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Trading With Fibonacci Numbers
Forex traders often use Fibonacci numbers
and sequences to help them determine trading
targets. These technical levels are relied
upon by some traders without question.
Fibonacci numbers are a sequence in which
each number is the sum of the two numbers
that precede it. For example: 1, 1, 2, 3, 5,
8, 13, 21, 34, 55, 89, 144... etc.
This sequence moves toward a ratio of 1.618.
This sequence is often referred to as the
golden section, golden average or golden
ratio. It is believed that humans
subconsciously seek out the golden ratio and
there are some that believe this sequence
and the ratios derived by dividing any
number in the series by the number which
follows it in the sequence are part of the
natural order of the universe.
The truth is this system of numbers was
originally used to calculate the procreation
rate of rabbits!
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There are five basic trading tools
based on Fibonacci's discovery
The Fibonacci sequence
of numbers is used to produce arcs, fans,
retracements, extensions and time zones. The
lines created by these studies are believed
to signal changes as the prices reach them.
Most of the software provided to traders now
incorporates all or most of these studies.
Consult your software for the specifics of
your system, but generally they all produce
lines and arcs which are believed to
represent likely support and resistance
levels for prices.
Used by a large number of traders, the
Fibonacci numbers themselves may become a
major factor in influencing the market. Most
of the time, the Fibonacci studies work
because of the huge number of traders
following them and artificially creating
support and resistance levels.
The market is complex and the true nature of
Fibonacci studies may just be as a
self-fulfilling prophecy. Understanding this
will help you use Fibonacci more
efficiently. You will likely find that a
Fibonacci sequence will most often work when
there are no other "real" market driving
forces present.
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A Simple Forex Strategy
Use this
simple Forex strategy to get you started...
Click Here to
go to the next page [A
Simple Forex Strategy]
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Forex Trading
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