Technical and fundamental analysis are based on the assumption that things that have happened in the past will often indicate what will happen in the future. Fundamental analysts depend on the past underlying financial performance of a company, economy or industry to make forecasts while technical analysts will look at past currency price movements for the same purposes. From that perspective you can imagine fibonacci analysis as the technical equivalent to the fundamentals of interest rates or trade flows.
If you need expert forex trading and account help:
Video Analysis: Forex Fibonacci Analysis - Part One
Fibonacci analysis gives us a way to forecast levels of support and resistance and project price targets. It can be used to set stops as well as timing entries, however, the most valuable information is what it can tell us about risk. In this lesson we will be introducing a few of the tactical concepts and tips you will need to understand these tools and begin using them as a technical analyst.
Through the subsequent sections in this series we will examine several case studies to understand how these ratios work in the live market and why they are considered one of the most important tools available to technical analysts.
Fibonacci Concepts
What are the ratios and how are they used? I will spare you the long, historical (and mostly erroneous) explanation of where the Fibonacci ratios come from and how they appear in the natural world except to say that fibonacci analysis is based on the fibonacci number series and the Fibonacci ratios, which are then applied to price charts.
While there are many Fibonacci ratios, in my experience, it is sufficient to stick with the standard levels of 23.6%, 38.2%, 50%, 61.8%, 100% and 161.8%. Slicing these levels into thinner segments results in a crowded chart and probably won’t improve your analysis.
How are fibonacci ratios calculated? The ratios are based on the distance between fibonacci numbers. If we use three numbers from a simple fibonacci series (1,1,2,3,5,8,13,21,34,55...) you can see how this works in the examples below.
Where do the lines go? The sticky part of fundamental and technical analysis is that they are both very subjective, which means that they allow for a great deal of interpretation and individual preference. However, with Fibonacci analysis that subjectivity is easy to handle and within this series I have a few good example to show you why. Typically you want to apply the fibonacci anchor points to the major highs and lows of the most significant recent trend. In the chart below you can see how this was applied to the EUR/USD and the subsequent resistance/support bounces that coincided with those levels over the next year.
Bodies or shadows? There is always a minor debate about whether you should anchor your Fibonacci retracement to the body of a candle or the shadows. I prefer to use the shadows so that the study includes the extremes of market sentiment. Most of the time, the difference is insignificant but sometimes it can be critical. In the examples above you can see that I anchored the Fibonacci retracement to the shadows of the candles at the top and bottom of the trend.
Support and resistance lines or areas? I feel that support and resistance is more often an area around the Fibonacci lines than a specific to-the-penny point in the charts. You will find that prices move around a support or resistance line, especially during a consolidation. Discounting that level because of a temporary break may lead you to ignore a valid signal in the future. In the examples I will use in this lesson I will show how to evaluate that support and resistance area and how to use it to be aware of risk as well as opportunities.
Hi - thanks for the very informative description of the Fib ratios. I have looked for that information in vain for some time. Good work guys....Andy
masuri bin mustajab
- fibonacci in forex trading
|2009-01-05 14:25:43
How to use fibonacci in forex trading?what time frame to use?where to pull from which point of highest/lowest?what is the range of the trend and to entry price level 38.2,50 level..Please reply and email me please...Thanks..
Anonymous
- good stuff
|2009-01-05 22:00:14
thanks guys, very helpfull. i look forward to no 2 . . .
Georgios Ziras
- Great lesson
|2009-01-06 02:47:18
Your lesson was concise but yet revealing, excellent for a new trader like me. I am looking forward for the rest of your series.
Efosakelly
|2009-01-06 08:16:43
Thanks Man,That was a brief,put powerful explanation! can't belief all that 4 free.I like good people like U. thanks alot.
Jep
- mr
|2009-01-06 17:24:09
tank u man, i think u have given me some kind of light as regards to this powerful analysis tool. i say more pips to ur account. u re great.
Esemayon
- Re: Fibonacci Trading
|2009-01-20 01:35:40
I love this stuff man, Thanks a lot. Pls keep us inform of many developments while using fibonacci to trade forex.
Again, Thanks.
Regards.
Esemayon.
www.natmos.com
franklin adelaide
- Mr
|2009-01-29 05:41:08
How do one register,please
Admin
- To register:
|2009-01-29 05:51:46
Franklin,
To register, go to the "Forum" tab, and click on "register" on the third line down.
Tom waters
|2009-07-06 15:46:38
I'm having trouble repeating some of these steps on my own charts "metatrader4".
When you are srinking down your fib levels i noticed 100% and 0% levels have switch places.
The only way i can do the same is to re-draw my fib levels from bottom to top.
Is this normal?
Rana Qasim
- HELP ME
|2009-09-22 22:51:15
please send me e any source.i want daily forex analsys and news by email..
Lubomir Hritz
- can not view some videos and pictures
|2009-12-10 18:22:59
Dear LearningMarkets team,
I found your learningmarkets.com site excellent and valuable but I spent half a day trying to view/play some older archived flash videos from FOREX section but with no success.
I was interested especially in Fibonacci Analysis part 1-4
I checked firewall settings and I even tried to install older Adobe flash players versions to my PC but with no success.
Can I found your videos somewhere else ?
I tried youtube also with pfxglobal or profitingwithforex keywords but these particular videos were not there.
Thank you
Lubomir
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