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Trading Forex Price up Swings with Fibonacci Numbers

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.

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

Price Swings Down in Online Forex Trading

Understanding price swings is a great skill to have for online forex trading.

The downtrend price swing, retracement, and potential extension are the exact opposite of the uptrend price swing, retracement, and potential extension explained in my last post.

We all benefit from multiple examples, so if you want to succeed in online forex trading, it’ll crystalize your understanding.

A downtrend price swing is a wave (swing) that starts at the high and stops at the low.  Remember that to qualify as a downtrend the market must be making lower lows and lower highs.  Following the down price swing is a reaction, also called a retracement of the down swing.

This reaction becomes an up price swing, which is also followed by another reaction (also called a retracement of the up swing). This happens in forex trading online frequently (just look at practically any forex price chart).

The retracement of the up swing becomes a down price swing that can either lead to a sideways movement or an extension (of the overall trend).  The retracement of the up swing often moves sideways before it makes a new low (that is, before it becomes an extension of the overall downtrend).

As it is important to not lose sight of the original price swing in an uptrend swing, it is also important to not lose sight of the original price swing in a downtrend swing. 

The market does not make an extension (extending the overall downtrend within which the swing exists) unless it passes through the last level of support and makes a new low.

The market can move sideways within the original swing before breaking or continuing the downtrend.  Always keep in mind that there are swings inside of swings and trends inside of trends. You’ll be much better at online forex trading when you can fully understand this concept.

Don’t lose sight of your long-term outer and outer trend lines as well as your inner trend lines.

In the next rapid forex blog post I’m going to explain how the fibonacci sequence can be applied to online forex trading

Posted in Fibonacci

Uptrend Price Swings in Fx Trading

The fibonacci ratio is extremely useful in fx trading. Fibonacci numbers provide excellent price targets for forex trades.

In order to understand and properly use Fibonacci numbers for forex trades with fx trading, you must understand first price swings.  To understand this concept completely, you whould read my past blog post which discusses price swings, trends, and trendlines, for a thorough explanation.

The Uptrend Price Swing

An uptrend price swing, also called a rally, is a wave (swing) that starts at the low and stops at the high.  Remember that to qualify as an uptrend the market must be making higher highs and higher lows.  Following the up price swing (rally) is a reaction, also called a retracement of the up swing.

This reaction becomes a down price swing, which is also followed by a reaction (also called a retracement of the down swing). This creates a great opportunity for forex trades.

The retracement of the down swing becomes an up price swing that can either lead to a sideways movement or an extension (of the overall trend).  The retracement of the down swing often moves sideways before it makes a new high (that is, before it becomes an extension of the overall uptrend).

When analyzing uptrend price swings in your fx trading it’s very important to not lose sight of the original price swing.  The market does not make an extension (extending the overall uptrend within which the swing exists) unless it passes through the last level of resistance and makes a new high.

The market can move sideways within the original swing before breaking or continuing the uptrend. Be sure to keep this in mind when placing your forex trades.

I’ll be dicussing the specific use of fibonacci numbers in fx trading in my next few blog posts. If you want to have successful forex trades, you’ll want to follow this topic closely.

Posted in Fibonacci