Forex Fibonacci Trading

Leonardo Fibonacci is not particularly well-known in today’s modern world.

But he certainly was well known circa 1175-1250 and beyond, since that is when he was living as a Mathematician in Italy. He introduced the decimal system to Europe among other very significant contributions to mathematics.

One popular contribution bears his name, the Fibonacci Sequence or Fibonacci Numbers, which is where forex Fibonacci trading comes in.

Here is how it goes – the sequence begins with 0 and 1 with each new number being the sum of the numbers preceding it (0 + 1 = 2, 1 + 2 = 3, 3 + 2 = 5). This would then produce the sequence:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…all the way to… well it doesn’t end.

Leonardo discovered that the series and their relationship to each other occurred everywhere in the world.

But what does forex trading have to do with Fibonacci?

Actually a lot. If you look at stock, currency and other price movements closely, you can see the Fibonacci series in their ratios.

Rather than bog you down with details, just keep these 3 important numbers in mind: 0.382, 0.500, and 0.618. These are not all but they are the most important ones.

Forex Fibonacci traders calculate retracement levels from these numbers which are then used to indicate the placement of sell and buy orders. To illustrate:

Take a currency pair whose price is on the upward trend. From historical data we see that once a peak is hit, the prices will temporarily reverse after which they continue their trend. The point if reversal is the domain of the Fibonacci numbers.

The expectation is that prices will reverse to one of the numbers in the Fibonacci series after which it rebounds to resume its movement. Forecasting this accurately will enable one to make big profits by getting in prior to the resumption of the upward trend.

However to use this system, the Fibonacci numbers must be charted by your trading platform. Retracement levels are mapped by plotting a line starting from the low point to the high point.

It is however not just placing a trade mindlessly when a forex Fibonacci number is hit. Additional things to take into consideration:

The actual retracement level where the price would stop is unknown. For example choosing .382 and seeing the price drop all the way to .618 could spell big losses.

By the same token, if erroneous low/high points are selected, all the retracement levels will be inaccurate.

And in reality, although forex Fibonacci trading can be accurate in some situations, there are cases where they are simply not predictive. The forex market is composed of a vast array of changing factors. Using just one as THE method to forecast price movement will tend to be unreliable in the long run.

However, if you are mainly interested in technical analysis as a means of trading, and many people are, then one of the popular forex trading robots like the FAP Turbo Robot Software may be a good fit for you.