Forex Market Movements Governed By Fibonacci Mathematics

By Richard U. Olson

Leonardo of Pisa, aka the mathematician "Fibonacci", published his Fibonacci sequence in 1202. Fibonacci came upon his now very famous sequence of numbers when he was trying to breed rabbits and figure out how many pairs of rabbits he would have at the end of one year based upon their breeding behavior. This is just the kind of no-nonsense approach that Forex traders are into.

So you see, what many people mistakenly take as a mere mathematical abstraction, just "fooling around" with numbers, is rooted in very real-world applied mathematics. To state things very basically, the Fibonacci sequence can be used to detect and describe otherwise hidden patterns in the world around us.

So how is the Fibonacci sequence applicable to currency investing? Savvy investors know that there are patterns to the movements of the stock and currency markets which can be seen by studying the past behavior of investors. The market truisms "buy low, sell high" is based on an understanding of these market patterns.

These patterns cannot be seen by a day to day observation of market conditions, but reveal themselves when you step back and take a look at the big picture. Short term fluctuations in the market are nearly impossible to accurately forecast. However, the trends which occur over time most certainly are predictable. Investors of all stripes, including Forex traders have used the Fibonacci sequence to plan their investments and make large profits in the currency exchange markets.

Using the Fibonacci sequence involves a series of numbers. Each following number is the sum of the two numbers before it. It progresses like this 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and into infinity. There are numeral interrelationships within these numerals. For example, take any number; it is roughly 1.618 times the number before it. Anciently the Greeks found number 1.618 reprehensive of the golden ratio which is the supreme essence of balance. This balance is the fundamental strategy of profitable investing

Arcs and retracements are two of the most widely used applications of the Fibonacci series by investors, including Forex traders.

Fibonacci chart technique involves three curved lines drawn for anticipating key resistance and supporting various levels as well as areas of ranging. First drawn is an invisible trendline between the two points of high and low for particular period of time. Next, three intersecting curves are drawn overlapping the trendline at the levels of 38.2, 50, and 61.8 percent according to Fibonacci. When the price of the asset crosses through these key levels, decisions of transaction are made.

Now, a retracement, in investing, refers to a reversal in the movement of a stock's price--a reversal which is enough to counter the stock's prevailing trend. Advanced successful investors pay intense attention to retracement possibilities and patterns. The Fibonacci retracement analyzes the likelihood that a financial asset's price will see a larger than average retracement and then come to support or resistance at the key Fibonacci levels before it then continues on in its original direction. A trendline is drawn between two extreme points; then, its vertical distance is divided by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.

Multitudes of high-level traders gain with the Fibonacci retracement method. It aids them in finding the most strategic placement of transactions, their target prices and stop-losses. Gartley patterns, Tirone levels and the Elliott Wave theory are other technical tools that make use of retracement.

The Fibonacci formula simply works and is useful while investing. Forex traders worldwide are finding it successful while using it. - 23204

About the Author:

Richard U. Olson uses the state of the art Forex Autopilot System and he recommends it to make consistent profits in the Forex markets. Grab his FREE e-course on How To Succeed In Forex Trading to realize your financial dreams.