The Truth About Fibonacci Tips Forex

In this report, we will examine the history and background of Fibonacci numbers and The Golden Ratio. We will then outline three specific money management tips that can help increase your profit potential.

The Fibonacci sequence first appeared as the solution to a challenge in the Liber Abaci, a book written by Leonardo Fibonacci in 1202 to introduce the Hindu-Arabic numerals used today to a Europe still using Roman numerals.

The original problem in the Liber Abaci posed the question: How many pairs of rabbits can be produced from a single pair, if each month each mature pair brings forth a new pair. These, from the second month, becomes productive.

Going Forward…

After the first few numbers in the Fibonacci sequence, the ratio of any number to the next higher number is approximately.618, and the lower number is 1.618. These two figures are the golden mean or the golden ratio.

Its proportions are pleasing to the human senses and it seems that throughout biology, art, architecture, and music. A few examples of natural shapes based on the Golden Ratio include DNA molecules, snail shells, galaxies, hurricanes, and sunflowers.

For instance, if at least three Fibonacci price levels come together in a relatively tight zone, a stop loss placement just below or above the zone may be set.

A Fibonacci number helps define stops in the next way, if a trader trades against a support zone, if the support zone is violated and the price trades below that zone, the reason why the trade is negated and the location should be closed.

Setting stops using Fibonacci retracements takes the emotion out of trading and gives a pre defined exit point.

Fibonacci numbers can also define position size based on the risk you’re prepared to take per trade. For instance, if prices are right on a specific level, you might want to have more positions only if the price is further away.

With Fibonacci numbers, once a pattern completes against a Fibonacci price zone you can use them to set profit objectives to bank partial profits or tighten stop loss levels. This clear objective for traders helps them to lock in profits. The great advantage of Fibonacci numbers and the golden ratio lies in the fact that they take the emotion out of trading and can define not only stop losses to exit a market, but likewise set profit objectives as well.

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