Forex, Fibonacci, Pivot Points
Trading Forex With Fibonacci

Monday, May 22, 2006

Fibonacci Numbers and the Golden Ratio - 3 Tips for Greater Trading Profits

By Stephen Todd

In this report, we will look at the history and background of Fibonacci numbers and The Golden Ratio. We will then outline three specific money management tips that can help increase your profit potential.

Support and resistance levels are an important consideration for most traders to help identify entry and exit points when trading. Fibonacci percentage "retracement" levels based upon the Fibonacci number sequence and golden ratio are very popular with many traders but what are they exactly?

What are Fibonacci Numbers and the Golden Ratio?

The Fibonacci sequence first appeared as the solution to a problem in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to introduce the Hindu-Arabic numerals used today to a Europe still using Roman numerals.

The original problem in the Liber Abaci posed the question: How many pairs of rabbits can be generated from a single pair, if each month each mature pair brings forth a new pair, which, from the second month, becomes productive.

The Golden Ratio

After the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately .618, and the lower number is 1.618. These two figures are the golden mean or the golden ratio.

Its proportions are pleasing to the human senses and it appears throughout biology, art, music, and architecture. A few examples of natural shapes based on the Golden Ratio include DNA molecules, sunflowers, snail shells, galaxies, and hurricanes.

Important Retracement Levels

The two Fibonacci percentage retracement levels considered the most important in trading are 38.2% and 62.8%. Other important retracement percentages include 75%, 50%, and 33%. Three Profit Tips for Using Fibonacci Numbers

1. Fibonacci Defines Stop Loss Levels

A trader can use Fibonacci numbers to set stop loss orders.

For instance, if at least three Fibonacci price levels come together in a relatively tight zone, a stop loss placement just below or above the zone may be set.

A Fibonacci number helps define stops in the following way, if a trader trades against a support zone, if the support zone is violated and the price trades below that zone, the reason for the trade is negated and the position should be closed.

Setting stops using Fibonacci retracements takes the emotion out of trading and gives a pre defined exit point.

2. Fibonacci Defines Position Size

Depending on the risk you are prepared to take per trade, Fibonacci numbers can also define position size. For instance, if prices are right on a specific level, you may wish to have more positions than if the price is further away.

3. Fibonacci Defines Objectives

With Fibonacci numbers, once a pattern completes against a Fibonacci price zone you can use them to set profit objectives to bank partial profits or tighten stop loss levels. This clear objective for traders helps them to lock in profits. The great advantage of Fibonacci numbers and the golden ratio is the fact that they take the emotion out of trading and can define not only stop losses to exit a market, but also set profit objectives as well.

W D Gann and Fibonacci - The Perfect Trading Combination!

One trader who incorporated Fibonacci numbers and The Golden Ratio into his trading was the legendary trader W D Gann. We feel that the use of Fibonacci numbers with the Gann trading method provides traders with the best possible combination to seek long term trading profits.

To learn how to increase your FOREX profits using Gann methods please visit our web site:

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Sunday, December 18, 2005

How to avoid typical pitfalls and start making more money in your forex trading

Fiorenzo Fontana, a trader and analyst at UBS wrote a very interesting article containing a lot of tips on how to avoid typical pitfalls and start making more money in forex trading.

All of his tips are very interesting and useful. Some of the less known are as follows:
  • Trade pairs, not currencies
  • Don't place very tight orders
  • Use reasonable stop losses
  • Increase your leverage in line with your experience and success
  • Don't trade during off peak hours
  • The best time to trade is when news is released
  • If you place a trade and it's not working out for you, get out
  • Trade in the direction the price is going
  • Learn the business before you trade - possibly the most important tip!

