, other research has shown that markets are perfectly patterned, explaining that human traders, being part of nature, create geometric likerelationships in their behaviors, even if they are not aware of it. Therefore, the real truth here is that Fibonacci ratios affect all traders, whether theyconsciously apply the numbers or not in their trading ! This has a very important implication for the Forex Trader !!! Since these ratios as well asother Fibonacci numerical relationships appear frequently enough in the timing of highs and lows and price resistance points, adding Fibonaccievaluations to technical analysis of the markets may help identify key turning points, and significantly improve trading results. Forex traders cangreatly benefit from such mathematical proportions due to the fact that the currency price fluctuations observed in Forex charts, where prices arevisibly changing in an oscillatory pattern, are known to follow Fibonacci ratios very closely as indicators of resistance and support levels. Additionally,it is important to understand that Fibonacci analysis is a LEADING indicator. This means that such analysis will provide a direction where the marketwill advance to, not where it has gone to date, as most other indicators yield. This can be a very real advantage. What does this means in practicalterms ? How does a trader actually apply Fibonacci Forex trading in whatever plan he uses? As can be seen on a typical Forex chart, the currencyprices are constantly changing, following an oscillatory pattern with peaks and valleys. The limit of the peak is called resistance while the valley isknown as support. In order to find, say, the 0.328 ratio level in an example, the size of the drop (or rise) is measured over the time of interest. Thatvalue is then multiplied by 0.328 and then added to the total drop (or subtracted from the total rise). This defines the anticipated retracement leveland provides good numerical probability of where the market will retrace to and find new support or resistance. Once this level has been determined,the strategy can be planned which theoretically will allow a trader to yield a high probability profit.
Successful application of Fibonacci analysis has thepotential to allow traders to earn an excellent income. Two very well known traders who effectively used Fibonacci especially in the Stock Market areW. D. Gann and R. N. Elliott. Gann made his fortune using methods which he developed for trading instruments based on relationships between pricemovement and his work was heavily influenced by applying Fibonacci in his analysis. Elliot developed the so called Elliot Wave Theory where allmajor market moves are defined by a five-wave series, adding to the potential to identify the turns. The Classic Elliot Wave series consists of an initialwave up, a second wave down (typically retracing 61.8 % of the initial move up), then the third wave (the largest) up again, another retracement, andfinally the fifth wave,which completes the cycle. It is very likely for a new Forex trader to become initially overwhelmed by this kind of numericalapplications in their market analysis. Such traders if truly interested in applying Fibonacci numbers in their trading plan, should be encouraged to learnthe basics well first and practice as much as needed before actually risking any of their capital. Since this discussion has hopefully demonstrated theimportance (and strong influence) of Fibonacci ratios on the Forex market, it seems quite logical than to achieve the ultimate success as a trader, it isessential to understand and effectively apply Fibonacci Forex trading in the trader's plan. To totally ignore Fibonacci analysis in trading the Forexmarket would be like walking into traffic blindfolded. The cars may not be seen, but they could kill nonetheless.
About the Author
Dave Hikade began trading over 10 years ago and offers a FREE Forex Trading Newsletter: http://www.forex-trader-basics.info More information onthe Best Fibonacci Forex Trading Program may be found here: http://dachsales.com/rec/fibonacci
Source: http://www.articlestreet.com
The truth under discussion is that changes in market prices largely reflect human opinions,expectations, and valuations.A series of studies, published in the 1980s by mathematical psychologist Vladimir Lefebvre, demonstrated that humans exhibit positive and negativeevaluations of the opinions they hold with 61.8% positive and 38.2% negative. If you recall, these two numbers (61.8%/ 0.618 and 38.2%/0.382) areimportant Fibonacci ratios. This as well as other related studies suggest that Fibonacci numbers are intrinsically rooted in a trader's psychology.Furthermore, other research has shown that markets are perfectly patterned, explaining that human traders, being part of nature, create geometric likerelationships in their behaviors, even if they are not aware of it. Therefore, the real truth here is that Fibonacci ratios affect all traders, whether theyconsciously apply the numbers or not in their trading ! This has a very important implication for the Forex Trader !!! Since these ratios as well asother Fibonacci numerical relationships appear frequently enough in the timing of highs and lows and price resistance points, adding Fibonaccievaluations to technical analysis of the markets may help identify key turning points, and significantly improve trading results. Forex traders cangreatly benefit from such mathematical proportions due to the fact that the currency price fluctuations observed in Forex charts, where prices arevisibly changing in an oscillatory pattern, are known to follow Fibonacci ratios very closely as indicators of resistance and support levels. Additionally,it is important to understand that Fibonacci analysis is a LEADING indicator. This means that such analysis will provide a direction where the marketwill advance to, not where it has gone to date, as most other indicators yield. This can be a very real advantage. What does this means in practicalterms ? How does a trader actually apply Fibonacci Forex trading in whatever plan he uses? As can be seen on a typical Forex chart, the currencyprices are constantly changing, following an oscillatory pattern with peaks and valleys. The limit of the peak is called resistance while the valley isknown as support. In order to find, say, the 0.328 ratio level in an example, the size of the drop (or rise) is measured over the time of interest. Thatvalue is then multiplied by 0.328 and then added to the total drop (or subtracted from the total rise). This defines the anticipated retracement leveland provides good numerical probability of where the market will retrace to and find new support or resistance. Once this level has been determined,the strategy can be planned which theoretically will allow a trader to yield a high probability profit.
Successful application of Fibonacci analysis has thepotential to allow traders to earn an excellent income. Two very well known traders who effectively used Fibonacci especially in the Stock Market areW. D. Gann and R. N. Elliott. Gann made his fortune using methods which he developed for trading instruments based on relationships between pricemovement and his work was heavily influenced by applying Fibonacci in his analysis. Elliot developed the so called Elliot Wave Theory where allmajor market moves are defined by a five-wave series, adding to the potential to identify the turns. The Classic Elliot Wave series consists of an initialwave up, a second wave down (typically retracing 61.8 % of the initial move up), then the third wave (the largest) up again, another retracement, andfinally the fifth wave,which completes the cycle. It is very likely for a new Forex trader to become initially overwhelmed by this kind of numericalapplications in their market analysis. Such traders if truly interested in applying Fibonacci numbers in their trading plan, should be encouraged to learnthe basics well first and practice as much as needed before actually risking any of their capital. Since this discussion has hopefully demonstrated theimportance (and strong influence) of Fibonacci ratios on the Forex market, it seems quite logical than to achieve the ultimate success as a trader, it isessential to understand and effectively apply Fibonacci Forex trading in the trader's plan. To totally ignore Fibonacci analysis in trading the Forexmarket would be like walking into traffic blindfolded. The cars may not be seen, but they could kill nonetheless.
About the Author
Dave Hikade began trading over 10 years ago and offers a FREE Forex Trading Newsletter: http://www.forex-trader-basics.info More information onthe Best Fibonacci Forex Trading Program may be found here: http://dachsales.com/rec/fibonacci
Source: http://www.articlestreet.com
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