FREE 90 Day Forex Training!
Learn to trade FOREX in 75 minutes
PLUS Receive 90 days of follow up lessons!
Posted on March 10th, 2010
by Rapid Forex
I’ve been describing the fibonacci sequence & trading forex online in the last several blog posts. There are a few more concepts to share to give you the full story about fibonacci numbers trends applied to forex trading online. If it seems like this is too complicated, it will seem much easier in the video examples I’ll be sharing soon 
Looking at a Fibonacci ratio in an uptrend for forex trading online, buy after the market has reacted (retraced) back to the .618 or .786 of the last up price swing to make a higher low. Set your stop loss order at the last low.
The best place to trade, of course, is at a convergence, where the market has more than one reason to bounce.
If, for example, the market makes a higher low at a Fibonacci ratio and at the trendline, that is a convergence. Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example).
The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade. At the .382 the market is moving fast and aggressively, so the potential loss could be quite high. Remember to only trade if equity management allows.
If you do decide to trade the .382, do not buy at the projected retracement bounce (at the .382), but instead buy at the price of the last high. Set your stop loss order at .382 and your profit limit order at 1.618.
If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last low) and replace it with the new low at the Fibonacci bounce until the market makes a new high.
If you enter at the projected bounce (.618, for example), setting your stop loss order at the last low and, after the market begins to rally, you cancel and replace your stop loss order from the last low to the .618 new low you risk being stopped out early if prices return to the .786 and bounce before going into the extension. Remember that the uptrend is not extending until the market passes the last level of resistance and makes a new high.
The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new high. The .786 is the last hidden level of support; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original up swing, it is highly probable that the market is reversing.
Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new low at .786. That way you will be protected if the market does not go into an extension.
Forex Trading Online Fibonacci Numbers in a Downtrend
To trade a Fibonacci ratio in a downtrend, sell after the market has reacted (retraced) back to the .618 or .786 of the last down price swing to make a lower high. Set your stop loss order at the last high. As with an uptrend, the best place to trade is at a convergence.
Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example). The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade.
At the .382 the market is moving fast and aggressively, so the potential loss could be quite high. Remember to only trade if equity management allows. If you do decide to trade the .382, do not sell at the projected retracement bounce (at the .382), but instead sell at the price of the last low. Set your stop loss order at .382 and your profit limit order at 1.618.
If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last high) and replace it with the new high at the Fibonacci bounce until the market makes a new low.
If you enter at the projected bounce (.618, for example), setting your stop loss order at the last high and, after the market begins to down swing, you cancel and replace your stop loss order from the last high to the .618 new high you risk being stopped out early if prices return to the .786 and bounce before going into the extension.
Remember that the downtrend is not extending until the market passes the last level of support and makes a new low. The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new low.
The .786 is the last hidden level of resistance; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original down swing, it is highly probable that the market is reversing.
Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new high at .786. That way you will be protected if the market does not go into an extension.
Posted in
Fibonacci
Posted on March 10th, 2010
by Rapid Forex
My last post focused on trading forex price swings in a forex uptrend. The Fibonacci ratios work in the same way when you trade forex online downtrends. Learning these fibonacci ratios will help you trade forex online with more success.
In a downtrend, the fibonacci ratios are hidden levels of resistance that can give important entry and exit signals. In a downtrend, the Fibonacci ratios represent the down swing retracement as a percentage of the down price swing.
Imagine that the top of the up price swing (the high is 100% and the bottom of the down price swing (the low) is 0%. The retracement (the market’s upward reaction to the down price swing) will cover some percentage of the original swing, from 0 to 100%.
If the retracement covers 38% of the down price swing and then bounces (turns downward, potentially leading to sideways movement or an extension), then it is said to have bounced at the .382 Fibonacci ratio. If the retracing market bounces at 50%, 62%, or 79% then it is said to have bounced at the .500, .618, or .786 Fibonacci ratios, respectively.
If the downtrend is going to continue, the market will, after bouncing at one of the four Fibonacci ratios, turn downward again and form an extension (remember that to qualify as an extension the market must make a new low). This helps you understand how to trade the forex online.
If the downtrend is not going to continue, the market may hit one of the four Fibonacci ratios and take it out, continuing upward in a reversal. If the downtrend is not going to immediately continue, the market may hit one of the four Fibonacci ratios, bounce there, and then continue a sideways movement before extending the trend or reversing.
If the market will continue in the downtrend, the extension of the down price swing will likely either extend to 162% of the original price swing or 127% of the original price swing, and then bounce there.
Specifically, if the market bounces at the .382, .500, or .618 lines then the extension will cover 162% of the original down price swing (that is, the market will extend from the .382, .500, or .618 line to the 1.618 line). If the market bounces at the .786 line, then the extension will cover 127% of the original price swing (that is, the market will extend from the .786 line to the 1.27 line).
