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Fibonacci Trading in Forex

Jejd

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56 views1 page

Fibonacci Trading in Forex

Jejd

Uploaded by

Stephen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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babypips

Elementary Fibonacci

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Fibonacci Trading

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Fibonacci ratios Find a Broker
a lot in our trading
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it and love it like
your mother’s
home cooking.

Fibonacci is a huge subject and


there are many different Fibonacci
studies with weird-sounding names
but we’re going to stick to two:
retracement and extension.

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Let us first start by introducing you


to the Fib man himself…Leonardo
Fibonacci.

No,
Leonardo
Fibonacci
isn’t some
famous
chef.
Actually,
he was a
famous
Italian
mathematician, also known as a
super-duper uber ultra geek.

He had an “Aha!” moment when he


discovered a simple series of
numbers that created ratios
describing the natural proportions of
things in the universe.

The ratios arise from the following


number series: 0, 1, 1, 2, 3, 5, 8, 13,
21, 34, 55, 89, 144…

This series of numbers is derived by


starting with 0 followed by 1 and
then adding 0 + 1 to get 1, the third
number.

Then, adding the second and third


numbers (1 + 1) to get 2, the fourth
number, and so on.

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After the first few numbers in the


sequence, if you measure the ratio
of any number to the succeeding
higher number, you get .618.

For example, 34 divided by 55


equals .618.

If you measure the ratio between


alternate numbers you get .382.

For example, 34 divided by 89 =


0.382 .

You have now just experienced the


Fibonacci Sequence!

Fibonacci
Sequence

A Fibonacci sequence is formed by


taking 2 numbers, any 2 numbers,
and adding them together to form a
third number.

Then the second and third numbers


are added again to form the fourth
number.

And you can continue this until it’s


not fun anymore.

The ratio of the last number over the


second-to-the-last number is
approximately equal to 1.618.

This ratio can be found in many


natural objects, so this ratio is called
the golden ratio.

It appears many times in geometry,


art, architecture, and even on Sonic
the Hedgehog.

The golden ratio is actually an


irrational number, like pi, and is
often denoted by the Greek
letter, phi (φ).

Okay, that’s enough mumbo jumbo.

With all those numbers, you could


put an elephant to sleep. We’ll just
cut to the chase; these are the ratios
you HAVE to know:

Fibonacci
Retracement Levels

0.236, 0.382, 0.618, 0.764

Fibonacci Extension
Levels

0, 0.382, 0.618, 1.000, 1.382, 1.618

You won’t really need to know how


to calculate all of this. Your charting
software will do all the work for you.

However, it’s always good to be


familiar with the basic theory behind
the indicator so you’ll have the
knowledge to impress your date.

Fibonacci retracement levels work


on the theory that after a big price
moves in one direction, the price will
retrace or return partway back to a
previous price level before resuming
in the original direction.

Traders use the Fibonacci


retracement levels as potential
support and resistance areas.

Since so many traders watch these


same levels and place buy and sell
orders on them to enter trades or
place stops, the support and
resistance levels tend to become a
self-fulfilling prophecy.

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Traders use the Fibonacci extension


levels as profit-taking levels.

Again, since so many traders are


watching these levels to place buy
and sell orders to take profits, this
tool tends to work more often than
not due to self-fulfilling expectations.

Most charting software includes both


Fibonacci retracement levels and
extension level tools.

In order to apply Fibonacci levels to


your charts, you’ll need to identify
Swing High and Swing Low points.

A Swing High is a candlestick with


at least two lower highs on both the
left and right of itself.

A Swing Low is a candlestick with


at least two higher lows on both the
left and right of itself.

You got all that? Don’t worry, we’ll


explain retracements, extensions,
and most importantly, how to grab
some pips using the Fibonacci tool
in the following lessons.

Did this content help you? Please


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Next Lesson
How to Use Fibonacci
Retracements

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