In the second part of the article, Fiorenzo gives a number of interesting tips relating to trader's behavior and psychology. Again, some of the less known are:

  • Focus on your current position(s) and place reasonable stop losses at the time you do the trade
  • Focus on one cross at a time
  • Don't trust demos - demo trading often causes new traders to learn bad habits. Once you know how your broker's system works, start trading small amounts and only take the risk you can afford to win or lose (new traders - remember that!)
  • Stick to your strategy and invest profits on the next trade that matches your long-term goals
  • Don't trade if you are bored, unsure or reacting on a whim
  • Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker

Aren't those tips good? Not too often such good pieces of advice are being given for free... You can read here all tips by Firenzo Fontana on how to avoid the pitfalls and start making more money in your forex trading.


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Thursday, December 08, 2005

How To Become A Successful Forex Trader

What are the four ingredients in the recipe for forex trading success?

Ovidiu Garvasuc explains that in his article "The 4 Wheels That Take A Forex Trader To Success". According to Ovidiu, the most important requirements in order to be a succesful forex trader is not the knowledge of complicated technical indicators and proficiency at using them. Much more important are certain character traits, such as:

  • will
  • discipine
  • self-control
  • honesty

The most important piece of advice from Ovidiu - don't argue with the market... "Arguing with the market is very expensive. If the market is right and you are wrong it costs you money, and remember what I said about when the market is right?A L W A Y honest: If you are not making profits the system should be improved."

Read more about what you need to be a successful forex trader.

Stan Hill
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Wednesday, November 30, 2005

How to avoid making psychological mistakes while currency trading

Amelie Gam is an Internet writer for Forex Trading Plus. She just wrote an interesting article on psychological aspect of currency trading.

According to Amelie, a trader exposes himself/herself to the higher risk of loss when he or she :

- doesn't control human emotions;

- acts upon fear or hope without basing own feelings on real facts;

- exploits other people’s human emotions (people who are constant in their mistakes can not gain success and earn money);

- is not disciplined, doesn't make plans, doesn't follow strategies, doesn't apply mathematical and money management principles;

- doesn't run only profitable trades and doesn't try to cut losses as fast as possible;

- uses rumors and advice without being certain of their authenticity and quality.

To be successful you have to think independently of the majority and stick out from the crowd. Currency trading is safer than other trading methods, but if you want to have an edge over other competitors than try to be wise and research first, study other people’s behavior and choose from them only the best.

You can read Amelie's whole article "To Be or Not to Be a Psychological Currency Trader" at

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Tuesday, November 22, 2005

How to Trade with Elliott Waves

What should you know to make Elliott Waves work for you?

Robert Prechter from Elliott Wave International suggests the following:

"The key to Elliott Wave patterns is that the market goes three steps forward for every two steps back. If you do not get scared by the two steps back, and if you are not euphorically confident after the third step forward, you're light years ahead of the pack."

Click on this link to learn more about
Elliott Waves and see an example of a trade that was made by using this powerful concept.

Forex, Fibonacci, Pivot Points


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How to Use Fibonacci Numbers for Huge Trading Profits

Fibonacci numbers have received considerable interest from many traders because of their uncanny accuracy in spotting market turning points in advance. They can be used as a predictive tool and to enhance the analysis of the market, thus helping you to increase profits and decrease risk.

Click this link to learn more about Fibonacci numbers and Fibonacci levels and how you too can use them in trading currencies.


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Sunday, November 20, 2005

Pivot Points in Forex: Mapping Your Time Frame

Raul Lopez wrote a great article on using pivot points in forex trading.

Pivot point indicates the sentiment of traders and investors at any given moment and gives a general idea of where the market is heading during the day. It is a level at which the sentiment of traders and investors changes from bull to bear or vice versa. Pivot points are very popular among both individual traders, investors, banks and institutional traders because they are considered to be an important measure of strength and weakness of any market.

To learn more about this interesting and important topic click this link to find out how to
calculate pivot points and how to use them in forex trading.


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Saturday, November 19, 2005

Forex Trading: Incorporating Price Behavior into a Forex Trading System

By Raul Lopez

Trading the Forex market has became very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.

Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) but what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.

There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.

Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.

Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.

How to create a perfect Forex trading system? First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.

Second, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.

Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.

About the author:
Raul Lopez is a full time Forex trader and founder of a Forex training company.

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