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Trade Forex Online Fibonacci Downtrend Price Swings

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).

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

Tsunami Hits Hawaii – Forex Opportunity?

It’s now 12:30 pm in Hawaii and a Tsunami is expected to hit any any moment.The tsunami heading for Hawaii is the result of a massive 8.8 earthquake in Chile earlier this morning. This story has received nationwide news coverage, and you can learn more about the details of the chile earthquake hawaii tsunami at cnn.com.

Fortunately, I live in the mountains with a nice safe view of the impending tsunami. As the tsunami heads for me in Hawaii, it causes me to think about the implications of the forex market.

Currently the forex market is closed since it’s saturday. The forex is so huge that the tsunami will likely not directly affect the exchange rate of the USD (us dollar). If the tsunami does massive damage (in the Billions) then there could be an impact when the foreign exchange market opens tomorrow.

Riding The Wild Wave

Just like the ocean, price movement in the forex market moves in waves.  The market moves in normal waves. Occasionally there is a major event (a forex equivalent of an earthquake) that causes a MASSIVE change in the forex market. After the impact of this MAJOR event happens, the prices will settle down and stabilize.

In the FOREX, any MAJOR news can cause a forex tsunami. Of course this news isn’t always predictable, but when it happens you need to be able to go with it (or else it’ll wipe you out).

As the tsunami approaches towards Honolulu, Hawaii you can see several surfers out in the water trying to “catch the big wave.”  While it is a safe bet in the forex market to avoid the tsunami, it can be a great thrill to try and ride the wave. Capturing an insane forex price movement would be just as exciting as riding that big tsunami wave heading towards me now…

Fortunately for us forex traders, we can anticipate forex tsunami’s on a regular basis. While we can’t predict MAJOR news events like earthquakes or political chaos, we can follow fundamental announcements that are known to repeatedly cause major forex price movements.

When the US non-farm payroll payroll information is released (usually the first friday of each month), the EUR/USD will often react wildly and unpredictably. There are other economic events that cause major forex price actions to occur (you can look at the major ones at this forex economic calendar.

I’ll be sharing more about the Hawaii tsunami and fundamental forex announcements on this blog. If you register for the free 20 part eCourse at the upper right of this website, you’ll learn more about how to trade forex economic announcements.

Posted in News