Month: February 2010

By Paul Bryant – Forex scalping is one of the most used and highly demanding forex trading strategies nowadays. In the Forex scalping methods, trading is done over shorter time frames and profits are taken after relatively small moves in the market.

Since the time that the position is exposed to the market is shorter, small profits are taken more frequently in Forex scalping methods. Therefore, it has less chance of facing the market events that may cause the price to go against the trade.

Forex scalping method of trading is different from other traditional forex trading methods where the profits are allowed to run and losses are cut shorter.

When somebody is scalping the market he/she is not looking for the big move of the markets; instead he is looking for the small moves in his favour that will result in significant gain without any risk or insecurities involved in waiting for big move.

Forex scalping is nothing but playing with spreads. In the Forex scalping method a currency is bought at the Bid price and sold at the Ask price to gain the bid ask difference.

This procedure is profitable in the case even when the Bid and Ask prices don’t even move. Traders even pay market price for any currency because they can make profit by doing that as well. The Forex scalping method normally involves establishing and liquidating a position quickly, usually within minutes.

People who are expert in forex scalping methods of trading are the markets makers or specialists who are into maintaining the liquidity and order flow of a product of a market. These forex market makers can have superior execution speed as an insider. They also have a greater knowledge of trading and actual market situation due to their information gathering capacity.

Scalpers are only exposed in a relatively short period. They do not hold overnights. So, the exposure they get is lower than other trades while the risk is also less in this type of trading. Here are some of the factors that affect Forex scalping:

1. Liquidity: Scalpers like to trade in more liquid market since they can make thousands of trades a day to add up their small profits offered on each trade.
2. Volatility: Stable forex market attracts forex scalpers. If the prices don’t move throughout the day, the scalpers can still make profits by placing their orders on same Bid and Ask and can make thousands of trades. They do well in trade, as they don’t have to think about sudden price changes.
3. Time frame: The scalping method of Forex trading is done on a very short time frame. People even make profit from the market waves that are too small to be seen even on the one-minute chart. Therefore, the more the number of moves during the day the scalper can make more profits.

Forex scalping is very easy to follow if you know the basics of forex scalping method of trading and have a Forex Scalping Platform to help you scalping various currencies. The whole secret is to get in and get out of the market as quickly as possible.

About the Author

Paul Bryant has written many articles on forex trading systems and strategies. Please visit http://www.instantforexincome.com/forex_articles.html to see forex articles written by paul.

By Steve Warshaw – Evening start patterns occur at the top of an existing uptrend, and are extremely reliable. You can identify this Japanese Candlestick Pattern using the following rules:

1. The inbound trend must be strongly bullish. I would recommend using a 20 day and 50 day moving average system for determining the inbound trend. Ideally, the 20 day MA would be above the 50 day MA, and the 20 day MA would always be rising.

2. The first canldstick should close above the open, with a long real body, and minimal shadows. This is a bullish, white candlestick.

3. The second candle gaps above the close of the first candle. It is ok for this candle to be white, or black. It should also have a small real body, or even be a Doji.

4. The third candlestick should gap lower then the second days candle close, but above the first candlestick’s close.

5. the third candlestick must be black (bearish), and close below the mid-line of the first day’s candlestick.

6. The bottom shadow on day three should be very short or non existant

Validating the pattern

There are several tools you can use to validate this pattern. Volume is a key indicator for validation. On the first day, volume should be relatively light in comparison to the strength of the move. Volume should be much stronger than the 30 day moving average of volume on day 2, and on day 3.

Second, the size of the first and third day’s candlesticks are said to be an indicator of the strength of the reversal. Extremely long real bodies indicate a strong reversal pattern with strong momentum to the downside.

Third, if the second candle is a doji, the more significant the toping action

Fourth, if price is approaching old resistance, or a significant fibonacci retracement level, the more significant the topping action.

Technical Indicators

Since Evening Star patterns are reversal patterns, traders should look for divergences in momentum indicators such as the MACD, or 3 / 10 oscialltor. A volatility indicator, such as the On Balance True Range indicator should show increased volatilty. Finally, a volume based indicator be sideways to descening as price rises.

