The FX Bootcamp Guide to Strategic and Tactical Forex Trading

FIBONACCI RETRACEMENTS

The Fibonacci sequence has a mathematical ratio that appears over and over in nature as well as in art and engineering. Having met so many traders from around the world, I am always surprised by how many of them don’t use “Fibs.” In fact, many traders have told me that don’t believe Fibonacci theory, that it is just a bunch of hocus pocus.

To a certain degree, they are correct. The vast majority of the traders I have met who shared their negative opinion about the use of Fibonacci theory had traded other markets, such as equities, for many years. Their experience has told them that Fibs don’t work. They certainly may be correct. They traded in markets much different from forex.

For one thing, forex is many times larger than any other financial market. In fact, it is many times larger than all the other financial markets combined. Perhaps these equity traders didn’t find Fibonacci theory helpful in their trading because the market they traded was just too small. I also think that the stock market is much less efficient, so it doesn’t surprise me they don’t use Fibs. I am surprised, however, by how many traders think their experience in one market will lead to success in another market, even though the two markets may be quite different. They are not open to making the required adjustments and may find forex frustrating.

Fibonacci ratios are one tool to apply when trying to understand very large sets of data that are so complex that they seem chaotic. ...