How To Use Fibonacci Numbers In Forex Trading

By: Ray Caran

Leonardo Fibonacci was a mathematician who lived from about 1175 to 1250. He was well known in his day and contributed greatly to the world of mathematics. One of the things he did was that he introduced the decimal system to Europe.

Fibonacci discovered that a series of numbers and their ratios to each other occurred throughout nature and in fact are incredibly commonplace in the world.

Just how does this relate to forex trading? The ratios that the Fibonacci numbers exhibited are also seen in the price movement of currencies,

Ratios found in the Fibonacci sequence can be seen in currency price movements. They also appear in the price movements of stocks and other types of investments. The big three numbers you should pay attention to in Forex trading are 0.382, 0.5, and 0.618.

The resulting Fibonacci numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, are the result of his equation.

To use these numbers, in technical analysis to make money, you dont have to solce any mathamatical problems. you dont have to even memorize them because all the trading platforms let you draw the Fibonacci levels and they have everything ready to use. The only thing you should know is how to use the Fibonacci levels in the technical analysis.

While Fibonacci numbers have many applications, they have received much interest from Forex traders due to their uncanny accuracy in spotting market turning points well in advance.

Another term that often goes along with Fibonacci Numbers is 'The Golden Ratio'.

In Fibonacci Numbers series, if we take the ratio of two successive numbers in the Fibonacci series (that is, we divide each number by the number after it in the sequence) we will gravitate towards a particular constant value. That value is 0.6180345 which has been referred to as "the Golden Ratio". If you also calculate the ratios using alternate numbers in the Fibonacci series (that is, do the same calculation but skip over a number) the resulting ratios approaches 0.38196.

Fibonacci Guides Stop Loss Levels

A trader can use Fibonacci numbers to set stop loss orders.

Fibonacci Guides Position Size

Depending on the risk you are prepared to take per trade, Fibonacci numbers can also define position size.

Fibonacci Guides Objective Setting

Utilizing Fibonacci numbers, once a pattern competes against a Fibonacci set price zone you can utilize this information to set profit objectives to salvage partial profits or re-adjust stop loss levels.

Chart oriented individuals are split on the usefulness of applying Fibonacci to any of the popular the markets. There are also some technical analysts who would use little else to analyse markets. Like most things in life, it is up to individual preference and developing a strategy that works easily with your existing investment approach.

This is just the barest of introductions to Fibonacci Numbers. If this subject interests you search Fibonacci Numbers and really understand it before you invest your hard earned money.

If this is too confusing or complicated, you might look into one of the amazing Automatic Forex Trading Programs available.

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