Performance

The overall performance of the evening star pattern is very impressive, in fact, it is the fourth best performing canldestick pattern overall according to Thomas Bulkowsi’s Encyclodpedia of Candlestick Charts.

Reliability

The evening star pattern was validated as a reversal pattern in a whopping 72% of all instances, ranking it 10th out of 103 different patterns.

Trading notes:

Some traders prefer to wait for confirmation of the reversal pattern by waiting for a breakout below the low of the third day’s candle. Typically the evening star pattern is reliable enough not to wait for this confirmation. The resulting down trend tends to be very stable, so waiting for confirmation won’t effect the bottom line of trading this pattern greatly.

About the Author

Evening star candlestick patterns are very reliable indicators of a bearish reversal in trend. Learn how to setup a stock screen for this incredibly reliable japanese candlestick pattern

By Danielle Franklin – An essential piece of the forex success is in trading education, forex information and learning materials. Today internet offers large variety of both free and paid trading resources to help out a beginner. Out of all available information, what is useful and what is disorienting? Are there quality free resources or it is worth paying for a trading course right from the start? Can forex forum or blogs be of any help?

Let’s consider the following resources in details:

1. Articles There are plenty of free articles on forex-related websites, which can give you the basic idea about forex and the currency market.

2. Online Tutorials Many websites contain tutorials with in depth information about forex, covering wide range of trading topics – market analysis, charts and indicators, strategies, trading styles, psychological issues, money management, trading plan and much more. Avoid the gurus and experts that claim to know the optimal forex secret for as little as couple of hundred dollars. Not all are scam, however most definitely are, trying to sell fake tracking records, useless automated robots and other worthless trading strategies.

3. Daily Market Analysis Most forex brokers provide daily analysis on their websites, via email, via trading platform or even mobile text message. This forex information is useful to make a decision based on the next possible price direction.

4. Seminars and Webinars There are plenty of online seminars held by brokers and other forex experts all over the internet. These webinars and workshops can be extremely helpful in gaining forex knowledge without paying a cent. Try to search for the seminars and crash courses both online and in the area you live. 5. Forums and Blogs Another way to learn about forex and getting to know other traders is via blogs and forums. Blogs have lots of useful up-to-date trading information and forums have significant resources for beginners, not to mention the great way to get a quick answer for a specific question from other forum members. Unfortunately, not all forums are useful and not every member is a honest, successful trader. Stay away from users who have posted less than 50 posts, from users who tend to advertise some kind of garbage automated software in every other message and stay away from those who promise 100% profits!

6. Demo Accounts It is not a surprise – practice makes perfect. Almost all forex brokers provide free demo practice accounts for beginners. You get virtual money and real market conditions to get to know forex and the selected trading platform.

To summarize, you have to do the homework! Learn to use the charts and indicators. Once you know the basics, you can use the free online resources such as technical and fundamental analysis to help you trade. With the internet today, you can simply put profitable forex trading strategy on your own, follow the trading plan and stay disciplined, and build a successful career as a professional forex trader.

About the Author

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By Paul Bryant – Achieving success in Forex Trading business is all about taking risk. Unless a trader has the nerve to put their money at risk through buying and selling of currencies one cannot become successful in this business. Hence for beginners Forex should start with the right knowledge and confidence. When the outcome is not assured it is difficult to build up courage to risk the money. For beginners Forex trading comes across with a whole lot of fear and anxiety. One thing is certain, that unless you can overcome the fear factor, success in Forex is a distant dream.

Beginners Forex may seem to be a rough turf, but the attitude of the trader is one key factor which comes to play in this trading business. Good trading is actually a combination of individual talent and hard work. By merging effective analytical skills with proper implementation one can surely experience the thrill of success in the trade.

Let’s summarize the different traits that come in handy for beginners Forex:

• The Right approach
• Attitude
• Ability to determine
• Management skills
• Risk taking ability and its control

Adapting the right approach is crucial for beginners Forex. Traders must sort out their personal targets and align them with market trends to which they can relate to within their comfort zone. Here one must assess the time period for trading, a steady trading methodology and various convenient market tools which can be relied on for trading Forex.

