Is Fibonacci is Good for Forex Trading or Not… | ForexGen

We all know how complicated Forex trading can be. Forex traders are constantly searching for the perfect tool to help them get that advantage over the currency market. Leonard Pisano or better known as Fibonacci was one of the greatest mathematicians. Around 1202 he introduced the Hindu-Arabic number system to Europe – the number system we use today. This system is based on ten digits with its decimal point and a symbol for zero: 1 2 3 4 5 6 7 8 9 0 “The Fibonacci Series” is when the first 2 numbers in the series are one and one. To get each number of the series, you simply add the 2 numbers that came before it.

For example: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987 The Fibonacci mathematical series can be found in almost every aspect of our daily lives. Therefore there are many who feel that the Fibonacci series can assist us in trading Forex. You might be scratching your head and wondering how this series of mathematical numbers can be of any use in Forex trading? It comes down to the “Golden Ratio”. This is the key part of Fibonacci that is used in Forex trading. Choose a number from the series and divide it by its immediate predecessor in the sequence and you will always end up with 1.618 or what is known in mathematics as Phi. There are 4 ways the Fibonacci series is applied to finance, retracements, arcs, fans and time zones.

In financial analysis the “Golden Ratio” is translated into 3 ratios, 38.2%, 50% and 61.8%. Traders believe that when a retracement has started to move, prices will begin to turn to the direction of one of these 3 percentages. If it doesn’t turn then it goes from being a retracement to a reversal.

This is all very fascinating, but does it really work in Forex trading? The success of the Fibonacci theory largely depends on its popularity within the market at that given time. Let’s say a currency pair has gone up from 1.5282 to 1.5670 and then starts to retrace. If the majority of Traders who are working this currency pair are using the Fibonacci theory then the price will probably spring at one of our three percentages, 38.2%, 50% and 61.8%. If the Traders are not into Fibonacci then chances are the price will not reach these percentages and will simply come in at the recognized market value.

There is no guarantee that the Fibonacci series will work or that it is a strong aid for Traders. Many believe in it and many follow the market according to it. Only you can decide for yourself if this is the tool for you.

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