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Fibonacci Forex Trading
The .382 Fibonacci Ratio
The basis of many Forex systems is Fibonacci Forex trading. Many successful and profitable Forex traders around the world use this type of a system.
These types of systems are based on Fibonacci ratios. Each of these ratios in combination with minor indicators helps identify accurate profitable levels for entry and exit.
The .382 Fibonacci ratio is among the most widely used.
Currency prices are continually fluctuating. When looking at a Forex chart it is easy to see a variable pattern in the prices with peaks and valleys. Peaks are called resistance levels while valleys are called supports.
To find the .382 ratio level, measure the rise or drop over the time of interest. Then this value is multiplied by .382 which gives the ratio.
When looking at a rise, the last value calculated is added to the total drop. If looking at a drop this value is subtracted from the total rise. This is the .382 Fibonacci ratio for either the rise or drop of interest.
With this ratio a strategy can be planned which increases the chances of success and profit. The .382 ratio level calculated for a rise is a highly probable support and for a drop it will be a highly probably resistance.
This type of calculation and analysis gives a vast advantage over most Forex traders when used in conjunction with proper secondary indicators and as known ahead of the market.
For these reasons Fibonacci trading is accepted widely over the world, and is profitable and successful.
See Also:
CAUTION
Forex Market Behavior
What Is Forex Trading?
Forex Trading is the buying of currencies at a low price and selling them when the value increases. Forex Trading has been around for many years, but with the advent of the computer and the volatility of the currency market right now, the trading of currency has become the most lucrative investment in the world.
With a small amount of money, an investor can stand to make a large margin of profit in the currency market.
All you need is access to a computer. You can buy and sell as you see fit without all the hassles that accompany working through a broker to buy stock.
Fees are virtually non-existent and the investor is not limited to a finite window of buying and selling time. An investor can manage his investment 24 hours a day.
By communicating with other investors in the currency market, who, by the way, exchange the same commodity, an investor can make very well calculated decisions on when to buy or sell.
The computer is your ally. When governments rise or fall, deficits fluctuate or economies sink or sore, click into Forex Trading and manage your investments to your advantage.
Volatility is the operative word in the world of investment. At this point in history, the buying and selling of currencies can earn the investor 5 times as much as in the trading of liquid shares. The volatility of liquid stocks is 60 to 100, while the volatility of Forex Trading is 500. |
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Leverage in Forex
Leverage in Forex is much different than the type of leverage you will find in any other type of trading or investing.
When you leverage, you are borrowing on margin to increase the size of your trade beyond what funds you have available in your account.
In stocks and other equities, you can establish leveraged trading on your account which may allow you to as much as double your purchase.
However, in Forex, double is simply unheard of in most cases. When you deal with leverage in Forex, you are looking at, most often, ten times up to four hundred times the balance in your account.
With Forex, brokers can offer you this extremely high leverage because the market is so liquid that they almost never have to worry about you owing them money back if the trade goes bad.
Margin call policies at many brokers have been designed to issue a margin call on your account well before any possibility of a negative balance occurs.
However, with some brokers, if the market moves against your position too rapidly, you may incur a total loss of your funds and even a negative balance. Therefore it is advisable that you check your broker's margin policies to know whether this could happen to you.
Considering leverage, many brokers offer you varying options for leverage amount. If you go with, say, 50:1 leverage, you are allowed to make a transaction worth fifty times the balance in your account.
So if you have one thousand dollars in your account, you can make a trade worth fifty thousand dollars. If that seems extreme to you, just remember that some brokers offer as much as 400:1 leverage.
Because of this, you should never use money you need; the funds you trade with should be funds you can stand to lose.
It's important that you are careful with leverage. Greater leverage may seem wonderful, but it is a tremendous risk to your funds. Too big a position can lead to total loss before your trade has a chance to move in favor of your position.
Exercise strong money management discipline to avoid this. It is recommended that you never enter a position that uses more than ten percent of your available margin balance. This will give you some room for the fluctuations that occur in the market.
After all, you're in Forex to make money, not to lose it. If you have any concerns about margin policies and how to manage your margin trades, be sure to talk to your Forex broker and clear all questions you have before you put your money at risk.
Related Topics: Forex Trading Losses,
Bad Forex Strategies, Begining Forex Trading
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