London, United Kingdom (PressExposure) January 20, 2012 -- For a trader, having a Fibonacci level or method in one's Forex trading toolbox can be very helpful when trying to predict future price moves in a liquid market. This introductory guide from Vantage FX UK (http://www.vantagefx.co.uk/) takes a look at Fibonacci levels in more detail, including their background, their application and how their accuracy.
The genesis of Fibonacci levels
Leonardo Pisano (nicknamed Fibonacci) was a mathematician, born in Pisa in 1170. He introduced the idea of number sequences, the most easily recognised of which is the sequence where every next number is the sum of the previous two numbers. 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.
The principles of these sequences are apparent in nature as well as man-made objects. There are examples to be found in ancient buildings, plants, planets, molecules and the human structure - but the most commonly investigated Fibonacci technique is often applied to trading.
Application to trading
Trades who study charts apply the Fibonacci scale to price scale and die hard enthusiasts also apply it to time scale. As any trader will learn, prices do not move in a straight line. The words retracement or pull back are used for all chart studies whether it be Forex, indices or stocks - all of which are fluid and will often retrace on a Fibonacci mathematical template. To have a Fibonacci level or method in your trading toolbox can be very helpful when trying to predict future price moves in a liquid market.
Using the Vantage FX UK charting package traders can simply pick the point from which they wish to take a measurement (a daily high for example), and with the Fibonacci tool pull the cursor down to the nominated support level (a previous day low for example). Within that range the Fibonacci levels are then displayed showing the system retracement levels at 61.8, 50, 38.2 down to 0. A follower of Fibonacci can use these levels as guidelines for possible entry, stop loss or take profit levels.
It should be noted that Fibonacci trading can be made complex and take a long time to master. On the other side of the coin it is useful to make it as simple as possible and not to make it a trading solution; only an added guidance.
The Fibonacci charting package in the Vantage FX UK platform works on any timescale but should only be used to trade that timescale. For instance you should not use a five minute chart to set levels for a day trade. Understanding the time scale will help pick the levels and once you apply the Fibonacci ratios to the number of days/ minutes or hours that each move took, you will have a projection as to where the market should go.
To learn more about Fibonacci tools or any other trading system tools in the Vantage FX UK platform, visit http://www.vantagefx.co.uk/
Trading derivatives and Forex carries a high level of risk to your capital and you should only trade with money you can afford to lose. Forex trading may not be suitable for all investors, so please ensure that you fully understand the risks involved and seek independent advice if necessary.
About Vantage FX UK
Vantage FX UK is an FX trading broker based in the City of London, providing foreign exchange trading services to clients in the UK, the EU and the rest of the world.
What sets Vantage FX apart is its wide range of services and outstanding level of customer support. The company strives to provide an intuitive, interactive Forex experience by continually innovating and taking advantage of the latest trading technology, such as MetaTrader 4 and Expert Advisors.
Vantage FX also offers extensive educational resources to help give traders their edge, keep up with daily market commentary and try a Forex trading practice account.