As far as beginner Forex attitude is concerned, it is all about ensuring oneself to build a mindset to reflect a uniform balance between basic attributes like discipline, perseverance, objectivity and practicality.

Ability to determine the right market instruments in a particular trading situation is important towards success generation in beginners Forex. If you have the ability to determine what is the chief motivating factor behind large players, then you can surely piggyback on them to reap profits.

Proper lessons on beginners Forex can teach you that to master the art of profitability one must know how to manage and implement the trade in the right direction. The way a trader execute the trade is important and therefore a similar trading situation may unfold diverse results for traders.

Successful trading is mostly about how traders encounters risks and control such situations. Unless one learns to take risk they will never know how to control it. Learn to take losses and probably it might take several losses to finally set you in the right direction of profits. Especially with beginners Forex one needs to be patient and learn from previous mistakes.

Just as there are many traders in Forex trading business, there are probably as many trading methods. But it needs to be remembered that the ultimate goal lies in reaping profits. The bottom line is that you either make profit or loss. So whether you take lessons on beginner Forex or learn your own way, it is important that you never lose money!

About the Author

Paul Bryant has written many articles on forex trading systems and strategies. Please visit http://www.instantforexincome.com/forex_articles.html to see forex articles written by paul.

By Danielle Franklin – Rejection of something that doesn’t fit the social routine is a common behavior among us. People don’t like what they don’t understand. Even worse, we generally tend to be afraid of the unknown. How do people react to forex trading profession? Do you tell others that you trade for a living or you prefer to hide behind more “accepted” professional labels? Does your partner understand your trading career or they classify you as crazy and in need of a “proper” job?

Forex trading is often misunderstood, threaded as a joke career or quickly dismissed as gambling; therefore many traders don’t even bother telling others that they trade. Besides ignorance, there is of course the jealously towards achievement, therefore in most cases it is better not to admit your forex trading success to others, unless you want to be proclaimed as a lazy idiot that cannot hold a normal job.

Some traders explain forex with combination of unobjectionable careers such as computers and accountancy. Forex trading is a proper profession – it is demands time, instincts, business mind, management, planning and strategy building. However, since online forex trading is relatively new concept of making a living, the major portion of society is still quite unaware of forex as a career.

Pretending to have another profession in this case has little to do with being ashamed of it. Some people compare trading to brain surgery in terms of skill and focus – definitely not a career to be ashamed of! When you make a living with forex trading and the market brings you constant profits, the true self-confidence should be enough to dodge disapproving glances of the judgmental by passers.

The part played by a partner is extremely important, and their cooperation is crucial. I guess, I am very lucky to have a very understanding partner who supports and appreciates the difficulty of forex trading. After all, there are sacrifices made from both sides of the relationship. It is important for trader’s success to be around people who don’t poison the air with envious and sarcastic remark regarding what you consider an essential part of who you are.

Unless they are forex traders, nobody truly understands what you are going through. Even people who are dealing with stock market one way or another believe that the market is random. In my experience, it is better off not discussing forex with the outside world! Instead, mention something about taxes and accounting – boring professions are respected but rarely talked about!

If you choose, however, to uncover your true identity as a forex trader, at least make a rule to others that you will not give any market predictions or tips. Also, once you are successful, it is important not to show off. It makes people extremely envious. Keep it as simple as possible – others don’t need to know about the millions in your bank account!

Sometimes when people hear that you are a forex trader they might accuse you of being lazy, unsociable and arrogant. Responses such as “you should be doing something more positive”, or “don’t you feel the need to contribute to the society”, “How much did you earn a month”, “That sounds so boring, I could never do that” or “aren’t you lonely? Don’t you need people around you?” are not uncommon. I personally put all the rude responses down to jealousy, ignorance and intimidation by the technical definition of forex trading. Sorry, but I don’t do “normal”! I am different and proud of it (my earnings speak for themselves).

