Learning to make valuable and profitable trades in any financial market can be difficult but one of the great things is that the experience of those that have gone before have left many tools behind to assist in the process. One of these tools that traders use is called Fibonacci retracement. This tool has assisted traders for years and is based on a key series of numbers that allow for analysis of the extreme values of a commodity to understand when the right time to buy and sell will occur. This can be used in all financial markets including the fast moving and volatile Forex market. The more tools a trader can employ to gain information the more profitable trades they can make and the more money they earn.
What is Fibonacci Retracement?
Famous mathematician Leonardo Fibonacci identified key numbers that are used as the basis for this tool that traders use to evaluate the trending value of a commodity and then use it to decide when to buy or sell for a profit. The mathematical expression of the numbers expressed in ratio format is the key to the tool rather than the raw numbers in a Fibonacci sequence itself. Usually this ratio is created by evaluating the price differential from its extreme values, the peak and trough. Then you take the vertical distance between the two and then divide by 23.3%, 38.2%, 50%, 61.8% and 100%, the key Fibonacci ratios. These values are then charted and the lines drawn connecting them identify the resistance and support points that are possible for the commodity. A Fibonacci retracement tool will give you these ratio points automatically, providing information that has proven to be accurate over time.
What is the Fibonacci Sequence?
Historically the a Fibonacci list of numbers occur when a number in the sequence and the next number in the sequence added up produce the next number in the sequence. For example it looks like this, 0,1,1,2,3,5,8, 13,21, 34, 55, 89, 144, etc. The interesting factor is that each number is approximately 1.618 times larger than the number directly preceding it. The most important Fibonacci ratio is 61.8% which is called the “Golden Ratio” which is basically the ratio of the numbers in directly in the sequence. That comes from 8 divided by 13=0.6153 (61.8%) or 55 divided by 89=0.618 (61.8%). The real amazing fact is that by using the Fibonacci ratios and applying them to stocks they provide reliable trading data of what price might be recovered in a market. That is the retracement that traders are looking for and it reveals the perfect time to sell a commodity for a profit.
Forex and Fibonacci
The Fibonacci retracement tool is one that can really help those trading pips in Forex. In order to identify the strength of a certain commodity in a fast moving market the tool will give guidance of whether to buy or sell or when to unload a currency for a nice little profit. The tools are a part of most great trading platforms like you would find at AlfaTrade. Once you draw the lines between the peak and trough the ratios automatically appear and reveal the levels of retracement that a trader can expect. That makes the decision behind when to buy easy and reveals the perfect sale point as well. This takes a lot of the guess work out of the process and will allow even beginners in Forex trading to have a great opportunity to make many profitable trades.
All of the ratios come directly from the Fibonacci sequence and provide actionable points for traders that have been proven reliable and accurate over time. It is always a good idea to work with a platform in Forex trading like AlfaTrade where access to these types of tools is commonplace giving traders the highest advantage in a market that can be difficult to gauge.