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Fibonacci Numbers
Have you ever heard of Leonardo Fibonacci?
No, he didn't paint the Mona Lisa. And he's not the guy behind the counter at Vinnie's Pizza.
Fibonacci was a well-known Italian mathematician who lived from around 1175-1250. He made great contributions to the world of mathematics, including introducing the decimal system to Europe.
He also studied a sequence of numbers that has since become known as the Fibonacci Numbers, or the Fibonacci Sequence.
The Fibonacci Sequence start with a 0 and a 1, and each new number is the sum of the two previous numbers (0 + 1 = 2, 1 + 2 = 3, 3 + 2 = 5). The first numbers in the sequence are as follows:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144...and so forth into infinity.
Fibonacci found that these series of numbers and their ratios to one another were prevalent throughout nature and can in fact be seen all around you.
Ok, ok, so what does this have to do with forex trading?
Well, quite a bit in fact. You see the ratios that are found in the Fibonacci numbers can be seen in the price movement of currencies (as well as stocks and other investments).
Without boring you any further, I'll give you the big 3 numbers that you should remember: 0.382, 0.500, and 0.618. There are others, but these are the most significant.
These numbers are used to calculate "retracement levels", which are used by many traders to determine when to place buy and sell orders. Here's how it works:
Assume the price of a currency pair (or a company's stock for that matter) is trending upward. History shows us that prices tend to hit a peak, go into a temporary reversal, and then resume the trend. The reversal is where Fibonacci numbers come in.
The price of a currency that is trending can be expected to reverse back to one of the Fibonacci numbers and then bounce back to continue the trend. If you forecast this correctly you can buy in just before the upward trend continues and score big profits.
The online trading platform you use should be able to chart the Fibonacci numbers for you. You just draw a line from a low point to a high point, and the retracement levels are automatically mapped on the chart for you.
Of course, its not quite as simple as trading when the price hits a Fibonacci number. There are other things to consider:
You don't know which retracement level the price will stop at. If you choose .382 and it drops to .618 you could lose a ton of pips.
Similarly, if you choose the wrong low/high points, the retracement levels will be all out of whack.
And quite frankly, as accurate as they can be at times, sometimes Fibonacci numbers just don't work at all. There are many variables at play in the forex market. You can't rely solely on one method to predict price movement.
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As you can see, the GBP/USD has been trading bearish from March 8th along the Fibonacci fan and broke two retracement levels. After touching the 38.20% (around 1.4940), the pair pulled up, entered the bearish Fibonacci fan, but pulled down again after it touched the middle line of the fan....
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Forex Technical Analysis Reports (ActionForex.com)
Technical analysis reports from selected analysts around the world on forex market. Available in ActionForex.com
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EUR/GBP Longer term bias remains neutral to bullish for the pair, closing above both bearish trendlines confirms some upside for the week ahead.
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As you can see, the GBP/USD has been trading bearish from March 8th along the Fibonacci fan and broke two retracement levels. After touching the 38.20% (around 1.4940), the pair pulled up, entered the bearish Fibonacci fan, but pulled down again after it touched the middle line of the fan....
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EURUSD Maintains negative near-term tone. Yesterday's attempt at 1.3529, 05 Mar pivot, reached 1.3536, before bouncing to mark a possible lower top at 1.3615. Break below 1.3536/22 support zone would direct the market towards lower levels of 1.3433/1.3789 band.
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EUR/USD: 1.3530 Importance Support
Selling pressure continues to parity. Yesterday the European market seen in sales down to the 1.3530 support had to parity. The U.S. market with the acquisition, but was limited level of 1.36. During the day, expect to stand strong resistance 1.3630. As the study sourced from the sale of this...
Newsfeed display by CaRP
Forex Fundamental Analysis Reports (ActionForex.com)
Fundamental analysis reports from selected analysts around the world on forex market. Available in ActionForex.com
Morning Forex Overview
The euro ticked up against the yen in Asia Wednesday, as Japanese importers buying the single currency on a regular settlement day set the tone of the market amid a lack of other trading cues. But further gains are far from certain, dealers said, with the euro's near-term direction resting...
Range-Bound Trading Continues
The NFIB Small Business Optimism Index fell back to its December level of 88.0 (from 89.3) revealed yesterday's report, showing that the important small business sector is still not in recovery mode. Meanwhile, the Manpower survey showed that more employers plan on increasing staff levels (16%) rather than reduce them...
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As there was slight sun peeping in through the window in Germany, since the nation was counting on exports for growth, we see today that this hope was sabotaged as exports fell unexpectedly which negatively impacted the nation's current account. Also from the nation, we saw that CPI inched higher...
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There was again no hard fresh news to guide the price action in the major currency cross rate. Nevertheless, concerns on the budgetary situation in Europe and the UK (reinforced by comments from rating agency Fitch) continue to weigh on the euro and sterling. The dollar remains well bid, 'by...
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Newsfeed display by CaRP