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Originally developed by Leonardo Fibonacci around the year 1200, the Fibonacci sequence was created as a way of modeling how pairs of numbers could continue to reproduce in an increasing ratio sequence, basically forever. Fibonacci's rules and his sequence and percentages have been used to solve problems in all kinds of fields ever since, and many forex traders use it today to help them find areas of support and resistance on their price charts. Fibonacci currency trading has come in and out of favor over the years, as has the way people have incorporated the number sequence into their trading plans and decisions. So how does a typical trader incorporate this powerful sequence of numbers into their trading plan? The easiest place to start evaluating Fibonacci as an aid to trading is when it comes to price ranges and retracements in the market. And if you can get your head round all of this, you might even find yourself becoming a more successful trader by using this powerful tool in the right way. At it's essence, Fibonacci currency trading uses the numbers and number sequence to help you identify stop loss levels and price objectives for your trades. Some people argue that setting stop loss levels based on Fibonacci price points takes some of the risk out of forex trading. To a large extent, it is true that you can use this tool to reduce risk, since this strategy allows you to take small losses because stop levels are limited to a tight area of price activity. Typical stop levels will be below retracements of 38%, 50% and 62%. And since this level is pre-determined when entering the trade, you know up front how much risk you are taking, which helps you with position sizing and trade management at the same time. Unfortunately there is also a downside to using Fibonacci. It's quite possible you can be taken out of profitable trades too soon by basing your stop losses too close to the price action. You just have to be aware that using Fibonacci price levels is not a guarantee you'll make a profit in every kind of market. The other way Fibonacci numbers are used is when defining price objectives for current trades. A typical Fibonacci based price objective might be 100%, 138% and 162% of the previous price range. Setting and sticking to these price objectives can take some of the excitement out of trading because you have a limit on your profits. The thing you have to remember though is you also get an increased margin for safety, which is a good feeling to have in a market as unpredictable as forex. So in the final analysis, trading using Fibonacci numbers and percentages can help you enter and exit trades more accurately as well as reducing your risk. Trading fun and excitement is NOT what this business is about; safety and having profitable trades really is the objective. If that's what you are after, adding some Fibonacci to your trading plan can often be a very good idea. Learn how to become a profitable trader using Complete Currency Trader by visiting reading this blog. Then visit our site and read the Complete Currency Trader Review.
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