The Fibonacci sequence, originally developed by Leonardo Fibonacci around the year 1200, was created as a means of modeling how number pairs could continue to reproduce and increase in a sequence, basically forever. The Fibonacci sequence has been used in all kinds of fields to solve problems ever since its inception, and today many people use it to help them determine support and resistance in their forex trading.
Fibonacci currency trading has come in and out of favor over the years, as has the way people have incorporated the number sequence into their trading plans and decisions. So how does a typical trader incorporate this powerful sequence of numbers into their trading plan?
Looking at what Fibonacci numbers are when it comes to ranges and retracements is a good place to start. You might even become a more successful trader if you're able to understand what Fibonacci was getting at and create a more robust trading plan around the use of this powerful tool.
At it's essence, Fibonacci currency trading uses the numbers and number sequence to help you identify stop loss levels and price objectives for your trades. Some people argue that setting stop loss levels based on Fibonacci price points takes some of the risk out of forex trading.
To a large extent, it is true that you can use this tool to reduce risk, since this strategy allows you to take small losses because stop levels are limited to a tight area of price activity. Typical stop levels will be below retracements of 38%, 50% and 62%. And since this level is pre-determined when entering the trade, you know up front how much risk you are taking, which helps you with position sizing and trade management at the same time.
Unfortunately there is also a downside to using Fibonacci. It's quite possible you can be taken out of profitable trades too soon by basing your stop losses too close to the price action. You just have to be aware that using Fibonacci price levels is not a guarantee you'll make a profit in every kind of market.
The other side of the coin is that Fibonacci numbers can also be used to define price objectives for each trade. Typical price objectives can be 100%, 132% and 162% of previous ranges. This can take some of the excitement out of trading because you have a predetermined exit point (which limits your potential profits), but it gives you an increased margin for safety when trading.
So in the final analysis, trading using Fibonacci numbers and percentages can help you enter and exit trades more accurately as well as reducing your risk. Trading fun and excitement is NOT what this business is about; safety and having profitable trades really is the objective. If that's what you are after, adding some Fibonacci to your trading plan can often be a very good idea.
Fibonacci currency trading has come in and out of favor over the years, as has the way people have incorporated the number sequence into their trading plans and decisions. So how does a typical trader incorporate this powerful sequence of numbers into their trading plan?
Looking at what Fibonacci numbers are when it comes to ranges and retracements is a good place to start. You might even become a more successful trader if you're able to understand what Fibonacci was getting at and create a more robust trading plan around the use of this powerful tool.
At it's essence, Fibonacci currency trading uses the numbers and number sequence to help you identify stop loss levels and price objectives for your trades. Some people argue that setting stop loss levels based on Fibonacci price points takes some of the risk out of forex trading.
To a large extent, it is true that you can use this tool to reduce risk, since this strategy allows you to take small losses because stop levels are limited to a tight area of price activity. Typical stop levels will be below retracements of 38%, 50% and 62%. And since this level is pre-determined when entering the trade, you know up front how much risk you are taking, which helps you with position sizing and trade management at the same time.
Unfortunately there is also a downside to using Fibonacci. It's quite possible you can be taken out of profitable trades too soon by basing your stop losses too close to the price action. You just have to be aware that using Fibonacci price levels is not a guarantee you'll make a profit in every kind of market.
The other side of the coin is that Fibonacci numbers can also be used to define price objectives for each trade. Typical price objectives can be 100%, 132% and 162% of previous ranges. This can take some of the excitement out of trading because you have a predetermined exit point (which limits your potential profits), but it gives you an increased margin for safety when trading.
So in the final analysis, trading using Fibonacci numbers and percentages can help you enter and exit trades more accurately as well as reducing your risk. Trading fun and excitement is NOT what this business is about; safety and having profitable trades really is the objective. If that's what you are after, adding some Fibonacci to your trading plan can often be a very good idea.
About the Author:
Want to find out more about currency trading as a business you can run from home? Then visit our currency trading blog to find articles, tips and advice on how to trade forex profitably.
No comments:
Post a Comment