Fibonacci Retracements:
Fibonacci ratios are actually a series of numbers that are used to help describe a natural progression of proportions. These numbers were discovered by the mathematician Leonard Fibonacci. The main idea behind Fibonacci ratios is to use them as indicator for resistance and support levels. They can be used to indicate the levels where traders can realize their profits.
In brief, these are the Fibonacci Numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ....
Note what's the relationship in this series of numbers? The answer is each number is the sum of the previous two numbers: 0+1= 1, 1+1= 2, 1+2=3, 2+3= 5 ....and so on. The series of number seems like just another numbers game but there are infinite proves that show natural phenomena tends to go according to Fibonacci Numbers (for example bee lines).
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 move 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.
In technical trading, these two figures are widely used to predict the market movement (0.382 and 0.618 retracement). Commonly known, a 0.382 retracement indicates a 'follow' or 'continuation' in trend; while for 0.618, it is normally refers to a change in trends.
When the market is bullish, the idea is to go long on the market position. With your trading platform software, you can calculate the Fibonacci Retracements levels so you know at which points that you have to realize your profits. Due to the fact that the majority of Forex traders are relying on the Fibonacci Retracements levels for their trading strategies, the Fibonacci Retracements levels actually become a self fulfilling prophecy.
The following example illustrates how the concept of Fibonacci Retracement levels work.
The following chart is a daily chart of the USD/CAD currency pair. Based on the chart, the swing high is at 1.3063 while the swing low is at 1.0784. The plotted Fibonacci Retracements levels are at:
• 1.1670 (0.382)
• 1.1970 (0.500)
• 1.2200 (0.618)
Thus, if the USD/CAD currency pair retraces its movement back from its bottom, traders will react by placing sell orders at the levels indicated as the market continues its downward swing. Typically, the price will halt their gain at one of the plotted levels as the sell order generates enough resistance for the price. With reference to the chart, they tried to rally but however just closed at 1.17 without breaching the 0.382 Fibonacci Retracements levels.
Any trader who had taken out a short position at the 0.382 Fibonacci Retracements level would have been able to realize a big profit.
Fibonacci ratios are actually a series of numbers that are used to help describe a natural progression of proportions. These numbers were discovered by the mathematician Leonard Fibonacci. The main idea behind Fibonacci ratios is to use them as indicator for resistance and support levels. They can be used to indicate the levels where traders can realize their profits.
In brief, these are the Fibonacci Numbers:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ....
Note what's the relationship in this series of numbers? The answer is each number is the sum of the previous two numbers: 0+1= 1, 1+1= 2, 1+2=3, 2+3= 5 ....and so on. The series of number seems like just another numbers game but there are infinite proves that show natural phenomena tends to go according to Fibonacci Numbers (for example bee lines).
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 move 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.
When the market is bullish, the idea is to go long on the market position. With your trading platform software, you can calculate the Fibonacci Retracements levels so you know at which points that you have to realize your profits. Due to the fact that the majority of Forex traders are relying on the Fibonacci Retracements levels for their trading strategies, the Fibonacci Retracements levels actually become a self fulfilling prophecy.
The following example illustrates how the concept of Fibonacci Retracement levels work.
The following chart is a daily chart of the USD/CAD currency pair. Based on the chart, the swing high is at 1.3063 while the swing low is at 1.0784. The plotted Fibonacci Retracements levels are at:
• 1.1670 (0.382)
• 1.1970 (0.500)
• 1.2200 (0.618)
Thus, if the USD/CAD currency pair retraces its movement back from its bottom, traders will react by placing sell orders at the levels indicated as the market continues its downward swing. Typically, the price will halt their gain at one of the plotted levels as the sell order generates enough resistance for the price. With reference to the chart, they tried to rally but however just closed at 1.17 without breaching the 0.382 Fibonacci Retracements levels.
Any trader who had taken out a short position at the 0.382 Fibonacci Retracements level would have been able to realize a big profit.
