Learn Fibonacci

One of useful fibonacci tools, is fibonacci retracement. Fibonacci retracement tools is a popular technical analysis tool, used by traders mainly to calculate targets for possible entry & exit points, and in determining possible support and resistance levels. The thought behind Fibonacci retracements or projections suggests that the price of whatever currency or market you’re looking at will retrace a large section of a previous move, and find support or resistance at the main Fibonacci levels before continuing in its original direction. These key levels are created by drawing a trend line between two extreme points (high & low) of a main market move, then dividing the vertical distance by the main Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, 78.6% and 100%.

If you were wondering how big this move was, it was worth around 180 pips in just over a day, and for this particular example the price didn’t go far at all beyond the 50% retracement level, meaning you could have used a tight stop resulting in a large profit multiple. Although this may not be the case always, you should weigh up the benefits of getting large profit to loss ratios, and at the same time perhaps using other forms of analysis along with Fibonacci levels.

Many people tries to make this analysis overly complicated scaring away many new forex traders that are just beginning to understand how the forex market works and how to make a profit in it. But this is not how it has to be. We can’t say it’s a simple concept but it is quite understandable for any trader once he or she has grasped the basics and has had some practice trading using Fibonacci levels along with other secondary indicators that will help to improve the accuracy of the entry and exit point for every particular trade.

Some people out there are probably thinking that fibonacci analysis is a waste of time, however consider this: Fibonacci sequences can be found throughout nature, from the rate at which rabbits reproduce, to the arrangement of seeds in a sunflower, as well as in the human body. This phenomena has been refered to as a "law of nature".

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