FIBONACCI TIME ANALYSIS

FIBONACCI TIME ANALYSIS

If you have at least a few months that Forex came into your life
you have surely heard of Fibonacci levels in Forex charts. But what
is Fibonacci?

Fibonacci sequence is a series of numbers. Every number is being
produced by adding the last Fibonacci number to the previous. The
first numbers of Fibonacci sequence are 1,2,3,5,8,13,21,34,55,....etc

But what has Fibonacci sequence to do with Forex Trading? IF you
divide two sequential numbers you get the result 1,618. The square
of 1,618 is 1,27. The inverse number of 1,618 is 0,618. The inverse
of 1,27 is 0,786. These numbers are called Fibonacci numbers
because they result from Fibonacci sequence number's analogies.

The 1,618 number was called 'Golden Mean' by ancient Greeks and
other ancient cultures. They called it so because they observed
that this number is found everywhere in nature. The result of
creations, living organisms to space galaxies, that have this
number embedded is symmetry.

But enough with maths and science! Let's see the use of Fibonacci
numbers in trading. Since the beginning of investment industry,
traders have noticed that prices tend to change direction in levels
that are very close to these numbers I mentioned above.

For example in an unptrend the prices will go up and then swing
down to a level that is a Fibonacci number before continuing the
uptrend. These levels are called Fibonacci Retracement levels. The
most common Fibonacci levels in Forex market are 0.382, 0.5, 0.618
and 0.786.

Nobody knows why prices tend swing in these Fibonacci levels. And
nobody knows at which exact Fibonacci level will the price change
direction in advance.

How could you use this knowledge to improve your trading?

Well, you should know that prices tend to reverse at Fibonacci
retracement levels. A lot of novice traders use the exact point of
a fibonacci retracement level e.g. 0.618 as a trade entry.
Experienced traders know this fact and wait for other traders to
get their stop loss hit and then enter the market. Fibonacci
retracement levels should be used as an indication of entry and not
as the exact point of entry. Moreover the bulk of traders use 0,618
and 0.386 retracement levels. Experienced traders know this
tendency and wait for other retracement levels not widely used like
0.786 or 0.707 in order to enter a trade. Use these Fibonacci
retracements as well. Make the difference!

But how would you know at which Fibonacci retracement level will
the price change direction? Fibonacci retracements, like other
technical indicators are more valid when they are calculated for a
greater time value. Do not pick minor swings to calculate Fibonacci
retracements. Pick greater price swings instead. Moreover, a
Fibonacci level becomes more valid when it coincides with another
technical indicators such as trendline resistance or support, MACD
or RSI divergence and so on. The most valid retracement level
should be choosen keeping in mind that further confirmation from
other technical indicators should be taken into account. You
wouldn't like to put your money on risk with only one reason, would
you? So choose the Fibonacci retracement level that coincides with
other reverse signals.

Last of all let's see the use of Fibonacci numbers in trading time
analysis. Pick a significant hi or a low in a daily chart. Then
calculate trading days (excluding weekends) from that point and on
using Fibonacci sequence. You would have the first, the second, the
third, the fifth the eighth trading day and so on. Watch that in
trading days that are Fibonacci numbers, prices tend to reverse
direction! Isn't it amazing? Add this tool to your chart analysis
and you wont lose!

After all these years of trading experience and research I have
found that Forex charts iclude some special price patterns created by
price swings. These patterns are formed under certain price
relations between their swings. This trade system will provide you with
low risk and hi reward trading entries.

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