FX TECHNICAL ANALYSIS
But the real value lies in the fact that the ratio of any number to the next higher number is approximately 0.618, and the lower number is 1.618.
• The key Fibonacci ratio of 61.8% - also referred to as “the Golden Ratio” or “the Golden Mean” - is found
by
dividing number series
one by
in the the
number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.
• S i m i l a r l y the
38.2%
ratio is found by dividing one number in the series by the number that is found two
Fibonacci ratios have become the foundation of many
effective places
to the right. For example: 55/144 = 0.3819.
• The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.
These ratios developed by Fibonacci actually go back
22 FX TRADER MAGAZINE April - June 2013 trading systems, but the truth is they are seldom used properly
effective trading systems, but the truth is they are seldom used properly. And ironically, though it is one of the most effective tools of technical analysis, it is also the most misunderstood.
These Fibonacci ratios can accurately anticipate when the market makes a major turn and
Tese Fibonacci levels act as strong indicators of resistance and support levels, which helps to improve
the
accuracy of the entry and exit
point for every trade. One of the biggest advantages of trading with Fibonacci numbers is the fact that you can set profit objectives and define stop losses to exit a market as well.
The different Fibonacci ratios are the cornerstone of price structure and go hand-in-glove with effective chart patterns like
thousands of years to the time of the Egyptians and the Greeks. In addition to mathematics, they also used the ‘Golden Mean’ in architecture and music.
Subsequently, these ratios have become the foundation of many
identify key turning points for
tops and bottoms... only if you know how to read them correctly. If you can learn to use them correctly, you can increase the probability of profitable trades and minimize potential losses.
These numbers are more effective in the forex markets, since forex is a highly trending market.
Prices
are constantly changing in an oscillatory pattern, thus following the Fibonacci ratios quite precisely.
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