FOREX Money Trader
FOREX Money Trader
Our Site is dedicated to providing as much straight forward information
as we possibly can without all the extras hype. Currency knowledge
that's empowering.
MLD
Our Site is dedicated to providing as much straight forward information
as we possibly can without all the extras hype. Currency knowledge
that's empowering.
MLD
| Foreign Currency Exchange Information: Fibonacci Trading |
| Fibonacci Trading |
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| Copy Right 2008 |
| Working with this program now. Seems to work well. Have made back my investment in the program so I figure its paid for itself. Give it a shot! |
| "Currency Knowledge That's Empowering" |
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Fibonacci Trading
If you have heard about Fibonacci trading, and maybe even read some details, you may be confused about how it
can be effective in helping you make a profit. If so, you are not alone! While some people swear by the Fibonacci
ratios to help them know where to take their profits, a number of other people are skeptical about any value to them,
particularly as the markets do not demonstrate exact measurement to these “magical” numbers.
To start at the beginning, Fibonacci numbers were made popular by an Italian who was sometimes called Fibonacci,
but also known as Leonardo Pisano, or Leonardo de Pisa, who lived in the twelve and thirteenth century. He
receives credit for bringing to the public’s attention a sequence of numbers which had been known to the Greeks and
in India in the sixth century. In fact, the sequence isn’t really the important part of the story; it’s the final ratio that is
the number that is deemed to have magical powers, and this number was known as the Golden Ratio to the Greeks –
it is 1.618 (approximately), and its reciprocal is 0.618 (approximately), and is the same number minus one, exactly.
The sequence is generated by adding two successive numbers together to get the next, that is 1, 1, 2, 3, 5, 8, 13 –
and the next would be 8+13, which is 21. The ratio between adjacent numbers quickly becomes close to 1.618, and
for an infinite series would become exactly the Golden Ratio. The stock market isn’t that precise, so 1.618 and 0.618
are good enough for our purposes. The sequence was included by Fibonacci in a learned paper that discussed the
number of rabbits that would be bred if two rabbits were shut in together!
Although I have summarily dismissed the actual sequence, it is important in many ways, and occurs naturally many
more times than you would expect. For instance, the spirals on a pineapple, or on the head of a sunflower, will be
one of the Fibonacci numbers in one direction, and the adjacent number in the other direction. Commonly, sunflower
heads are 55 spirals in one direction, and 89 in the other, both Fibonacci sequence numbers.
As regards trading, the Fibonacci numbers can be used in various ways. The most common way is Fibonacci
retracement, although they can be used in arcs, fans and time zones. Most charting applications include tools for
Fibonacci retracement, and are able to draw the lines at 61.8%, 38.2% which is the remainder, and 50% which is not
a Fibonacci number but is usually included. This value is due to W.D. Gann, a trader from the early 1900s, who
postulated that retracements often went back to halfway, or 50%, before resuming their rise. He also saw minor
support and resistance at other halfway points, such as 12.5% and 25%, but that’s another story.
In practice, in Fibonacci trading the lines are drawn between the high and low points on any timeframe, and show
expected support and resistance between these boundaries. For instance, as a price comes down from the high
point, it may hesitate around the 61.8% line. They are not generally used for definite buy or sell signals, but can
support the decision which is indicated by other indicators, such as moving averages or trend lines.
The main problem, or maybe opportunity, with them is that the Fibonacci lines are only followed approximately, but
tend to be self fulfilling, in that many traders are looking at them for guidance. Thus they can be of some use in
setting levels at which you want to take profits. It is unlikely that the exact 61.8% will be the turning point, for instance
it may be 65%, but if it is sufficiently close, advocates will claim success for the system. If you don’t find very good
agreement to the Fibonacci levels when you view the price chart, you may find that alternative highs and lows yield
better results – sometimes a level is established without much volume, and thus it doesn’t have much validity, and
setting the Fibonacci lines off the next adjacent level makes more sense. As they are an easy and common function
of most charting applications, it takes little effort to experiment.
While this use of Fibonacci levels, examining the countertrend or price movement within a previously established
range, is quite common, they can also be used in predicting the price projection for a new high or low. These are
called Fibonacci price extension levels.
For instance, one popular way to draw these is based on drawing the extent of the last range between low and high,
but starting at the retracement low – that is, zero to one is drawn from this intermediate point, and extends past the
previous high, with lines at 38%, 50% and 62%. This is subject to interpretation, as I’m sure you can appreciate, but
often the next high will line up the Fibonacci lines from this construction – frequently finding resistance at 38%, which
may be below or above the previous high, depending on the chart. Fibonacci levels are commonly used with the
Elliott Wave Theory, as you’ll see if you read about Elliott Waves, even though you do not need to know about Elliott’
s theory of five waves upwards and three waves back to use them.
These levels are applicable on all time scales, although you should not expect such accuracy when considering short
periods, such as intraday. A single trade or tick could easily breach the level, while not breaking the principle.
You remember that above I talked about different uses of the Fibonacci sequence? Some charting software allows
you to draw Fibonacci arcs and fans, and you can experiment with them, but remember to have some corroboration
before trading. With regard to the time frames, you may expect stocks to trade up and down in Fibonacci numbers.
