Here is a post from resident mentor Omar Eltoukhy where he shows how important fibonacci levels can be when analysing the forex markets.

Hey, it’s harder than you think to come up with Fibonacci rhymes.

Don’t be too hard on me here 🙂

I wanted to go along with showing a little point in the video this week about HOW to put fibs on the chart, so I figured “what the heck” and talk about WHERE to put fibs on the chart too!!

There are plenty of places to find out all about Leonardo Pisano Bigollo, the mathematician known as Fibonacci and his contributions to the world.

Being rather bad at math myself, I appreciate the fact that someone was able to turn his ratios into an indicator that requires no effort on my part beyond a visual analysis and placement.

I shall leave other, brighter souls to expound on the details of the amazing world of fibs and how they relate to literally everything in life and the cosmos, and spend this time talking about how we can use them to make $$$$. There is a section and video on fibs and fibonacci in the main site which you can find here: Fibonacci

Placement of fibs is really more of an art than a science although the true reason they work is far more of the latter than the former.  Our primary goal in using them is to understand the potential points where price may react on a retracement of price as well as using them to understand bias in the market.  By definition in the trading sense, fibonacci lines are used as support and resistance.  Their elegance lies in the fact that they are both forward-looking and amazingly accurate……..if placed properly.

We first must understand that they mathematically capture a certain natural “rhythm” to the market as price ebbs and flows through time.  Finding a little bit of order in the often-time chaotic world of price action and market movement.  Keep in mind that just like any other S/R skill, correctly placing fibs will take both practice and patience before they really become a powerful tool to use.  Here are some hints for what to look for:

• The “Big One”:  Higher timeframes are the best place to start when looking to use fibs.  I try to find complete “moves” in the market that encapsulate current price.  If you cannot find a top and a bottom, you cannot fib correctly.  Using the higher timeframes lets you see the really big moves, where price comes to a definitive bottom, then; after moving up, starts to slide after hitting a clear top (or vice versa for a down move).  Fib the two extremes and you will often find that price find the retracement levels as a strong area of support and resistance once it comes there again.  Of course, the distance between fib levels when you have taken them from weekly or monthly charts can often be hundreds of pips and can take weeks to go from one level to another, but their importance is usually of the highest order and should be noticed.
• The “Trend”:  Take a daily or weekly trend and fib that.  Again, we must have a definitive place where price bottomed/topped to start the trend and then started to slide back after a noticeable top/bottom.  By capturing the whole trend as it develops, we can see the strength of the trend by noticing how deep price comes back and which fib areas are hit.  The deeper the pullback, generally the weaker the trend.  This is an extremely useful approach when trying to find a place to add to a trade during a trend, catch a first trade when you first notice a trend, or understanding where to put stops when price pulls back.
• The “Prior” Candle:  Yes, you can simply fib the prior monthly, weekly or daily candle.  This approach can be VERY useful for trading intra-week, intra-day or even small timeframes, BUT comes with much more responsibility in ONLY choosing good candles.  First of all, any  candle you fib should have a decent size body relative to the time frame you are trading (NO Dojis!!).  Also, you must make sure it is a “relevant” candle.  That gets a bit trickier to explain.  An example of a non-relevant candle would be a big candle that stays within a range-bound market.  Relevant candles are usually part of a trending market, or at least a big reversal.  For example, if the Eur/Usd makes a big breakout of a range one day, you may want to fib that candle to look for pullbacks that might not come all the way back to the top/bottom of the range that was broken out.  Or if you have a nice trend going, fibbing last week’s weekly candle before starting the new week can point out some nice areas to look for trades in the coming week.  Overall, make sure the candle you want to fib (if it is a single-candle fib) has relevance to the current move and/or price action.

No matter where you fib though, it is ALWAYS better to look for convergence!!  Don’t just use a fib alone (although the “good” fibs can be used alone), but try to see if your fibs line up with another type of support and resistance like horzontal s/r, EMAs or trendlines.  In my experience that formula of using a fib mixed with another s/r area produces some really nice trades that don’t require much of a stop loss (hooray to positive R/R).  Now get out there and fib!!!

Forex Weekly Analysis for Week Beginning November 17, 2013

Ahhhhhh, it finally feels like forex again…..somewhat.

Sure we don’t have big markets or huge moves to speak of, BUT price does seem to be respecting S/R very well lately and hasn’t shown us too much in the way of whipsaws.

The Euro session seems to be moving a bit better and we are seeing higher volumes overall.

