Fibonacci Retracements

Fibonacci retracement analysis is a very widely known and used technical analysis
tool, used by traders to mainly calculate possible targets for entry and exit points, and in determining potential levels of support and resistance. The thought behind Fibonacci retracements suggests that the price of whatever currency or market you’re observing will often retrace a certain percentage of a previous move, and find support or resistance at the main Fibonacci levels before continuing in its original direction.

What makes this particular indicator superior to most, is that it’s known as a ‘leading’ indicator, not lagging. In other words it has predictive powers, unlike other technical indicators that are informative of change in trend, after it has already occurred, fibonacci retracement levels show you possible turning points before they occur.

These levels are formed by drawing a trend line between two extreme levels (high and 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%.

The majority of good charting packages have the ability to do this automatically for you. For example in Metatrader, all you have to do is this: First you choose a main market move, select the Fibonacci button (the one that has a couple of horizontal lines on it, along with the letter “F”), hold your mouse button down, and drag the line from the bottom of the main move, to the most recent top (for uptrends). In market moves that are moving downwards you would apply the Fibonacci tool starting at the peak of the move. Metatrader then automatically draws in horizontal lines at the main Fibonacci retracement levels.

You may have heard of a famous trader by the name of William. D. Gann who implemented fibonacci levels in his trading, he also mentions them throughout his books and courses. Of all the levels he talked about, he put the greatest significance on the 50% retracement level. He even went as far as to saying: “you can make a fortune trading this one level alone”. (How to Make Profits in Commodities). Hearing this from such a widely known and very successful trader shouldn’t be taken lightheartedly. Although this book was about trading commodities, many traders use the same principals today, in markets around the world, including the forex market.

How can Fibonacci retracement levels be used?

So the question now is, can you trade forex based on Fibonacci levels alone? The fact is that it is very hard to determine at which Fibonacci retracement level prices will retrace. That’s why forex trading systems that use Fibonacci also incorporate the use of other indicators, or price action. For example, if you were to observe that two other indicators are indicating a reversal, while price is near the 61.8% retracement level, this may give you extra confidence that a change in trend is about to occur.

Or alternatively, you could observe a candlestick reversal pattern occurring at a key fibonacci retracement level. For example if a shooting star was formed at a 61.8% retracement level, this would indicate that prices have reached a natural resistance level, and price action is telling you it’s time for a reversal.

Conclusion

Just like pivot points, Fibonacci retracement levels can act as a very helpful guide in determining possible reversal points. But, keep in mind that this is just a tool, and shouldn’t be used alone. By combining the power of fibonacci retracement levels, along with your other technical tools, you should be able to develop a sound forex trading system and add confidence to execute a trade.

Dow Theory Part 1

There are a lot of theories that you can study as part of your Forex education – but anyone wanting to learn Forex trading
technical analysis, should look at Dow Theory.

Dow Theory is one of the most important trend following theories ever. Whilst today’s traders like to look at flavor of the month theories, nothing beats Dow Theory in terms of logic – and getting the odds in your favor, its been around for nearly 100 years and is just as important to day as it ever was.

Let’s see why Dow Theory will help you achieve currency trading success:

Predictive V Odds Theories
Many traders look for theories that claim to predict market movement in advance.

These traders are attracted to theories such as Elliot wave, Gann, and cycle theories – because they want a scientific theory that tells them where prices are going to go, problem is they don’t work.

The reason why is obvious:

If prices moved to an objective theory, we’d all know the price in ahead of time – and there’d obviously be no market!

There’s no way of predicting online currencies with scientific accuracy, it’s a myth and people who fall into this trap lose, but you can get the odds on your side.

Forex trading odds

If your trading signals give you more profits than losses, you can still make big consistent gains over time.

Charles H. Dow in an article in the Wall Street Journal in 1901 compared stock markets, to the tides of the ocean, – and the quote below sums up the theory:

“A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market.”

Probability and Odds Making Them Work For You

It’s not just valuable for the stock market, for which Dow developed the theory – it’s an essential part of your Forex education.

Just like the waves of the ocean, we know that every market ebbs and flows, one way, and then back the other way. The problem is, we don’t know the exact spot they’ll turn – or the exact timing and it’s the same with forex trading

If we don’t know exactly when prices will turn, what’s the answer?

We wait for CONFIRMATION of the turn.

Dow Theory, is a theory of currency technical analysis, that doesn’t predict – but waits for confirmation which enables us to get the odds in our favor.

Currencies do move in repetitive patterns and Dow Theory allows us to spot the patterns with the best chance of success – and then trade them for profit.

Forget the Short Cuts to Success
Many traders think that making money in the online Forex
markets is easy.
This is why these traders buy worthless e-books, and currency trading systems, for a few hundred dollars – and expect them to work.

The reality is these e-books and systems never work – and traders need to understand that Forex trading is simply an odds game and Dow Theory helps you play the odds for longer term currency trading success.

Dow Theory, an essential part of the Forex education of ALL.

If you want to learn Forex trading, and be a successful trader and profitable trader, then you need to learn Dow Theory – which are easy to understand, apply and make big profits with.

If you use Dow Theory correctly you join the elite 5% of traders who win consistently, in the world’s most exciting investment market.

In part 2 of this article, we’ll look at the logic of Dow Theory and the three phases of trends in more detail – and see why it works and why it can add a new profitable dimension to your currency trading strategy
.

How To Trade With Logical Forcast

If you’re interested in trading in the Forex market, you need to know how to make the best decisions possible so you can make the most money possible from your investments. Too many people, however, don’t know how to make wise buying and selling choices in the currency market so they miss out on these opportunities. To prevent that from happening to you, you should understand the benefits of the Forex forecast trading system. Below are a few of those benefits are explained.

