If you’re into math, then trading Forex can be quite exciting!
This is because the Forex markets are full of cool number sequences. The Fibonacci sequence is used in price swings in FX trading, Forex surfing, and other trading styles.
If you don’t like math, you’ll still be using it when trading online Forex when you apply the rules for using the Fibonacci sequence in the Forex markets.
How to use Fibonacci Numbers for Forex Trading?
We have long understood that the world is governed by natural laws. History is full of monumental discoveries of natural laws that help us better explain ourselves, our world (gravity, energy, light . . .) and of course trading forex online.
The Forex markets too, are governed by natural laws.
More than one thousand years ago, an Italian mathematician named Leonardo Fibonacci (also known as Leonardo of Pisa) uncovered a numerical sequence that we now understand to be universal. The sequence, which carries on to infinity, begins like this:
This universal sequence that Fibonacci uncovered is found in every corner of our natural world (and our markets, too). For example, the number of rabbits born during a breeding period follows the Fibonacci sequence, the rings of a pineapple follow a Fibonacci sequence, as do the petals of a sunflower and the branches of a sneezewort tree. In addition, the piano, unchanged since it was first perfected hundreds of years ago, follows a Fibonacci sequence in each octave.
In addition to the sequence highlighted above, there are certain repeating ratios within the Fibonacci sequence. These repeating ratios can be found in each sequence after the seventh. Take, for example, the sequence 89 + 144 = 233 and perform the following calculations:
- 89/144 = .618
- 144/233 = .618
- 233/144 = 1.618
- 144/89 = 1.618
- 89/233 = .382
- 233/89 = 2.618
It turns out that the square roots of two of the Fibonacci ratios show up in the Forex markets over and over again, helping you with trading Forex online.
- sqrt(.618) = .786
- sqrt(1.618) = 1.27
The following ratios, then, are important in the Forex markets and trading online Forex:
- .382 (the ratio can also be represented as roughly 38%)
- .500 (the ratio can also be represented as 50%)
- .618 (the ratio can also be represented as roughly 62%)
- .786 (the ratio can also be represented as roughly 79%)
- 1.27 (the ratio can also be represented as roughly 127%)
- 1.618 (the ratio can also be represented as roughly 162%)
- 2.618 (the ratio can also be represented as roughly 262%)
Just as the Fibonacci sequence appears throughout our natural world, so too do the Fibonacci ratios. For example, the height of the ancient pyramids divided by their length is equal to .618; Venus takes 255 days to circle the Earth and pass through the 360 degree aspect of Uranus (365 days) such that the ratio of 255:365 is .618.
The human body also presents several examples of the Fibonacci ratios: If the distance between the top of a person’s head and her neck is 1.0 then the distance between that person’s neck and belly button is 1.618.
Similarly, if the distance between the top of a person’s head and his belly button is 1.0, then the distance between that person’s belly button and feet is 1.618.
If the distance between the top of a person’s head and her neck is 1.0, then that person’s nose and ears are halfway between the top and the bottom (.500) while her eyes would be at .382 and her mouth at .786.
Not only is the Fibonacci sequence interesting for all of these natural applications, it’s totally useful for trading online Forex. You won’t have to memorize this entire sequence, but knowing that the Fibonacci sequence shows up in the Forex market is something which you will find useful in your Forex trading.