Thursday, December 04, 2008

How to use Fibonacci in Forex Trading

This is the easiest method and for me, the most profitable forex trading system. In forex trading software’s and platforms, the use of Fibonacci is built in and you just drag it across your chart to determine Fibonacci levels which would help you identify entry points, exits, take profits, retracement level, among others. Because the use of Fibonacci in forex trading is very popular, my guess is, the mass usage of this method by forex traders makes it more powerful, for example, everyone would place a take profit on 38.2% and 62.8% retracement, above and below these values can be your entry points as well – because most forex traders believe it would go where it should go - and this is very common when trading US/Yen forex currency.

The video below will help you understand its use.

As a backgrounder, what are Fibonacci Numbers and the Golden Ratio?

Fibonacci Numbers

In mathematics, the Fibonacci numbers are a sequence of numbers named after Leonardo of Pisa, known as Fibonacci. Fibonacci's 1202 book Liber Abaci introduced the sequence to Western European mathematics. The first number of the sequence is 0, the second number is 1, and each subsequent number is equal to the sum of the previous two numbers of the sequence itself, yielding the sequence 0, 1, 1, 2, 3, 5, 8, etc.

The Golden Ratio

After the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the lower number is 1.618. These two figures are the golden mean or the golden ratio.

Fibonacci and Nature

Fibonacci and Golden Ratio appears throughout biology, art, music, and architecture. A few examples of natural shapes based on the Golden Ratio include DNA molecules, sunflowers, snail shells, galaxies, and hurricanes. Fibonacci sequences appear in biological settings, in two consecutive Fibonacci numbers, such as branching in trees, arrangement of leaves on a stem, the fruitlets of a pineapple, the flowering of artichoke, an uncurling fern and the arrangement of a pine cone.

If you are interested in any forex trading online, it best that you understand the basic of using Fibonacci and other forex trading system so that you can be profitable.

PS: Use a game account first, if you cannot be profitable in your forex trading game account, then don’t open a real account at all or you are going to lose your shirt.