How to Use Fibonacci in Currency Trading
All over the world trillions of dollars of foreign currencies are traded by skilled professionals who know how to use fibonacci in currency trading. Leonardo of Pisa, usually called Fibonacci, discovered the fibonacci numbers as a way of finding harmony in nature using mathematics, but currency traders discovered that the fibonacci numbers also helped enter trades and reveal profit targets. This highly effective form of currency trading focuses on the .318 fibonacci retracement in helping you trade the currency markets profitably.
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Instructions
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Select a currency and input the symbol for that currency market on a price chart. Look for periods of price action where the currency is clearly moving from one point to another point before declining in price.
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Mark the start point of the currency's price move to the point just before the decline. Calculate the sum of the point. For example, if the currency moves from $100 to $150 before declining, then the currency had a $50 move.
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Calculate the decline before the currency's price begins to resume its price move. To continue the above example, take $50 and multiply it times the .318 fibonacci ratio, which would be $15.9.
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Subtract $15.9 from $150 and you get $134.10. As long as the price of the currency did not fall below this total, then it is likely to resume its trend.
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Go back and calculate the price target by taking the original $50 price move before the decline and then add it to the .318 retracement ration of $134.10. This gives you a currency price target of $184.10.
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Enter the trade as the currency's price action moves above its previous high of $150, proving itself in that it is actually resuming its upward trend, and monitor the trade until it hits its fibonacci price target of $184.10.
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Tips & Warnings
Fibonacci retracements in the currency markets are reliable pullback strategies, and many traders use these almost exclusively to any other technique.
Currencies are typically reliable in trend trading but can be volatile if an unexpected event occurs like a terrorist attack or oil shortage. Be sure to always manage your risk and never take too big a position as it could be disastrous to your trading account.
It's best to take some profits if you are trading multiple contracts rather than hold the entire position to its fibonacci profit target. Nothing is guaranteed in trading, and sometimes it's better to make a little off a trade then hold out for a bigger payday that never comes.