Others might have an impression that you are a gambler – not too uncommon, but it does invoke unpleasant reactions from those who think you should share the secret of easy-money making! The truth is that 95% of traders (and I am talking about the unsuccessful forex luck-seekers, who do not deserve the title “trader” in the first place) are gambling! Therefore it is not unreasonable to expect from others to think that you belong to the unfortunate group! I have to admit that quite a number of people have dismissed me as a gambler, but I don’t really care. I pity the slaves of the employment system. Better to be a gambler than a slave, don’t you agree?!

About the Author

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By CountingPips.com

The U.S. dollar and Japanese yen continued to reign supreme in the forex markets this week as investors chose to put their bets on the side of these two safe haven currencies. Risk aversion was again the dominant theme of the week with many economic uncertainties shaking the markets.

Greece’s continuing financial woes as well as new concern about the debt levels of Portugal and Spain dragged down European stock markets and their currencies, bringing the euro to multi-month lows against the USD and JPY. The possibility of China trying to cool off its streaking economy and the Chinese stock market being talked about as a potential bubble also fed doubts about the direction of the global recovery.

Higher-yielding currencies were affected by disappointing economic news out of Australia and New Zealand at the end of the week as Australian retail sales fell unexpectedly and New Zealand’s jobless rate hit its highest level in 10 years.

The U.S. dollar surged higher versus the euro for the fourth straight week as the euro (EUR/USD pair) fell to its lowest exchange rate since May 20th on Friday at the 1.3585 level. The dollar also rose for the fourth straight week versus the Swiss franc and Australian dollar while gaining for the third straight week versus the British pound, Canadian dollar and New Zealand dollar. On the other hand, the dollar fell versus the Japanese yen this week after gaining last week. The USD has now fallen versus the yen for four out of the last five weeks.

The largest gain for the dollar this week was against the British pound sterling with a 324 pip increase followed by a 183 pip advance versus the euro (see chart). The dollar also rose by over 150 pips against the Australian dollar.

The Japanese yen, meanwhile, gained ground for the fifth straight week against the British pound and for the fourth straight week versus the euro, Swiss franc, Australian dollar, New Zealand dollar and Canadian dollar.

The yen increased by over 400 pips versus the British pound (+452 pips) for the week and briefly touched a 10-month highpoint. The Japanese currency advanced by over 300 pips against the euro (+306 pips) and marked its highest exchange rate in almost a year.

The yen also rose by 227 pips against the Australian dollar, 188 pips versus the Swiss franc, 175 pips against the New Zealand dollar, 106 pips on the Canadian dollar and by 103 pips against the U.S. dollar.

Next week we can count on another interesting week in the forex markets with many major economic releases coming out. Retail Sales data out of the U.S., Germany, New Zealand and Switzerland will be released. Gross Domestic Product reports will come out of the Eurozone and the U.K. Employment data is due out of Australia and Switzerland while trade balance numbers will be released from the U.K. and the U.S.

Reminder: Free Forex Week at Elliott Wave International

Also, just a quick reminder that the free week at Elliott Wave is open until Wednesday, February 10th. There is access to the intraday analysis charts and also end of day analysis charts, both with forecasts and analysis. Jim Martens video analysis is included. For anyone interested in Elliott Wave Counts, this is a resource to see wave counts on current charts.

Go to Free Forex Week at EWI here.

Have a great weekend.

By Danielle Franklin – Forex trading brings together a crowd of completely different people – diverse professional background, unique personalities, unlike financial and marital status, location, gender, age, political and religious preferences, and finally different trading styles. What are those trading styles? Which one is most profitable? How to figure out which style suits you best?

You can choose to be Scalper, Swing trader or Position trader. To say for sure which one is most profitable is impossible, because most professional traders mix it all up. The trick is to figure out when is the right time to scalp, to swing and when it is the best to run a position. Let’s look at each trading style in details:

1. Scalping Forex scalping tactic is the combination of high leverage and short term trade. The basic idea behind scalping is to make profits on tiny price movements, sometimes no more than 3 pips. A scalper has to focus on price action, join and get out of trades very quickly, gain each time about 5-10 pips and slowly double or triple the account.