For instance, a stock may rise for three days, then drop for two, these numbers being adjacent in the Fibonacci
series. Or they may rise for five days and retrace for three days. If you look for these patterns, you will be surprised
where you can find them.
If you have heard about Fibonacci trading, and maybe even read some details, you may be confused about how it
can be effective in helping you make a profit. If so, you are not alone! While some people swear by the Fibonacci
ratios to help them know where to take their profits, a number of other people are skeptical about any value to them,
particularly as the markets do not demonstrate exact measurement to these “magical” numbers.
To start at the beginning, Fibonacci numbers were made popular by an Italian who was sometimes called Fibonacci,
but also known as Leonardo Pisano, or Leonardo de Pisa, who lived in the twelve and thirteenth century. He
receives credit for bringing to the public’s attention a sequence of numbers which had been known to the Greeks and
in India in the sixth century. In fact, the sequence isn’t really the important part of the story; it’s the final ratio that is
the number that is deemed to have magical powers, and this number was known as the Golden Ratio to the Greeks –
it is 1.618 (approximately), and its reciprocal is 0.618 (approximately), and is the same number minus one, exactly.
The sequence is generated by adding two successive numbers together to get the next, that is 1, 1, 2, 3, 5, 8, 13 –
and the next would be 8+13, which is 21. The ratio between adjacent numbers quickly becomes close to 1.618, and
for an infinite series would become exactly the Golden Ratio. The stock market isn’t that precise, so 1.618 and 0.618
are good enough for our purposes. The sequence was included by Fibonacci in a learned paper that discussed the
number of rabbits that would be bred if two rabbits were shut in together!
Although I have summarily dismissed the actual sequence, it is important in many ways, and occurs naturally many
more times than you would expect. For instance, the spirals on a pineapple, or on the head of a sunflower, will be
one of the Fibonacci numbers in one direction, and the adjacent number in the other direction. Commonly, sunflower
heads are 55 spirals in one direction, and 89 in the other, both Fibonacci sequence numbers.
As regards trading, the Fibonacci numbers can be used in various ways. The most common way is Fibonacci
retracement, although they can be used in arcs, fans and time zones. Most charting applications include tools for
Fibonacci retracement, and are able to draw the lines at 61.8%, 38.2% which is the remainder, and 50% which is not
a Fibonacci number but is usually included. This value is due to W.D. Gann, a trader from the early 1900s, who
postulated that retracements often went back to halfway, or 50%, before resuming their rise. He also saw minor
support and resistance at other halfway points, such as 12.5% and 25%, but that’s another story.
In practice, in Fibonacci trading the lines are drawn between the high and low points on any timeframe, and show
expected support and resistance between these boundaries. For instance, as a price comes down from the high
point, it may hesitate around the 61.8% line. They are not generally used for definite buy or sell signals, but can
support the decision which is indicated by other indicators, such as moving averages or trend lines.
The main problem, or maybe opportunity, with them is that the Fibonacci lines are only followed approximately, but
tend to be self fulfilling, in that many traders are looking at them for guidance. Thus they can be of some use in
setting levels at which you want to take profits. It is unlikely that the exact 61.8% will be the turning point, for instance
it may be 65%, but if it is sufficiently close, advocates will claim success for the system. If you don’t find very good
agreement to the Fibonacci levels when you view the price chart, you may find that alternative highs and lows yield
better results – sometimes a level is established without much volume, and thus it doesn’t have much validity, and
setting the Fibonacci lines off the next adjacent level makes more sense. As they are an easy and common function
of most charting applications, it takes little effort to experiment.
While this use of Fibonacci levels, examining the countertrend or price movement within a previously established
range, is quite common, they can also be used in predicting the price projection for a new high or low. These are
called Fibonacci price extension levels.
For instance, one popular way to draw these is based on drawing the extent of the last range between low and high,
but starting at the retracement low – that is, zero to one is drawn from this intermediate point, and extends past the
previous high, with lines at 38%, 50% and 62%. This is subject to interpretation, as I’m sure you can appreciate, but
often the next high will line up the Fibonacci lines from this construction – frequently finding resistance at 38%, which
may be below or above the previous high, depending on the chart. Fibonacci levels are commonly used with the
Elliott Wave Theory, as you’ll see if you read about Elliott Waves, even though you do not need to know about Elliott’
s theory of five waves upwards and three waves back to use them.
These levels are applicable on all time scales, although you should not expect such accuracy when considering short
periods, such as intraday. A single trade or tick could easily breach the level, while not breaking the principle.
You remember that above I talked about different uses of the Fibonacci sequence? Some charting software allows
you to draw Fibonacci arcs and fans, and you can experiment with them, but remember to have some corroboration
before trading. With regard to the time frames, you may expect stocks to trade up and down in Fibonacci numbers.
For instance, a stock may rise for three days, then drop for two, these numbers being adjacent in the Fibonacci
series. Or they may rise for five days and retrace for three days. If you look for these patterns, you will be surprised
where you can find them.