Fibonacci Forex Indicators

Posted on | February 3, 2010 | No Comments

Fibonacci numbers are sequences of numbers where each successive number is the sum of the prior 2 numbers (i.e., 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc…). The Fibonacci number pattern was developed by Leonardo Fibonacci sometime around 1200 AD. For inexplicable reasons, these numbers play a meaningful role in the technical analysis of financial markets (including the currency trading market), particularly with respect to changes in direction.

There are four main Fibonacci indicators: Fibonacci Fans, Fibonacci Retracements, Fibonacci Time Retracements and Fibonacci Arcs.
For this discussion, we will use the USD/JPY, with candlesticks and 30 minute time intervals. First note the 4 locations of the applicable Fibonacci indicator buttons on the left for the four different Fibonacci Forex indicators.
fibonacci-chart-1.gif
Fibonacci Retracement. First, let’s set up a Fibonacci Retracement. Click on the Fibonacci Retracement button and then pick a low point and a high point and draw from one to the other. In the chart below, 117.13 was selected as the low and and 117.73 was selected as the high. You will see horizontal lines drawn at both these high and low points. Next, you will see 4 different Fibonacci Retracement levels reflected in horizontal lines at the 38.2%, 50%, 61.8% and 78% retracement levels (representing retracement of that percentage of the difference between the high (117.73) and low (117.13) selected for the indicator. Why are these levels used here (and elsewhere)? Divide one of the numbers in the Fibonacci series by the number that follows it and you get 0.618. Divide one of the numbers in the Fibonacci series by the number that precedes it and you get 1.618. It is widely understood that almost everything with dimensional properties adheres to a ratio of 1.618. When used in technical financial analysis, this ratio is trans morphed into these Fibonacci levels (i.e., 38.2%, 50%, 61.8% and 78%).

You will note a few selling candle wicks protruding downward (on the right side of the chart) towards the 61.8% retracement level (at 117.36%) , but failing to break through. Many traders use these retracement levels when determining where to enter the market, as well as places to put stops and in setting targets. Hence, in some respects, these levels become self fulfilling prophecies. Hence, if for no other reason, these levels are worth monitoring.

Fibonacci Fans. A Fibonacci Fan uses a similar methodology as a Fibonacci Retracement indicator, except that the Fibonacci support and resistance levels are shown via diagonal lines at each price point. A Fibonacci Fan is created by clicking on the Fibonacci Fan icon and then drawing a line from a low to a high point or vs-a-vera. The program will then automatically generate the Fibonacci Fan lines.
fibonaccichart3.gif
Fibonacci Time Retracements. Fibonacci Time Retracements are vertical lines placed on a chart in a manner which corresponds to each of the Fibonacci numbers (1,1,2,3). They are used to identify when a significant change in price will occur (i.e., near the time line).
fibonaccichart4.gif
Fibonacci Arcs. Fibonacci Arcs use a similar methodology as the preceding Fibonacci indicators, except that the Fibonacci support and resistance levels are shown via curved lines. Fibonacci Arcs are created by clicking on the Fibonacci Arcs icon and then drawing a line from a low to a high point or visa-vera. The program will then automatically generate the Fibonacci Arc curved lines.

Conclusion. Fibonacci indicators are generally not used by themselves to make trading decisions. However, many traders find them useful when used with other indicators. As noted above, because of their popularity, traders should be cognizant of the relative Fibonacci indicator levels since many other traders are following them as well.

Comments

"forex" – Google Blog Search

Forex Trading Pairs | kfunigraz.com July 30, 2010
I wish you have good health and happiness, When you're learning about forex trading pairs which is something new, it's easy to feel overwhelmed by the sheer amount of relevant information available. This blog should help you focus on ... […]
admin
Making Money with Automatic Forex Trading Software ... July 30, 2010
Money is used everyday. You use it to buy all the things necessary to make it possible to live your everyday life. You use money to purchase food, purchase gas for your car, pay for you. […]
unknown
List of 35+ Forex Twitter Accounts. Tweets about Advice, Trade ... July 29, 2010
Listed below are Twitter Accounts about Foreign Exchange (Forex), I have listed their account name, their bio and number of followers as at 30th July, 2010. A list of 35+ foreign exchange (forex) related twitter accounts. ... […]
MassiveAction
Features of Online Forex Capturing Traders Capital | ToolsnTricks ... July 29, 2010
Forex trading means to trade in foreign currency exchange. It consists of buying as well as selling of foreign currencies. The process continues simultaneously, […]
Admin
Earn Money from the Forex Trade : HMS Weather July 29, 2010
Considering the fact that the forex markets deal in money and currency, it should be easy to earn money from the forex trade. Well, actually it is both easy and tough too. Due to the unpredictability and volatility of the financial ... […]
publisher
Forex Trading Programs | kfunigraz.com July 29, 2010
Welcome to my small blog, This blog explains a few things about forex trading programs, and if you're interested, then this is worth reading, because you can never tell what you don't know. read more. Forex Trading Programs: Identify ... […]
admin
Online Forex Trading Course – Understanding the Value of a Forex ... July 29, 2010
Online Forex Trading Course – Understanding the Value of a Forex Trading Course Online Forex Trading Course We just got. […]
ramadhona
Success in Forex Trading: Forex Onslaught Review July 28, 2010
Forex Onslaught is a brand new trading system (commonly known as Expert Advisors) that is primarily geared towards the newbie Forex traders. This is the true intention of this trading robot's expert developers. ... […]
Blogger
Forex Turbo Drive July 28, 2010
Forex Turbo Drive - Over 100% Return On Investment Completely Automated - Really ??????????????????????????????????????????????????? […]
admin
Should you Trade on the Forex Market? | Sweating The Big Stuff ... July 27, 2010
Forex Trading occurs when an investor trades currencies from two different countries in the hopes of profiting from this exchange. […]
Daniel

GBP Exchange

Fibonacci Forex Indicators

Comments

Recent Posts

Blogroll

Meta

Translator

"british pound" – Google Blog Search

"forex" – Google Blog Search

Meta