A Short Introduction To Fibonacci Forex Trading

Fibonacci forex trading is the basis of many successful forex trading systems that are used by a great number of professional forex traders around the world. Trading systems based on this “numbers sequence” are so successful that billions of dollars are earned every year by traders following its rules.

Fibonacci was an Italian mathematician and he is best remembered by his world famous Fibonacci sequence, the definition of this sequence is that it’s formed by a series of numbers where each number is the sum of the two preceding numbers; 1, 1, 2, 3, 5, 8, 13 ...But in the case of currency trading what is more important for the forex trader is the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc.

Forex traders can greatly benefit from this mathematical proportions due to the fact that the oscillations observed in forex charts, where prices are visibly changing in an oscillatory pattern, are known to follow Fibonacci ratios very closely as indicators of resistance and support levels; maybe not to the last cent, but so close as to be really amazing.

Additionaly, one important thing to remember is that Fibonacci analysis is a leading indicator. What this means is that by learning the correct Fibonacci trading tactics and techniques you will know how to determine the most probable turning points in the market before the price gets there. Yes, you can know what the forex market will do in advance!

For example, one of the widely used Fibonacci ratios is the 0.382 ratio. As it can be easily seen on any forex chart, the currency prices are continually changing and they follow an oscillatory pattern with peaks and valleys. The limit of the peak is usually called a resistance level while the valley is usually called a support.

In order to find the 0.382 ratio level what you do is, first; measure the size of the drop or rise over your time of interest. Once you have that value you multiply this by 0.382. Now depending on what you are looking at, a rise or a drop on the price of the particular “currency pair” you are trading, you will add the last value you calculated to the total drop or subtract the value from the total rise.

Once you have the value you can then start planning the strategy you will follow in order to make a high probability profit from this valuable information. For the 0.382 ratio level calculated for a recent rise in the “currency pair” exchange price, your calculated level will be a highly probable support and for the case of a level calculated for a recent drop of the prices your level will be a highly probable resistance.

Many people tries to make this analysis overly complicated scaring away many new forex traders that are just beginning to understand how the forex market works and how to make a profit in it. But this is not how it has to be. I can’t say it’s a simple concept but it is quite understandable for any trader once he or she has grasped the basics and has had some practice trading using Fibonacci levels along with other secondary indicators that will help you to improve the accuracy of the entry and exit point for every particular trade.

Forex Exchange Rate - How Does It Get Calculated?

In the Forex market the value of two separate currencies and how they relate to one another is what is known as the Forex exchange rate. Usually the Forex rate is how much of one currency is needed to buy a unit of another. Knowing the basics regarding the Forex exchange can help you get started in understanding it even better.

Just to give you an example of how the Foreign exchange rate can work and to help you better understands it we can compare the United States dollar with the Japanese yen. Let's say that on a certain day the US dollar is able to buy one hundred and ten Japanese yens, this would indicate that the exchange rate for that day is 1:110 or a one to one hundred and ten ratio. This ratio in the exchange rate is also known as pairing. When you take it vice versa you can use it to indicate how many US dollars a single unit of Japanese yen can buy. Another term that is used in the Foreign exchange rate is 'cross rates'. This term however is only used when it does not involve US dollars; it is only used when relating two foreign currencies.

A few other terms used in the Forex exchange are pips or basis points, which are actually two terms used for the same thing. These terms are used to indicate Forex rates that are calculated up to four decimal points and whether or not these are negative or positive movements. An example of this would be if you were to exchange euros with yen at a value of 135.1030, but then the euro rate goes up to 135.1035, it is called a five-pip improvement.

In using the Forex exchange rate you are required to use two currencies and this means they are quoted as 'two tier' rates. Also in the Forex market its price basis is called a bid/ask. Using the previous ratio between the yen and the US dollar in the Forex market, if this trade is made it is called a ten pip 'spread' and is secured. This term means it indicates the difference between the buying and actual selling price.
A lot of things can change the spread and affect it. These things include market conditions and traders' instincts about the strength of certain currencies, which can fluctuate greatly from day to day. One thing you should remember however when it comes to the Forex is that only Forex traders who are licensed can access official quoted rates. This means therefore that smaller investors may not receive their currency at a very good rate, because they usually receive them from commercial banks.

