Those who are into Forex trading can also make use of the Fibonacci Ratios. The ratios come from dividing any two consecutive numbers in the Fibonacci number sequence to get a mean that is 1.618. This is also referred to as the golden ratio which can be observed in the natural world as much as it is in the trading world. Forex traders have to be aware of the two most important points when they are making trading decisions. These are points 38.2% and 62.8%. However there are also other important points to watch like 75%, 50% and at 33%.
Traders can make use of the Fibonacci ratios to place their stop loss orders. This will prevent them from incurring too much loss in their trading activities especially when they are already trading against a support line. Aside from this, traders are also able to determine the risk that they are taking based on their position size. They are also able to lock in their profits based on the Fibonacci ratios.
In order to benefit from the use of the Fibonacci system in Forex trading, people have to learn how to determine the market trends accurately. They also have to know when the retracements may be expected so that they may know the right trading moves to employ. They can for example buy when they see that the price of the asset is on the support level or they may opt to sell instead if the price in the market in going down.
Forex traders may be able to make use of the Fibonacci ratios through charts where they can plot the support or resistance zones. They have to draw the trend once it has completed a cycle. Traders have to find a completed trend within a given time frame. They need to be able to identify the same trends on the pair of currencies that they are dealing with. Traders have to make use of the charts that they have drawn as guides in making decisions.
When Forex traders see that the price is steadily going up, they may take a long position meaning they can buy the currencies but they have to check diligently as the price approaches one of the Fibonacci Ratios. It is possible for the price to go down and they may lose in their trading transaction if they are not able to sell before this happens. In order to prevent this loss, they need to place an order for a stop loss so that they may be able to save the profit that they have already made instead of losing it. It is also possible that the trends will move the other way and prices move down. In such situations, the Fibonacci Ratios are considered as resistance and traders may exit their positions.
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