To visualize the extension, imagine that the beginning of the price swing (the first high) is at 0 and the end of the original down price swing (the first low) is at 1. The extension will go to either 1.27 or 1.618 (depending on where the retracement bounced).
Trade forex online with the down swing, retracement, extension and fibonacci ratios
It is in this sense that in a downtrend, Fibonacci ratios are hidden levels of resistance. As the market swings within the overall trend, it bounces (making lower highs) at the Fibonacci ratio numbers.
Like uptrends, downtrends move at different speeds. The speed of the trend is defined by how sharply it is falling. Just as in an uptrend, the smaller the Fibonacci ratio, the faster the market moves; the higher the Fibonacci ratio, the slower the market moves.
Be careful that if the market is slowing down when it bounces at .318, .500, or .618 it may not immediately go into an extension (it may not immediately go to 1.618). It is possible that, if the market is slowing down, after bouncing at .318, .500, or .618, it may first extend to 1.27, bounce there, and then fully extend to 1.618.
Now you should see the connection between the fibonacci sequence and price swings down in online forex trading. In my next post, I’ll discuss some more things you can do with fibonacci numbers to trade forex online!
Posted in
Fibonacci
Posted on March 10th, 2010
by Rapid Forex
Trading forex price swings using fibonacci is a common online forex trading technique. Today, I’ll show you exactly how the fibonacci sequence applies to trading forex online.
Just as we see Fibonacci numerical sequences and ratios in nature, so too do we see them in forex trading. In fact, in an uptrend, Fibonacci ratios are hidden levels of support and can give important entry and exit signals.
When trading forex in an uptrend, the Fibonacci ratios represent the up swing retracement as a percentage of the up price swing. Imagine that the bottom of the up price swing (the low) is 100% and the top of the up price swing (the high) is 0%.
The retracement (the market’s downward reaction to the up price swing) will cover some percentage of the original swing, from 0 to 100%. If the retracement covers 38% of the up price swing and then bounces (turns into a rally which could potentially lead to sideways movement or an extension) then it is said to have bounced at the .382 Fibonacci ratio.
If the retracing market bounces at 50%, 62%, or 79% then it is said to have bounced at the .500, .618, or .786 Fibonacci ratios, respectively.
If the uptrend is going to continue, the market will, after bouncing at one of the four Fibonacci ratios, rally and form an extension (remember that to qualify as an extension the market must make a new high). This is important to understand for trading forex.
The extension will likely either extend to 162% of the original price swing or 127% of the original price swing, and then bounce there. Specifically, if the market bounces at the .382, .500, or .618 lines then the extension will cover 162% of the original up price swing (that is, the market will extend from the .382, .500, or .618 line to the 1.618 line).
If the market bounces at the .786 line, then the extension will cover 127% of the original price swing (that is, the market will extend from the .786 line to the 1.27 line).
To visualize the extension, imagine that the beginning of the original up price swing (the first low) is at 0 and the end of the original up price swing (the first high) is at 100. Then the extension will either be at 127 or 162.
Forex trading up swing, retracement, extension and Fibonacci ratios
It is in this sense that in an uptrend, Fibonacci ratios are hidden levels of support in forex trading. As the market swings within the overall trend, it bounces (making higher lows) at the Fibonacci ratio numbers.
Uptrends move at different speeds. The speed of the trend is defined by how sharply it is rising in forex trading. Notice that the smaller the Fibonacci ratio, the faster the market trading forex moves.
This is because the market is retracing less after a price swing, moving more quickly to the extension and the continuation of the trend. In contrast, the higher the Fibonacci ratio, the slower the market moves. With forex trading, the market retraces a larger percentage of the original price swing, so it moves less rapidly to the extension and the continuation of the uptrend.
Imagine that if the Fibonacci ratio were 0 (that is, the retracement covered 0% of the original price swing), then the market would be moving straight up. If the Fibonacci ratio were 1 (that is, the retracement covered 100% of the original price swing), then the market trading forex would be moving horizontally (sideways).
While neither 0 nor 1 is a Fibonacci ratio, it is useful to visualize how the market would move if they were. A Fibonacci number closer to 0, then, moves more closely to straight up which a Fibonacci number closer to 1 moves more closely to horizontally (sideways).
Be careful that if the market is slowing down when it bounces at .318, .500, or .618 it may not immediately go into an extension (it may not immediately go to 1.618). It is possible that, if the market is slowing down, after bouncing at .318, .500, or .618, it may first extend to 1.27, bounce there, and then fully extend to 1.618.
Fibonacci price swings will be covered on the rapid forex blog repeatedly in the future to help you with your forex trading.
Posted in
Fibonacci
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on