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
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 8th, 2010
by Rapid Forex
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.
An up price swing, retracement, and extension
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
Posted on March 5th, 2010
by Rapid Forex
I usually like to provide examples of trades that go short as well as long, bullish as well as bearish, show resistance as well as support, and downtrending as well as uptrending.
Many forex trainers just say “just flip everything upside down and it’ll work the other way…” We learn by examples, so I try to include examples of concepts both ways. You may have noticed that feature of this blog 
Earlier today I explained uptrend examples of trends and trendlines. As an appropriate follow-up, I’m going to apply the same idea to give you examples of downtrends.
Finding your inner, outer, and long-term outer trendlines in a downtrend
A downtrend (also called a downtrend price swing) is the exact opposite of an uptrend price swing.
In this case, the swing starts at a high and ends at a low.
The market is making lower highs and lower lows as prices decrease overall.
The downtrend starts high and ends lows
If you have identified that the market is in a downtrend (the market is making lower lows and lower highs), you should draw all three of your trendlines before making a trade. Generally speaking, you will draw a downward trendline across the levels of resistance (highs) as long as the market is making lower lows and lower highs.
To draw the inner downward trendline, locate the last two levels of resistance (beginning from the current market price at the right of the chart) and draw your trendline between those two levels, extending it forward and down to the right.
Remember that if the market is no longer making lower lows and lower highs, then the market is no longer in a downtrend and you will need to identify a new trendline. This is important to recognize because it could signify a trend reversal.
To draw the outer downward trendline locate all of the levels of resistance on your chart, beginning from the left side. Draw your trendline across those levels of resistance, extending it forward and down to the right.
To find the long-term outer downtrend you will need to look at a longer time frame, as you would in identifying the long-term outer uptrend. For example, if you locate your inner and outer trendlines looking at 5-minute candles, switch to a 60-minute candle chart to find the long-term outer downtrend.
When the inner trendline is broken it is likely that the market will move to the outer trendline. This holds whether the broken trendline is the inner trendline (the market would then move to the outer trendline) or the outer trendline (the market would then move to the long-term outer trendline).
Notice how there are a fan of three trendlines moving down?
Trading trendlines in a Downtrend
To trade an inner, outer, or long-term outer downward trendline, sell when the market hits the trendline, making sure to set your protective stop loss order at the last appropriate level of resistance.
As with an upward trendline, the inner, outer, and long-term outer downward trendlines may converge. This offers you a double-strength signal. In this case you have two good reasons to believe that the market will bounce.
My next post will give you some quick rules for trading trendlines. Have a fabulous weekend!
Posted in
Technical Analysis
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on