Fibonacci Sequence And Forex Trading
About The Fibonacci Sequence
The Fibonacci Sequence, officially introduced to Western mathematics in the 13th century is a sequence of numbers, starting with 0 and 1, in which each subsequent number is the sum of the previous two.
Using Fibonacci Numbers For Trading Forex
The sequence is quite universal and can be found and used in Forex Trading. Within the sequence are certain repeating ratios, which can be found in each sequence after the seventh. Here is an example, you have the sequence 55+89= 144. The following calculations of ratios can be performed:
89/144 = .618
144/233 = .618
233/144 = 1.618
144/89 = 1.618
The square roots of the two ratios (.618 and 1.618) calculated and shown above, .786 and 1.27, respectively, repeatedly show up in forex markets, key figures to help for trading forex online. The following ratios are important in forex: .236, .382, .500, .618, .786, 1.27, 1.618, and 2.618. Ratios can be broken down into two groups, retracement levels (.236, .382, .500, .618, and .764) and extension levels (0, .382, .618, 1, 1.382, and 1.618).
Use of Fibonacci Sequence and ratios in trading is about knowing when and where markets reverse and keep moving. When the price increases, the ratios act as a resistance, and when the price goes down, they act as a support. Trading platforms allow you to draw Fibonacci levels and have everything ready to use. It is important that you wait for the trend to be completed, and if not you must find one in different time frames in the same currency pair or stock.
You should be careful when price approaches close to one of the sequence levels, with the possibility that you lose profit you already made in the event that is goes down. Many traders watch these levels, using them for taking profit, therefore they buy and sell based on them.
Fibonacci Numbers and Forex Trading
Fibonacci sequence numbers and ratios are used widely in plenty of applications, from nature to business. The concept can be simple and in the world of Fibonacci trading its a matter of watching the movements in the market. It comes down a matter of support and resistance.