Fibonacci and Elliott Wave Relationships are a useful method to analysis stocks and Forex market and make money in long term, Fxstay professional money managers explain how to use Fibonacci and Elliott Wave Relationships in your currency trading.
Fibonacci is a mathematical sequence of numbers in which every number has relation with the previous two numbers of the series. An example of Fibonacci series is (1, 1, 2, 3, 5, 8, 13, and 21). As you can see in this series that the sixth number is 8 and its previous numbers are 5 and 3 so according to the theory there must be some relationship between 8 and (5, 3). So what is the relation between these numbers? If you will check these numbers then you will find that 8 is the sum of 5 and 3 and this is the Fibonacci Relationship. According to the Fibonacci relationship in a sequence of Fibonacci numbers, every number is the sum of the previous two numbers. Leonardo de Pisa, a mathematician of the 12th century has given this beautiful and useful concept of numbers to the world. He told that every number of a Fibonacci sequence is approx 1.618 times greater than the preceding number and 0.618 times than its previous number.
Use of the Fibonacci sequence
This concept in the Forex Trading is used to find out the movement of the Trend lines and find out the minimum and maximum price points. A Fibonacci sequence is made up of Extension and Retracement.
Fibonacci and Elliott Wave Relationships In Forex Trading
At any moment, Forex market can be either bull or bear because bull or bear are the two sides of the Forex market. Forex market if going bull, divides itself into five waves and when the market is going bear, divides itself into three waves. This way we can derive the 5-3 relationship and this is the principle of the concept of Elliott Wave. This concept shows the progress of market. A complete Fibonacci sequence can be generated using the concept of Elliott Wave Principle. A straight line decline can be drawn using the bear swing concept and a straight line advance can be drawn using the bull swing concept. Examples of bear, bull and both using the combination of the waves (1, 1, 2), (3, 5, 8) and (12, 21, 34) are shown in the figure below, by the picture below you find out Fibonacci and Elliott Wave Relationships better.
The concept of the waves in bear and bull market according to an Elliott Wave Principle forms the Fibonacci sequence and this is the relationship between the Fibonacci sequence and the Elliott Wave Theory.
Movement of price to some point on the trading chart and then retracing back is known as Fibonacci Retracement. 0% is the lowest level in a Fibonacci sequence and 100% is the highest. The other most important Fibonacci Retracement levels are 38.2%, 50% and 61.8%. Support or Resistance levels for any currency exist at the points obtained by dividing the length of swing by ratios of figures such as .382, .50 and .618.
Fibonacci Extension is used to predict the behavior of a currency after swing high or swing low is crossed. Ratios such as 161.8%, 261.8% and 423.6% that extend beyond 100% are included in the Fibonacci Extension. These levels are used by the traders and investors for calculating the entry and exit points. In an uptrend, the traders and investors should attempt to earn profit on a long trade at these extension levels where as in a downtrend the traders and investors should attempt to earn profit on the short Forex trade.
Fibonacci Price Projection
Fibonacci Price Projection is the trading tool available in the Metatrader software. This tool is used to predict the possible price target in future. The accuracy of this tool depends on the market trend that is rising or falling. Fibonacci Price Projection techniques are of mainly two types that are External Projection and Internal Projection. External Price Projection consists of mainly three studies that are named as Fibonacci expansions, extension and alternates or parallels. Using the technique of Fibonacci Price Projection, the traders and investors several price levels with high probability to occur and work like the Price Reversal levels of future. Now you know Fibonacci and Elliott Wave Relationships but if you still want to learn Forex you can learn it free in Forex Fxstay school.