Fibonacci Number Trends in Forex Trading Online

I've been describing the fibonacci sequence & trading forex online in the last several blog posts. There are a few more concepts to share to give you the full story about fibonacci numbers trends applied to forex trading online. If it seems like this is too complicated, it will seem much easier in the video examples I'll be sharing soon

Looking at a Fibonacci ratio in an uptrend for forex trading online, buy after the market has reacted (retraced) back to the .618 or .786 of the last up price swing to make a higher low.  Set your stop loss order at the last low.

The best place to trade, of course, is at a convergence, where the market has more than one reason to bounce.

If, for example, the market makes a higher low at a Fibonacci ratio and at the trendline, that is a convergence.  Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example).

The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade.  At the .382 the market is moving fast and aggressively, so the potential loss could be quite high.  Remember to only trade if equity management allows.

If you do decide to trade the .382, do not buy at the projected retracement bounce (at the .382), but instead buy at the price of the last high.  Set your stop loss order at .382 and your profit limit order at 1.618.

If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last low) and replace it with the new low at the Fibonacci bounce until the market makes a new high.

If you enter at the projected bounce (.618, for example), setting your stop loss order at the last low and, after the market begins to rally, you cancel and replace your stop loss order from the last low to the .618 new low you risk being stopped out early if prices return to the .786 and bounce before going into the extension.  Remember that the uptrend is not extending until the market passes the last level of resistance and makes a new high.

The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new high.  The .786 is the last hidden level of support; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original up swing, it is highly probable that the market is reversing.

Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new low at .786.  That way you will be protected if the market does not go into an extension.

Forex Trading Online Fibonacci Numbers in a Downtrend

To trade a Fibonacci ratio in a downtrend, sell after the market has reacted (retraced) back to the .618 or .786 of the last down price swing to make a lower high.  Set your stop loss order at the last high.  As with an uptrend, the best place to trade is at a convergence.

Generally speaking, in order to use the Fibonacci ratios to make money, you must place your entry order before the projected retracement bounce (at .618 or .786, for example) and place your exit order before the projected extension bounce (at 1.618 or 1.27, for example).  The .618 and the .786 offer the least amount of potential loss (risk) so they are the safest places to trade.

At the .382 the market is moving fast and aggressively, so the potential loss could be quite high.  Remember to only trade if equity management allows.  If you do decide to trade the .382, do not sell at the projected retracement bounce (at the .382), but instead sell at the price of the last low.  Set your stop loss order at .382 and your profit limit order at 1.618.

If you decide to chase the market for profit, canceling and replacing as the market moves, do not cancel your stop loss order (originally set at the last high) and replace it with the new high at the Fibonacci bounce until the market makes a new low.

If you enter at the projected bounce (.618, for example), setting your stop loss order at the last high and, after the market begins to down swing, you cancel and replace your stop loss order from the last high to the .618 new high you risk being stopped out early if prices return to the .786 and bounce before going into the extension.

Remember that the downtrend is not extending until the market passes the last level of support and makes a new low.  The rules of cancel and replace, therefore, provide that you only cancel and replace your stop loss order if the market has made a new low.

The .786 is the last hidden level of resistance; if the market, in retracement, takes out the .786 and goes on to cover more than 88% of the original down swing, it is highly probable that the market is reversing.

Once the market has bounced at the .786 (not taken it out), move your stop loss order to that new high at .786.  That way you will be protected if the market does not go into an extension.

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