One last thing concerning the Forex exchange rate is that it is independently determined. This is why it thrives so well, because solely buyers and sellers and their supply and demand of certain currencies determine it. In the end individual governments and banks cannot decide the values.

With the benefits and knowledge of how the Forex exchange works you can decide if entering the Forex market is the right move for you. But with all the advantages of Forex, why wouldn't you want to?

Making a Living in Forex Trading

Often people ask me if it is really possible to make a living trading the Forex market. I would have to say that it is definitely not possible to merely make a living unless you have no idea of what simple trading money management is. If you are successful in Forex trading and you understand what money management is, you will not just make a living but will create wealth relatively quickly. So I often tell people that if you are looking for a job, you might want to try Wal Mart. I hear they are hiring part time employees.

A good tool that can help you to understand how this works is a calculator. They can be purchased at most local stores for as little as $5.00. Then you might want to open a Forex trading demo account and place a trade. Observe what happens to the digits that display the profit or loss and get an idea of what the value of a PIP is in your account. Then you can develop a purely hypothetical trading plan.

After you have learned a little about how Forex trading works you should start to get an idea of what is a realistic expectation for results in PIPS over a given period of time. Then decide what a prudent risk management plan would be. Some say no more than 2% of your capital is a good number. That number is of course, based on a false industry belief that it is not possible to have a high win to loss ratio in Forex trading. Regardless, it is a good conservative number. Then simply start off with a number that represents the amount of capital you plan to start with and project what would happen if you were successful with a realistic win to loss ratio. How many PIPS will you earn? Win to loss ratio is the number of winning trades vs. the number of losing ones. Risk to reward ratio represents the average number of PIPS per loss vs. the average number of PIPS per winning trade. What will your average net gain be per day or per month? What will that do to your capital?

The next step is to note the amount of money you need to meet your living expenses. When the amount of your monthly profits is at least twice as much as the amount you need to live, begin taking out 50% of your monthly profits. From that point on you will make a living AND your trading account will increase each month while the amount you take out will also increase every month from that point on. What could be better than that?

How to Pick Optimized Automated Forex Trading Robots and Systems For Maximum Profitability

Trading and making consistent money in the currency market, to many beginning and intermediate traders, has always been an extremely difficult task. For those that are just starting out, making money is usually the only thing on their minds. This is as a result of starting capital of many of these traders. With very small money in their accounts, usually below $2000, high level of risk exposure with that small account make them most vulnerable to premature exit from the foreign exchange market.

A solution which many of them usually opt for and which in many cases is responsible for their losses is the arbitrary adoption of automated trading system. While this might be a viable boost to their profitability drive, some crucial issues with trading software, which these traders often overlook, albeit naively is the issue of risk/reward ratio of some of these robots. While it may be said that the risk/reward profile of many of these products are grossly unacceptable, the attention which traders give to details about products they purchase is even more unacceptable.

As an example, some of these software products come with risk/reward ratio of 2:1, while some even have risk/reward ratio of as high as 35:1. My experience using these products revealed that many of these systems do not even have stop losses at all. This is definitely a ploy by the authors of these products to feign profitability. Get this right, there are great forex expert advisors and trading gizmos that can make you good money, but how do you recognize such? The features to look out for, is what this article tries to address.

It is pertinent, for traders to avoid such products like an intractable plague. Any automated trading system that does not define definite stop loss or those that come with more than 1:1 risk/reward ratio should never be considered for purchase. The risk/reward ratios in any trading strategy simply mean that, in the case of 35:1 risk/reward, for every pip you make in a single trade you risk loosing 37 pips. Think about it. With software employing such strategy, you hardly need a soothsayer to tell you it won't take long for you to blow up your trading account.

It has been conclusively proven that automated products which adopt strict and professionally acceptable risk/reward ratio of less than 1:1 run far lower risk of destroying your trading account than such systems adopting more dangerous risk/reward ratio, which will do nothing but destroy your account before you finish spelling forex. It is better to use automated trading systems that protect your account and grow it at the same time. Generally, read the author's descriptions of his automated software, if no mention is made of its risk/reward profile, chances are the product does not have a healthy risk/ reward ratio, in that case, run until you are short of breath.

Give your forex trading account the same treat you will give your personal life account. After all, it is your money, treat it like it is yours.