In order to understand and properly use Fibonacci numbers for Forex trades with fx trading, you must understand first price swings. To understand this concept completely, you should read my past blog post which discusses price swings, trends, and trendlines, for a thorough explanation.
The Uptrend Price Swing
An uptrend price swing, also called a rally, is a wave (swing) that starts at the low and stops at the high. Remember that to qualify as an uptrend the market must be making higher highs and higher lows. Following the up price swing (rally) is a reaction, also called a retracement of the up swing.
This reaction becomes a down price swing, which is also followed by a reaction (also called a retracement of the down swing) – This creates a great opportunity for Forex trades.
The retracement of the down swing becomes an up price swing that can either lead to a sideways movement or an extension (of the overall trend). The retracement of the down swing often moves sideways before it makes a new high (that is, before it becomes an extension of the overall uptrend).
When analyzing uptrend price swings in your FX trading it’s very important to not lose sight of the original price swing. The market does not make an extension (extending the overall uptrend within which the swing exists) unless it passes through the last level of resistance and makes a new high.
The market can move sideways within the original swing before breaking or continuing the uptrend. Be sure to keep this in mind when placing your Forex trades.
I’ll be discussing the specific use of Fibonacci numbers in FX trading in my next few blog posts. If you want to have successful Forex trades, you’ll want to follow this topic closely.
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