Friday, September 12, 2008

Fibonacci Extensions Magic 2

Fibonacci sequence are invented by Leonardo Fibonacci who was an Italian mathematician.The Fibonacci sequence is a series of numbers that takes the previous number and adds it to the current number to get the next number in the sequence. For example: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 etc.The levels for Fibonacci extensions are calculated by taking the standard Fibonacci levels and adding them to 100%. Therefore, the standard Fibonacci extension levels are as follows: 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8% and 423.6%. Fibonacci extensions can be applied to both downtrend and uptrend.

Why Fibonacci numbers work:

The world's largest equity or forex traders, Banks, and Institutions use them to determine when to exit or lessen their positions. When they take their profit at extensions numbers we will see market will react sharply as they are the major part of the market.

I use 161.8%, 261.8% and 423.6% Fibonacci extension levels. Fibonacci extensions combination with round number, moving average and candlestick pattern determine appropriate target prices. I usually close quarter of my position at 161% level, another quarter at 261% and close my position at 423%. This numbers work on any time frames and on any instruments. Any one can learn it and imply on their trading strategy very easily. Most of the trading software provides Fibonacci tools. Some time they work so accurately is unbelievable, but they are not foolproof. If you stick to 15 minutes chart and 161%, 262% and 423% extesions,you will see better result.I also use trend line to determin the short trend if it is trending market.In a strong trending market 423% extension target can easily get hit but in a side ways movement ,traders should be cautious

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