The mathematician Fibonacci or Leonardo of Pisa in 1202 first published his Fibonacci sequence. In order to calculate the number of pairs of rabbits he would have at the end of a year based on their behavior of breeding, Fibonacci developed this famous sequence of numbers. Forex traders find this type of no-nonsense approach very profitable.
Mistakenly many individuals consider mathematical abstraction as frivolous; however it is rooted into real world mathematical applications. The Fibonacci sequence is useful for making us aware of and then explaining those hidden patterns around us daily.
How can this be applied to investing? Very astute investors understand that there are hidden patterns in the stock market–based on the mass of investors’ behavior. “Buy low and sell high” and “The best time to buy is when there’s blood in the streets” are but two investment aphorisms that not only work, but also come from understanding hidden patterns of the investment markets.
The reason that investment market patterns are so well hidden is because “up close” they cannot be seen. Day to day, hour to hour fluctuations in the investment markets cannot be predicted with any accuracy. But certain overall trends that extend over longer periods of time definitely can be. And savvy investors, including Forex traders, have successfully been using Fibonacci’s number sequence to take advantage and make big profits.
The Fibonacci sequence is a string of numbers with each number being the sum of the two numbers which preceded it. For example, one such string would be 1,1,2,3,5,8,13,21 and so on. These numbers are related in several ways. Any given number in a Fibonacci sequence is about 1.618 of its predecessor – the “golden ratio” of the Greek mathematicians.
The most common applications of the Fibonacci sequence for investment purposes are retracements and arcs.
A Fibonacci chart is made of three curved lines which represent support levels, key resistance and ranging. A trendline is first drawn between two points (generally the high and low points over a given period of time). Three curved lines are then drawn which intersect the trendline at the 38.2%, 50% and 61.8% points. Decisions about buying and selling are made at these points (i.e. – when the price of the commodity in question reaches these points).
Now, a retracement, in investing, refers to a reversal in the movement of a stock’s price–a reversal which is enough to counter the stock’s prevailing trend. Advanced successful investors pay intense attention to retracement possibilities and patterns. The Fibonacci retracement analyzes the likelihood that a financial asset’s price will see a larger than average retracement and then come to support or resistance at the key Fibonacci levels before it then continues on in its original direction. A trendline is drawn between two extreme points; then, its vertical distance is divided by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%.
The Fibonacci retracement is widely used by sophisticated traders to find: strategic places for transactions to be placed; target prices; and stop-losses. Other technical tools including Tirone levels, Gartley patterns, and Elliott Wave theory all make use of retracement.
The Fibonacci formula simply works and is useful while investing. Forex traders worldwide are finding it successful while using it.
Is this technique unique to Olson's Forex Robot Software? I've never heard of this one.
Fibonnaci technique can be so powerful. In fact it will be a lot more powerful if this technique is combined with candlesticks and pivot point trading.
While I do like the fibonacci sequence I like the lost numbers better. 4 8 15 16 23 42. There is something mystical about those numbers and there always will be. Thanks for sharing.
I know a Forex trader who is also using a Fibonacci formula and he said it's very useful. He always turns to his Fibonacci chart when investing. I'm quite intrigued by this formula, too. Maybe I might give it a try someday.
it can work if you know what you're doing otherwise youll lose a ton
Yes..Fibonacci Formula is very useful in forex trading and some of the forex automated system is also using Finobacci formula in their system.
Fibonacci is a great tool but I feel that it works best when there is a trend. It can help you to get a good entry price and help you to predict the direction of the price so that you can exit your trade.
Try not to use Fibonacci when the market is consolidating which is what the forex market is doing 85% of the time. In this situation, you can try to use a combination of Bollinger band and stochastic to help you in your trade.
Agreed about the trend issue! Nothing more powerful than Fibonacci and trend for easy profits. Also combine time and price for a good advantage too
I recomment the FMD software it provide smooth performance in all times
Fibs work well because everyone analyzes and uses them. When you add fibs to other methods of support and resistance, and add reversal candles you've got a powerful combination!
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I'll follow this blog. Thanks.
hi,
I am trader forex, usually I used Fibo as a support and resisstant. but we must put it fibo at right place to help us .i make daily signal using fibo . thanks for good article
regard
bud
Very fascinating. It is interesting how such an old discovery still has very real applications
I tested so many robots, some I got for free and some I paid money for, I had no success with any and the worst part they rarely make a trade.
I have invested so much in currency exchange software that i am not sure i am on profit now
. But this one really looks promising, so… i will try it too!
Really good information , thanks for your post..