Forex scalping, used correctly, is one of the trading styles with minimum risk involved. If you want to adopt scalping to your trading strategy, here are some things you should consider:

* Forex Broker which Supports Scalping Many forex brokers do not allow scalp trading, since entering and exiting trades causes a broker to lose money. Take an extra time to find out whether your online broker supports scalping . * Strict Exit Strategy (both good and bad trades) Stick to the plan and be disciplined. Staying in the trade “just a little bit more” can bring catastrophic results.

* High Leverage Scalper uses higher than normal leverage, however keep in mind that forex market can easily move against you and cause significant account losses.

* Automated scalping strategy Since scalping involves short stays in the market (no longer than several minutes), a lot of scalpers automate their set of rules to ensure the speed and consistency. Some forex trading platforms, such as MetaTrader 4, allow executing your system on every tick.

* Support and Resistance Levels Find support/resistance levels that have worked on several occasions in the past (at new chart highs or lows).

* Look for Momentum Is the price moving strongly towards either support or resistance level? Is there confirmation that the price momentum is about to turn? In order to get a confirmation that the price momentum won’t take out support or resistance, use stochastic indicator. Stochastic lines will show you which way the market is trending. To read the hint right and take a trade, look for stochastic lines which cross each other and point either up (showing support has won!) or pointing down (showing resistance has won!).

2. Position Trading Position trading involves entering a position and holding it for quite a while (days, weeks, months or even years), or until the reason why you entered a trade in the first place (usually based on fundamental analysis) is unchanged. When position trading, focus on:

* Average Trades Weekly 3-bar pattern is a great strategy for forex position trading, used on daily and weekly frames. * Decisions

Base your trading decision on fundamental data. The basic fundamental analysis includes political and economic changes. Position trader should get information about unemployment forecasts, economic policies, inflation, political principles, and growth rates. * Position Size

A size position in position trading should be rather small, since you have to be able to endure daily price movements. To make this happen, the leverage used in position trading has to be rather small. Since it is possible for a currency pair to jump up and down as much as 3% in just a day, your account will be empty if your leverage preference is more than 1:30. * Trading Frequency

In position trading, the number of trades are kept to minimum. In a way, a long term position can cause a forex trading to lose profitable opportunities forex market presents daily, however less trades somewhat decreases the number of losses.

* Time Since position trading is all about long-term profits, you might come to the conclusion that position trader has more free time. That isn’t exactly so, since the considerable amount of time needs to be invested in order to analyze and make decisions based on fundamental data. You need to become an expert in economics and politics.

* Market Trend and Volatility Once you gain experience in reading forex news and analysis, it will be easier to understand where the market is heading to. It is also crucial to understand the consequences of each trading decision. Forex market is at times volatile and creates an uncertainty. When you trade long term positions, it is wise to avoid highly volatile periods and check out technical indicators to see when the volatility calms down.

3. Swing Trading

Forex swing trading is all about making profits from major trend movements. It is rather fast approach to learn the right from wrong and stay disciplined. Swing trading involves the following:

* Duration and Frequency Despite the fact that swing traders sometimes speculate on short-term currency price movements, overall they rather hold open positions for more than 24 hours. When swing trading, you have to place a trade only when a real opportunity strikes and hold it as long as necessary (few hours or even few days).

* Rollover fees Swing trader often holds position overnight, therefore the rollover fee is charged. It is, however, rather small disadvantage compared to spread and potential profit.

* Analysis Swing traders capture large opportunities, and therefore have to concentrate on long-term fundamental and technical analysis in order to spot a good entry.

* Support and Resistance If swing trading is your style, you have to find (via both daily and weekly charts) valid support and resistance and focus on those points inside the trend. A good sign is when the points are on more than 3 different time-frame charts. Once you have the right support and resistance points, you can apply the trading signal.

* Confirmation Make sure to get a confirmation via forex indicators such as momentum oscillators: stochastic and RSI (relative strength index). Keep in mind that trading without stochastic validation is not recommended.

