The Fibonacci Forex Strategy

Fibonacci forex strategy uses the Fibonacci retracements to help the traders note the extent to which the foreign currency rate may go up to, before it starts to fall. Leonardo Pisoni (Fibonacci) was probably the greatest European mathematician of the Middle Ages who learned the arithmetic systems of all the merchants visiting Pisa in Italy. He realized the advantages of the Hindu-Arabic system over all others. The Hindu mathematicians and the Arabs got him started and he became the pioneer of the positional system we use today based on ten digits with its decimal point. He started a sequence series with 0 and 1 and the third number being the sum of the previous two numbers. This was known as the Fibonacci progression sequence. People, down the centuries, have begun to acknowledge the importance of the Fibonacci sequence and drawing parallels to nature’s way of the numbering system which can be applied to the growth of all things on earth including cells, plants, rabbits or pure number progressions in the forex strategy in the trading market. These numbers and the patterns have their use in forex strategy and trading techniques, especially in the technical analysis. The numbers are used to show how the value of a currency pair pulls back a few percentages before there is a reversal on the trend of the currency price movement. Starting from 0.001, the mean or golden ratio is achieved at 0.382:0.500:0.618. These ratios are used in the technical analysis of the forex strategy. These numbers are as pointers to where and when the market will move. They will help the traders to identify the points at which the market advances and those at which it may reverse. When the prices move up, the numbers act as a defence resistance and when the Fibonacci ratio gets broken, it acts as a support and can get tested again. The traders get acquainted with the support and resistance patterns through a Fibonacci analysis which helps them to decide on the market entry and exit points. The elementary rule of this forex strategy is that regardless of which currency pair is being traded, a point will be reached when the prices will retrace back to their old positions. It helps in a big way to predict the currency trends and establish the turning points in the forex market much before they actually occur. The two main levels in which the Fibonacci ratios are used in a forex strategy are at the retracement levels and the extension levels. The retracement levels can be used for both resistance and support. Using a graph chart, a trend line is drawn between the high and low levels and the vertical distance of the line is divided by the three main ratios of 0.382:0.500:0.618. The extension levels are used as profit taking levels. On the graph chart, the line is drawn between the points of a major swing low to a major swing high that has been recently noted. The trader is able to mathematically plot out the direction of the currency price movement in the market with this forex strategy and will be able to determine whether it is going to be an uptrend or a downtrend.