Forex Trading Using The Fibonacci Method

As has been said earlier in multiple places by multiple people, forex trading is a great way to earn a solid income with a very low capital upfront. However, it has to be noted that forex trading can only prove profitable when the person doing it sufficiently well informed and prepared with the strategies that are required to be a successful forex trader. One of these strategies (or techniques, whatever you choose to call it) is the Fibonacci forex trading technique. This technique is used by many forex traders all over the planet, and some of them have made a solid profit out of it as well. Most of the financial trading education providers teach this in their courses as well.

Fibonacci was the name of an Italian mathematician who first came up with the idea of such a series. It is not that this is a series that was created purely by random chance, or that it has no application outside the realm of forex trading. In fact, the Fibonacci series is present in many natural structures, such as the number of veins on leaves or on the spirals on the shells of snails. The Fibonacci series is an infinite series of the form

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1, 1, 2, 3, 5, 8, 13, 21, 34.… and so on till infinity

Forex Trading Using The Fibonacci Method

However for forex traders like you and I, this series of no particular significance. What, however, is significant is the ratio between two successive terms of the series, like .236 or .50 and so on.

How is this useful, you might ask? Forex charts have oscillations on them – that is the prices that are given on forex charts move up and down in an oscillatory fashion, that is they might go up and they might go down, but this change in price is highly random and it can be predicted by a mathematician who knows what he is doing. This oscillation is mostly indicative of resistance and support levels and the ratios between the successive terms of the Fibonacci series do a great job at approximating the rates of change. Even if these approximations are not exactly spot on, they are actually pretty accurate.

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Now that the trader know what price points to expect during the course of the day, a good forex trader will use the prices of currencies used by the Fibonacci system to know when he wants to enter the trade and when he should exit so as to maximize his profits. Though this a very mathematical system and to be honest, overly complicated for someone who does not have a mathematical bent of mind – it is definitely not so for someone determine, though. If someone wants to use the Fibonacci method to maximize his profits, he should not only first grasp what the whole technique is about and then he should use it to its fullest extent. In fact, with experience, even the inherent fault of the system that makes it susceptible to being slightly off can be adjusted with the forex trader using his experience to fine tune the prediction.

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