An Introduction Of Fibonacci Forex Trading
Leonardo Fibonacci was an Italian mathematician, who lived in the 13th century and known for his world famous Fibonacci sequence, which many trader use to try and predict currency prices with greater accuracy. Let’s look at the Fibonacci number sequence and Forex trading.
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The Fibonacci sequence was printed in the Liber Abaci, written by Leonardo Fibonacci in 1202. It introduced Hindu-Arabic numerals to replace Roman ones. The Fibonacci number sequence was devised to solve the following problem: How many pairs of rabbits can be produced from one single pair, if each month each pair produces a new pair, which, from the second month, starts producing more rabbits? The definition of the sequence is that it’s formed by a series of numbers where each number is the sum of the two preceding numbers; 1, 1, 2, 3, 5, 8, 13...
In forex trading what is important is - the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc. These Fibonacci retracements many forex traders believe are tradable for profit. The two Fibonacci percentage retracement levels considered the most critical are: 38.2% and 62.8%. Other important retracement ones are: 75%, 50%, and 33%.
So can the Fibonacci number sequence help you trade more successfully? The answer is no. In fact, its amazing that such a dumb theory is believed by so many traders, this is no disrespect to Leonardo Fibonacci who was a brilliant thinker, its just these levels have nothing to do with trading and the great man himself (were he alive today) would probably be bemused at the way his thinking has been hijacked by the far out investment community.
Many traders believe that Fibonacci levels are a natural law that re-occurs as human psychology is constant – but if you think about it, human nature is not predictable and not scientific. Trading is an odds game. Fibonacci traders are like the followers of Gann or Elliot, they all believe the market is scientific but if they were, we would all know the price in advance and there would be no market!
This is common sense to most people but not some traders, who constantly say it works when it doesn’t. Sure, you can see the levels hold sometimes but pick any number you like and you will see that hold to sometimes! If it’s scientific it should hold all the time, otherwise it’s not a scientific theory by definition – period.
Fibonacci numbers are a great story and vendors realize this and sell ridiculous systems based upon it, that don’t work. If you see one ask for the real time track record to prove this, you won’t get one. You will get a simulated one done in hindsight but we can all do that – the problem with forex trading is you have to trade going forward not knowing the closing prices.
If you want to win at forex trading remember this: There is no science involved and if anyone had found the secret of market movement they wouldn’t reveal it to you. Of course, Fibonacci numbers are available to all - so why are the traders who use them not rich? Well you already know the answer to that.
Forex trading is a game of odds, not certainties and there is no scientific formula or hocus pocus that makes them move on their own. They move due to what people do, how they see facts realted to the currency and humans are not predictable with scientific accuracy. So leave the Fibonacci numbers to the dreamers and far out crowd and concentrate on a system that trades the odds. Sure, you won’t win all the time, but if you know how to trade the odds you can make a lot of money.
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