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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

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