* Stop and Target Points Swing trading involves setting target points and stop points. Since forex swing trading is all about small fast gains, target point is important in order to gain the profit the moment the target is reached. Don’t wait out “a little bit longer” – you will most definitely lose.

No matter what kind of trader you choose to be, each style is unique. While every forex trading style has its own nuances, it is necessary to master them all. A successful forex trader knows how and when to imply each style without getting carried away.

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By Danielle Franklin – You have read enough material on what forex is, have a full grasp of fundamental and technical analysis, have a clear understanding of money management and have a basic perspective of emotions involved. Now there is a burning desire to try trading! How to start forex trading? Is there a way to practice first before investing any money? Where to go? Who to ask? How to click? What to do?!

Well, let’s start from the beginning:

1. Choosing Forex Broker Now that you are an educated beginner, it is time to find a forex broker. There are tones of them now a days, which makes the whole choosing process quite challenging. What kind of trading platform to choose? What are good trading conditions? Is there a demo account? Are there any extra charges?

There is a couple of things you should pay attention to when choosing a broker:

* Trading Platform There are many trading platforms available and all of them differ. Some of the platforms are online, others are for download. Some require profound knowledge of charting, trading and overall understanding of the market; others are designed in a more user-friendly manner. The best way to figure out whether the platform suits you is to get to know the platform via the free demo account. Almost all forex brokers offer a practice account, which allow you to practice your trading skills before investing real money. Compare several platforms and choose what is best for you. In most cases, you have about 30 days of unlimited practice time, so use it wisely!

* Trading Conditions Take a closer look at what a selected forex broker offers – minimum account size, minimum deposit requirements, leverage options, extra fees (those can be found in terms and conditions of almost any broker, although they all claim that there aren’t any!), real-time charting tools, live updates, customer support (try sending emails, chatting with online help and even calling the broker on the phone), streaming news, signal alerts, mobile features, educational materials (some brokers offer webinars, trading tutorials, personal account manager and more) and other features.

2. Making the First Trade Now that you have a forex broker and you had enough of demo practicing, it is time to move on, make a deposit and start trading for real.

If you did, in fact, practice with the virtual money, you should know the trading platform well enough to make your first trade:

* Switch to real mode and deposit some money in your trading account. Most online brokers offer several payment methods to choose from, such as credit card, paypal, neteller, liberty reserve, wire transfer and others. Usually, the method you have chosen to make deposit with will also be the option for withdrawing your profits.

* Stay focused. While demo trading may seem like a piece of cake (especially with 50,000 virtual money), the real live trading is a bit different in terms of the amount you deposit (it is advisable to start with small deposits first – no more than $500) and emotions involved.

Keep in mind that losses are unavoidable. Consider them as a down payment for the future career.

* Choose the currency pair, set your risks, leverage, stop/loss and take profit levels. * Set up the charts according to your style – time frame, indicators etc. * Decide on the amount to trade. * Enter a trade and see what happens! In case you set stop/loss limit, your trade will be closed automatically by the software. In other case, definitely less desirable, you will have to exit the trade manually. * Keep a journal of your trades, write down everything – trading positions, your feelings before the trade, your emotions during and after, results, reasons for taking a trade etc. * Read, analyze and learn! Most professional traders use both technical and fundamental analysis to make decisions. * Don’t overtrade – know when to walk away and stick to your trading plan.

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By David Adams – Is there any real value in predictive statistics that traders seem to pull out of thin air? The proponents of the random market theory (efficient market theory and it’s many variations) would say “absolutely not.” But the army of Fibonacci proponents and a sea of floor traders who use them beg to differ, because they have watched prices stop on Fibonacci numbers time after time. The question, then, is a simple one; Someone has to be right and someone has to be wrong, why do the market adherents in each camp disagree on something so fundamental?

Do you find it ironic that we understand the more about the subatomic world of molecules than we know about how the market and it’s functions? Some of the best and brightest academics claim there is no predictive ability in using Fibonacci trading. Why? The science of predictive indicators does not pass the litmus test of scientific legitimacy. If you have ever traded Fibonacci numbers, can you tell me whether the market will turn on 38% retracement, 50% retracement, 61.8 retracement? That’s the problem academics have with these systems, there are no empirical facts. Yet many traders swear by them and are very successful in trading them profitably.