Logical Not Emotion Decisions

One of the biggest problems with the human capacity for making trade decisions (or any type of decision for that matter) is the role of emotions. For all of our logical abilities, the choices we make in life are more often guided by our hearts than our heads. With investments, this is usually a bad idea. That’s because the two biggest emotions impacting our investment decisions are fear and greed.

If you use the Forex forecast trading system, emotions are not part of the calculations. Instead, the forecasts are made based on logic and evidence. The result is that you’re going to get much higher accuracy levels.

Current Data is Not Sufficient

Beginning Forex traders sometimes use stories about the currency market or about the economic news from other countries to make their currency investment decisions. Unfortunately, this is a bit short-sighted. Obviously, current events are going to have an impact on the ups and downs of currency value. However, what is happening today is only going to be a small part of the picture.

Using a Forex forecast trader is a better choice because they don’t just look at today or yesterday to make decisions. They can look at the history of these movements to determine trends and those trends can help you turn a small investment into a lot of return in a short period of time. Unfortunately, humans rarely can determine trends without the help of a computer.

Programs Understand Human Psychology

By programming a Forex forecasting system with information on past trends, you’re basically teaching it the basics of human psychology. As mentioned above, most people trade for fear and greed. Once you understand that, you can use that knowledge to help you make decisions. For example, if bad news comes out of country about their currency value, you know a lot of people are going to be jumping ship and lowering the value. This is a great time to buy and wait as the currency jumps back up.

With the forecasting systems, this type of knowledge is inherent to the decisions it makes. That means you won’t have to go through a learning curve of trial and error trading to understand these basic ideas. Plus, you won’t have to spend so much of your time glued to the news or reading the papers for information to guide your investments. Instead, the system can do all of that for you and can provide more accurate results as well.

Forex & Day Trading

Online trading is great way for serious investors to make money, but inexperienced traders often wind up with big losses. A good set of instructions can minimize the risks and save months of expensive trial-and-error learning.

Day Trading

Day Trading had its heyday during the bull market of the 1990’s. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.

FOREX Trading

The Foreign Exchange Market (FOREX), the world’s largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.

Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.

As a matter of fact, it’s advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.

There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.

The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also, the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.

The best advice would be to do some background research on the FOREX market first, and then enroll in a course.

10 Essential Tips

Here are ten things you must do and 10 things to avoid when formulating and executing your forex trading strategy
. If you want to be successful at forex trading
then read and understand the points below there essential to achieve currency trading success

1. Don’t day trade

It doesn’t work! All short term volatility is random so you have no chance of winning longer term.

2. Don’t buy a Currency trading system
with..

A hypothetical track record.

These are done in hindsight knowing the closing prices so avoid them. In forex trading its more difficult, you have to make money going forward!

3. Don’t trade off news stories

News is discounted by the markets instantly and is impossible to trade so don’t try.

4. Don’t mix fundamentals and technical

There separate, you are either a technical or fundamental trader – you can’t combine both.

5. Don’t use scientific theories

The king of these is Elliot wave and it doesn’t work.

It’s supposed to be objective but everything about it requires subjective judgement.

If markets moved to a scientific theory we would all know the prices in advance and there would be no market!

6. Be Objective

Use objective criteria to execute trading signals. Avoid subjective theories (like Elliot wave mentioned above) or cycles, these are subjective and mean your emotions can get involved

7. Don’t chase your tail

Gets a currency trading system you are confident in and stick with it. Don’t chop and change it!

8. Don’t forget to place stops immediately

Always place it as soon as you have entered a trade. Never use a mental stop or you will be tempted to run losses.

9. Don’t have an ego

Many traders like to see that market as they want to and not as they really are. Leave you ego behind and accept the market price is the RIGHT price.

10. Don’t work to hard

Many forex traders think the more they put in the more they will get out.

While this is true in many professions, it is not true in the forex markets – you only get rewarded for being right.

Successful forex trading is all about working smart not hard.

Now ten things you must do:

1. Get a simple system you understand

Simple systems work best and you only need a few rules or indicators in it. Don’t complicate it, the more rules and the more parameters, the more likely it is to break or lose in trading.

2. Make sure you have confidence & discipline

Develop it yourself and you will get confidence that leads to discipline. If you try and follow someone else’s system you will lack both and fail.

3. Use a technical approach

Takes less time and also takes into account human psychology which moves all forex prices.

4. Be patient

Only execute your trading system in line with your trading signals and don’t be tempted to chase profits.

5. Always look for confirmation

Never hope a support or resistance level will hold, get the odds on your side by using momentum indicators to confirm first, this will dramatically increase the odds of success.

6. Ignore others

Trade in isolation and ignore others. Don’t discuss what you are doing, this will keep your emotions out of your trading.

7. Have goals & a plan

Have a realistic plan and profit goals. Sure people get rich overnight but their a minority! If you can make 50 – 100% per annum your up there with the best traders.

8. Take risks

Forget restricting risk to much, when you see an opportunity go for it and take calculated risks this is not being rash, it’s the reality of trading FX.

9. Know your edge

If you don’t know your edge i.e. why you should win at forex trading while 95% lose you don’t have one so you will be joining them!

Get the right forex education and know your edge before you begin.

10. Enjoy what you do

If you sweat about positions, feel edgy, or worry about trading it’s not for you. You should view trading as enjoyable and a challenge, if you don’t forget it and do something else.

We have expanded on all the points in our other articles so check them out.

Keep in mind forex trading is not easy very few win and most lose. The good news is, if you understand and apply the above, you could soon be making big forex profits.