Trend is not always your friend. As a matter of fact, traders often find it impossible to deal with the rapid movement of currency prices. Worse still, you may even have to sell your existing stocks and shares for good. Lagging indicators like moving average methods often fail to supply the necessary support and resistance levels. Fibonacci Forex trading comes somewhere in between this juncture. Experts use Fibonacci series into use and find out essential levels where traders may initiate their trading from.
Fibonacci series and its usage:
Occurrences in nature often repeat at a regular interval. Some follow a specific path and the definite pattern can be expressed in the form of an equation. In Fibonacci, every 3rd number in a series equals the sum of its preceding two.
To put it simply, [???????? = (????????−????) + (????????−????)]
Where ‘n’ is the limit. In real times, experts consider deducting certain ratios from this series and make it usable for traders in using for price retracement trends. Each of the ratios is obtained by dividing the number in this series with one just preceding it.
These ratios are then expressed as percentages; 61.8% considered as the Golden ratio. As a thumb rule, most lagging indicators use this Golden ratio to predict potential retracement levels from this sequence. Remember that although some refer this as being least scientific, it holds a very important position in technical analysis.
Possible support and retracement leveling:
Unlike most other lagging indicators, Fibonacci Forex trading indicator does not take into account past information. It is an oscillator which displays the pathways price is moving towards. Consider resemblance with Elliott Wave theory which itself is an oscillator following a particular trend.
Traders should also consider trading at specific trend points and not in the range to get accurate measurements of price movements. Irrespective of the currency pair you are dealing with, the Golden ratio gives a fairly decent idea of the trend analysis and subsequent retracement levels.
Is it stable?
Fibonacci Forex trading helps traders understand the swing highs and swing lows with the idea of retracing back to an initial position. Often market reacts violently to abrupt economic conditions. Even though price charts hit extremes at these points, it retraces back to normal after a certain period. Fibonacci indicators use this information to detect saddle points which detect further movements.
Although some experts consider relying on ratios a bit risky venture, Golden rat io provides a fairly good idea of the possibilities of retracement levels. As a matter of fact, it effectively identifies the position which requires setting of appropriate stop losses and limits order entry points. Fibonacci Forex trade is thus forward looking, and the intensity of oscillations denotes its limits.
Mathematicians and computer engineers often use Fibonacci series to predict future movements keeping in mind various parameters. Economists are of the view that prices often move in regular patterns and even if they don’t, applying fractal systems to use might help. Fibonacci Forex trading is consistent, and traders can safely rely on them for perfect price movement determination.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.