Welcome to the world of day trading. It’s a world where traders use systems that are wildly varied and the results are unpredictable. Because the functions of the market are not well understood, as evidenced by the universe of varying opinions on market price action, you will find a plethora of divergent theories and traders who vociferously defend the system they trade to the exclusion of other trading systems. Further, you are unlikely to find two traders who trade identically, even if their investment philosophy is identical.

Let’s start with the Fibonacci numbers. The ratio used to calculate this set of numbers is 1.618 and it stays constant throughout the sequence. Originally identified by mathematician Leonardo Fibonacci in the thirteenth century, their popularity has increased exponentially in day trading. The question is whether they work, and why do they work. Anyone who has traded Fibonacci numbers comes to realize that the market often pauses, sometimes turns, and often blasts right through the sequence of Fibonacci retracements. There is no denying the numbers are relevant, and traders pay attention to them.

But why does the market stop and start so often on these numbers? In trading we don’t necessarily worry about the “why” questions, if something works or has predictive value it is used. You cannot necessarily predict which Fibonacci number the market will choose to honor. On the other hand, many people identify market high and possible lows using Fibonacci ratios, but any trader could identify these point using the alternate method of support and resistance. Yet this support and resistance often occurs right at the 50% or 61.8% Fibonacci levels. Sheesh…..

It is my opinion that Fibonacci numbers work just fine, but the reason they work is because so many technical traders use the system. When the market makes a move from trough to peak, most technical traders will immediately add the Fibonacci retracements to the entire move, and hence the system becomes a self fulfilling prophecy. And that’s okay. Many true Fibonacci traders take offense to this explanation, and claim there is relevance in the ratio. Perhaps there is, but I’m not buying that explanation. As a chaos theory adherent, I feel the only scientifically relevant explanation is the self-fulfilling prophecy argument. The Fib people point to ancient architecture and a wide variety of natural phenomena that use the Fibonacci sequence. It’s true, lots of ancients architects and unexplained phenomena have relevance in their respective fields, but I cannot connect the dots. Which is to say, “yes there are Fibonacci numbers all about, but what does that have to do with investing?” The answer is a resounding “nothing at all.”

But I still use Fibonacci numbers in my trading…

As a day trader, my job requires me to take profitable trades. Whether the Fibonacci sequence is scientifically verifiable is irrelevant to me, as I am only concerned with profitable trades. I cannot recommend using only Fibonacci ratios in your trading. However, I always trace in the retracements after a significant market move, up or down. You would be surprised how often the market honors them, too. I especially like to trade the Fibonacci when it has already stopped and turned on a specific number, as this establishes real legitimacy for this point on the chart. Then I can go to work trading, based on the info the Fibonacci has imparted.

So there you have it, the reason the Fibonacci ratios work is unclear, and I am unwilling to bestow mythic credibility based on the history of the ratio. On the other hand, there is no denying the market pays attention to these numbers. Whether I believe they are a self-fulfilling prophecy is irrelevant, because as traders we only deal in profitable trades and growing account balances. The “why” just doesn’t matter.

About the Author

Many academics cannot find relevance in the Fibonacci sequence and give it short shrift, yet many Fibonacci traders swear by the system. I take a look at the facts of the system and try to sort through how the Fibonacci works, and why it works.

USDJPY stays in a falling price channel and remains in downward movement from 93.75. Another fall is still possible next week and target would be at 88.00 area. Resistance is now at the upper border of the channel, as long as channel resistance holds, downtrend could be expected to continue. However, next cycle bottom on daily chart is nearing, bounce back to 92.00 area would more likely be seen after touching 88.00 level, and a clear break above the channel resistance will confirm the cycle bottom.

For long term analysis, USDJPY has formed a cycle bottom at 84.82 level on weekly chart. Bounce towards 100.00 area is expected after consolidation.

Weekly Forex Analysis