Forex trading is more and more present. Some of the reasons are high liquidity and a much higher earnings potential. Most traders keep in their portfolio a percentage that is strictly dedicated to this activity. With high earning potential also comes a bigger risk but it can easily be covered with the right information and intuition. Foreign exchange is a relatively new market that can be easily accessed with the help of software platforms that are increasingly more and more accurate.
But in order to eliminate risk as much as it’s possible the investor must arm him/herself with information and patience. In this article I’m going to talk a little bit about the Fibonacci indicator.
The Fibonacci numbers offer the basics mathematics for Elliott wave theory. While the Fibonacci relations have been adapted to different technical indicators, their primary use in the technical analysis remains in measuring the correction waves. The main characteristic of the Fibonacci indicator is that the series is composed by starting with 1 and adding the previous number to reach a new one: 0+1=1, 1+1=2, 2+1=3, 3+2=5, 5+3=8, 8+5=13, 13+8=21, 21+13=34 and so on. This series has numerous properties each more interesting than the other:
- The relation between any number and the next one is 0,618 nó 61.8% after the first for numbers.
- Dividing each number to the number that is two steps to the right is 0.382 nó 38.2%
- Dividing each number to the number that is found three steps to the right is 0.236 nó 23.6%
These divisions of each number of the series are the basis in the common relations and are the most used to determine recoveries and price extensions during a trend.
The Fibonacci price recoveries are a movement in the market that recalculates a part of the previous price. Usually Forex market will be recovered at one of the three common levels of Fibonacci- 38.2%, 50% nó 61.8%. The Fibonacci price recoveries are determined by a previous oscillation from down to up to identify the possible support levels while the market is recovering to a higher level. These recoveries are also determined by a previous downwards oscillation using the same relations, in search of possible resistance levels as the market rises from a low level. The Fibonacci indicator and price extensions are used byForex traders to determine the area where they would like to mark a profit in the next upwards or downwards segment. These levels are presented graphic as horizontal lines at the top or bottom of the previous trend movement.
