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: http://www.gann.co.uk

Article Source: http://EzineArticles.com/?expert=Stephen_Todd

17 Comments:

  • I find the stop loss setting idea the most useful.

    Initiating a position and knowing a way to quickly tell if you are wrong, is a powerful way to protect your portfolio.

    By Anonymous Anonymous, at 6:41 PM  

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  • Where I can find a trader to manage my account?
    tried my account many times but I've only lost money, anyone knows a good trader who manege my account please?

    By Blogger William, at 6:30 AM  

  • So, good traders that I know are Adrian Shiroma and Robert Alexander you can search on google but the main is the first, Shiroma is very good, he was the winner of the last marathon of traders and he manages accounts of any broker. Good luck.

    By Blogger Kurt, at 5:52 AM  

  • So, good traders that I know are Adrian Shiroma and Robert Alexander you can search on google but the main is the first, Shiroma is very good, he was the winner of the last marathon of traders and he manages accounts of any broker. Good luck

    By Blogger Kurt, at 5:53 AM  

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    By Blogger Forex, at 10:41 PM  

  • Trading Forex With Fibonacci can be a best option for any trader.

    By Anonymous Forex signals, at 3:27 AM  

  • I have traded in the forex markets for around 7 years. Before that I traded stocks with varying success using all kinds of methods. There are a few tactics and methods I have kept over the years and fibonacci is one of them. I just opened my blog today where I will reveal the ways I use fibonacci - and also how to use fibonacci in combination with other tools to better time entries and exits. Trendlines are something that complements fibonacci trading really well.

    Sincerely,
    The Fibonacci Trader

    By Anonymous The Fibonacci Trader, at 7:20 PM  

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