Forex traders use various strategies to assess the different patterns of trading in the forex market. One of the most commonly used strategies is the Fibonacci Retracement. It is also one of the most profitable strategies in forex trading. The key methods that most successful traders utilize are fundamental and technical analyses. There are a few traders, who consider moving averages or stochastic oscillators as the best ways to understand the various trends in the Forex market.
In addition, many traders use a technique based on a certain pattern of numbers called the Fibonacci Series. Leonardo Fibonacci, a mathematician who lived in the thirteenth century, invented this series. The basic logic behind this series is that a number in a series is the sum of the two preceding numbers. In forex trading, people refer to Fibonacci Series as Fibonacci Retracement. It is helpful in calculating the resistance as well as the support levels.
This method works on an assumption that the market follows a pattern, which is predictable and goes back over a portion before it continues with its movement in the original direction. In this technique, traders use the ratios of numbers in series. You just have to take any two numbers from the series and create a ratio by dividing them. The most important ratios used in forex trading with the help of Fibonacci Retracement are 0.0%, 23.6%, 38.2%, 50%, 61.8% and 100%.
When the market starts retracing, the ratio is 0.0% and when the direction of the market completely reverses, the ratio becomes 100%. These two points respectively form the base and the peak of forex Trading. Once you are able to identify these points, you will also be able to get an idea about the resistance and the support levels of the market. To find these levels, you will require the help of the important ratios mentioned above.
Traders take the help of technical analysis methods to get an idea about the various patterns and trends that they can use to understand the best time to sell or buy in the forex market. Traders use various strategies to get an idea about the trends. Hence, if you are planning to get into trading in the Forex market, then you must get an idea about the way it works. You must try to become familiar with the Fibonacci Retracement technique, as it is the most commonly used technique in the market.
If you want to become very good at trading, then it is better to go into the details of this technique and learn about the Fibonacci extensions and projections. A market works the way the traders in the market work. Hence, you will have to understand more about the various techniques that successful traders in the Forex market follow before you enter, as it will help you to settle down easily. As the method of Fibonacci Retracement is not very easy and consumes a lot of time, you will have to be very patient. Gradually, you will start seeing the results.