Forex Trading and Fibonacci Levels

Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). Fibonacci introduced the idea of number sequences. The most easily recognised is the sequence of numbers where every next number is the sum of the previous two numbers. 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.

Not only are the principles apparent in nature but also in man mad objects. There are interesting and entertaining examples to be found in ancient buildings, in plants, planets molecules the human structure but the most commonly investigated Fibonacci technique is often applied to trading.

Trades who study charts apply the Fibonacci scale to price scale and die hard enthusiasts also apply it to time scale. As any trader will learn prices do not move in a straight line. The words retracement or pull back are used for all chart studies whether it be Forex, Indices or stocks all of which are fluid and will often retrace on a Fibonacci mathematical template. To have a Fibonacci level or method in your trading toolbox can be very helpful when trying to predict future price moves in a liquid market.

Using the VantageFX UK charting package traders can simply pick the point from which you want a measurement, (a daily high for example) and with the Fibonacci tool pull the cursor down to the nominated support level (a previous day low for example). Within that range the Fibonacci levels are then displayed showing the system retracement levels at 61.8, 50, 38.2 down to 0. As a follower of Fibonacci these levels can be followed as guidelines for possible entry, stop loss or take profit levels.

It should be noted that Fibonacci trading can be made very complex and take a long time to master. On the other side of the coin it is useful to make it as simple as possible and not to make it a trading solution only an added guidance.

The Fibonacci charting package in the VantageFX UK platform works on any time scale but should only be used to trade that timescale. For instance you should not use a five minute chart to set levels for a day trade.  Understanding the time scale will help pick the levels and once you apply the Fibonacci ratios to the number of days/ minutes or hours that each move took, you will have a projection as to where the market should go.

As we have often pointed out this method of price projection like all other methods is not foolproof.  Traders must realize there is no foolproof method out there. To use the Fibonacci ratio as an exclusive trading method could be costly but to use it as a guideline for future price action can be helpful. Trades are often surprised if not amazed at the accuracy of the ratio this is especially noticeable when it is confirming what other indicators may be projecting.

If you would like to know more about the Fibonacci tools or any other trading system tools in the Vantage FX UK platform please click here for assistance.