In
further understanding forex prices and how they move, we cannot ignore
the pervasive presence of Fibonacci ratios. It is certainly the case
that professional traders know and use Fibonacci ratios to map market
patterns. One of the milestones in becoming a more savvy Forex trader is
developing your own understanding of how to recognize and use Fibonacci
ratios to shape the trade. Fibonacci patterns
often move between support and resistance in tune to a Fibonacci
syncopation. After some base of experience, looking at almost any chart,
one can see retracement patterns often along Fibonacci lines. The chart
below shows
such a sequence of upward and downward moves followed by retracements
stopping at Fibonacci ratios. We can observe that first moves.
The application of
Fibonacci patterns as a universal phenomenon is further underscored
as musicologists have discovered them in the works of many composers
including Debussy, Bartok, etc. The next time you listen to the
second half of Scott Joplin's Maple Leaf Rag you will notice the
pattern of 13 stressed and 8 unstressed notes. In fact, one can find
Fibonacci patterns in the basic structure of instruments themselves.
The piano, for example, has 13 notes that separate each octave,
which has 8 white keys and 5 black keys. Forex traders will
recognize the ratio of 13/8 as a Fibonacci ratio. When using Moving
Average crossovers, try the 13 and 8 time intervals on the charts.
What does
this mean to the Forex trader? By understanding that currency prices are
not linear movements, but expressions of emotions and human behavior,
the Forex trader begins to move beyond a linear approach to trading. By
expanding one's perspective on the underlying tones of the market, they
will likely see nested patterns that are recursive, and as a result, new
trading opportunities. Ultimately, as one trader notes, "Everyone's
got the same information at the same time, therefore you need to find a
different way of finding an edge over your competitor" (The
Psychology of the Foreign Exchange Market , page 203) . The ability to
obtain the sought after trading edge may very will depend on how one
looks for it. It would be wise to look for patterns and "listen to
the market". It may be playing a tune.
