If
you start using the demo account and predict the currency movements, then you
will find a typical beginners trouble: I know what has happened today, but what
about the next movement? There is no sign whatsoever that I can read, because
the indicator does not appear a few steps in front of the exact price, but at
the moment the prices are.

It
is very reasonable because the indicators predict a price based on previous
data, aka based on statistical data. So in short, technical indicators using
data movement that has happened, put it in the formula, and then to predict the
fore. Well, it sounds cool. But this is also a problem because we all know that
what happens in the future not necessarily the same as what is happening in the
present. The strength of rising prices in the future, not necessarily equal to
the strength of the price increase in the present. Likewise, issues that occur.

Well,
this is the shortage of technical
indicators. It just uses the past to see the future. Similar to the
political analysts or football commentators. In fact, we all know that that
ball round. Not necessarily a yesterday winning team, could win against another
team, tomorrow.

This
deficiency was later solved in several ways. Fundamental analysts use the
economic news to eliminate this shortcoming and said that technical analysis is
so it is. Well, the technical analyst is not to be outdone. Finally, they use
chaos theory and chart
pattern recognition to eliminate this deficiency. Cool, right?

**The Rabbit Problem**

In
1240, Leonardo Pisano Fibonacci discovered a sequence named after the name of
himself, that is the Fibonacci sequence. At first, this sequence is used to
answer a classic math question, about a rabbit. Just intermezzo, rabbit
question reads thus:

A
man puts a pair of Rabbits in a place surrounded by walls, so isolated from the
outside world. How many pairs of rabbits are produced, when a pair of rabbits produce
a pair of other rabbit and will also be productive to the next, and so on?

I
myself also don't ever count them manually. However Fibonacci successful to
count it, by making a series known as the Fibonacci Sequence.

1,
1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ...

This
is the series that answers the problem of rabbits. So, the answer to the rabbit
is about 144 pairs in sequence to 12. It is obtained from the sum of the
previous two series, i.e. 89 + 55.

Well,
after examined, it turns out that the series was created by members of the
family of the Bonacci, not only to resolve the question of the rabbit but being
a pattern of calculation in the science of modern physics, especially the
branch of chaos theory. Chaos
Theory is a branch of mathematics, physics, and also discusses a random
movement pattern. Called random it is because never occupies the same
coordinates point in each move. Called fractal, because it is always in the
same direction.

As
an example, the movement of the wings on a butterfly. Although it is chaotic,
the movement of a butterfly's wings is always the same from time to time, that
is, up and down, although it never occupies the same point at every time moves.
That is what is meant by chaos theory. Yes... Yes... I know this is not very
correlated with forex discussion. From
butterflies to rabbits.

Well,
that happened on the market, more or less are the same. Although it looks
chaotic in its movement, technical analysts argue, that basically, currency
movements still have patterns that can be tracked. Then issued the Fibonacci
sequence to extract this price movement. Well, this is the cause why Fibonacci
became the science of technical analysis.

Now
let's see the Fibonacci sequence, again:

1,
1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ...

If
I were dividing Un with Un-1 then the result will be like this:

2:1
= 2.

3:2
= 1.5.

5:3
= 1.67.

8:5
= 1.6.

13:8
= 1,625.

21:13
= 1.62.

.....

144:89
= 1.62.

Well,
meet a golden ratio of 1.62. Then how about we flip? In the same way, you will
find an another ratio, i.e. 0618. Or if you are diligent to divide a specific
sequence with another sequence, then you will find the other ratio that has
constant value, series to series. The following is the ratios to using
Fibonacci in forex: 0236, 0382, 0500, 0618, and 0764. Well, where did those
numbers come from, please search it for yourself.

**The Fibonacci in Forex Trading**

OK,
we get to the essence of the use of Fibonacci. In this discussion, we will only
discuss the Fibonacci Retracement. You need to know that Fibonacci has 4
variants namely Fibonacci Retracement, Arc, Fan, and Expansion.

Fibonacci
is useful to determine the points of support and resistance in the price
movement. Its use is quite simple. Just need to connect between the Swing High,
Swing Low, and the Price.

Swing
High is a higher candlestick that lies between other candlesticks on the right
and left. While the Swing Low is reverse for Swing High, i.e. the candlestick
that is lower than another candle on the right and left. For more details, look
at the following picture:

Well,
to use of Fibonacci Retracement, you only need to connect the two points of the
Fibonacci lines, then automatically, the Support and Resistance will form
there. Very easy is not it? Almost all of the charting software already has
complete facilities for the procurement of Fibonacci.

Consider
the following image:

Well,
the image above is a chart for GBPUSD with 1 H timeframe. The Fibonacci line is
on the green from 0.0 to 1.0, is the result for connection point from Swing
High and Swing Low. Notice, the retracement lines are able to properly identify
areas of support and resistance on the price. Well, the all fifth line of this
retracement is useful for support and resistance points. If the price now is
between 0.0 and 0.362 line, then the line of 0.362, 0.5, 0.613 and 1.0, are the
limits of resistance, and the 0.0 lines are support limitations.

Well
as simple as that. About how the price when approaching the area of support and
resistance, it doesn't need to be explained more. The art in Fibonacci is how
to determine the right Swing High and Swing Low, so that can generate the
fitting Support and Resistance. Here, there are no lessons can be given. You
need to experience the trial and error to specify one. The more you use it
frequently, the more you proficient on how to use it.

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