That being said, these are not “easy” markets and we are not getting very much in the way of follow-through after our moves.  So until we see differently, our approach continues to be, take profits and move stops rather early.

There will be plenty of chance to “shoot for the stars” at some point in the future, but the markets we find ourselves in require a more modest approach.  You will see most of my “areas” on each pair are pretty close to other “areas” of interest.  As we see daily ranges in the sub-100 pip level on most pairs, this is normal.  Grab some pips, get to b/e and look for the next trade.  After all, to really grow your account, you don’t need huge wins, just consistent small gains and compounding takes care of the rest.

Euro/$:  Tricky weekly candle close.  Looks rather bullish closing above 1.3400 and even our fib at 1.3485 but remains under an older trendline.  Look to long if we break above 1.3500.  If we fall, shorts can be had at 1.3485 and below 1.3400.  Additional longs should be sought at 1.3400 and most importantly 1.3300.  Explained in the video.

Gbp/$: An even more bullish weekly candle to close out last week, but still stayed within the range between 1.5900-1.6200(50).  We trade the range until it breaks.  Short at 1.6200-1.6250 and long at 1.6000 and 1.5900.  Remember that you may not be able to get all the move between the areas so take profits or move the stop when you have reached the 50% mark of the move between areas.  If price breaks above 1.6250, I will DEFINITELY be interested in a long from there.  A break below 1.5850 and my bias changes back to bearish.  We have been in this range for going on 10 weeks this week and it will not last forever.

Aud/$: Weekly close that didn’t tell us much from the weekly candle since it is for all intents and purposes a doji.  Still, .9300 gave some excellent smaller trades almost daily last week and we will focus on the range between .9400-9300.  Trade the range until it breaks.  Shorts at .9400 and longs at .9300 until we can either long above 9400 or short below 9300 for a bigger ride.  Remember above 9400 is really 9750 and below 9300 is 9000.  A break of either area should produce a bigger gain, but until then shoot for 50 pips or more from the range.  Check the video for more.

Euro/Gbp: Just like the Aussie, this weekly candle close did little to inform us where the market might go next.  We seem to also be in a range here so same approach as Aud/Usd.  Long from .8315ish and short from .8440ish.  There is also the weekly 200ema at .8360 to trade around but would not personally place a forward order there. Check the video for more details.

$/Yen: This pair has been trading very “small” lately but has respected s/r quite well.  This last week’s candle close saw a bullish move above 99.50 and even the huge whole number of 100.00.  To me this looks like a bullish breakout and we should focus on longs.  Keep in mind though, that even though 100.00 was an important level to finish the week above, it does not necessarily translate into the best area to trade from.  I would prefer a breakout above 100.50 to take a long from, OR  a pullback to either 99.50 and finally 98.50.  Of course any of these areas can be traded short with the right breakout on smaller timeframes.  Video for more explanation.

Euro/Yen: Just like the Usd/Jpy, this pair made a bold move up to finish the week above 135.00.  I would anticipate 135.00 itself is a good place to look for a long, but the conservative among you will want to wait for a break above 135.50 before taking a long from either 135.00 or 135.50.  If price falls, look to short from 135.00 all the way back down to 132.40.  Check le video for details.

Aud Yen: The Aud/Jpy has not been a real “go-getter” lately but has repeatedly found support at 93.00 which is a horizontal s/r as well as the area of both at daily 200 and 55 ema.  However, it did finish the week above a key 93.60 level and that is the first place I would look to go long.  Of course a pullback to 93.00 again would warrant a long from there.  A break below 92.00 would certainly make me think a fall down to 90.00.  Above 93.60 I see price free until 95.00 where I would look for a short.

Usd/Cad:  Price finished the week after being rejected by 1.0500 to close below both that area and 1.0443.  That on the face looks bearish, but I think support at 1.0400 is feasible and  a long from there possible.  A bit tricky, the conservative approach would be to wait for the break above 1.0500 and long from there since overall the pair looks bullish.  That being said, this pair seems very cramped between lots of areas and I expect it to go bouncing around a bit before finally making a real move.  I go into a bit more detail in the video.

Eur/Cad: Unlike the Usd/Cad, there are some nice trades forming here that could have some room to run.  My first and top choice would be the break above 1.4100 to long from there.  If price falls a bit first, look to long from 1.4000 as it is a big whole number and where the trendline and daily 55 ema meet.  A break below 1.3950 and I would think about shorts from there.  Above we have clear skies until 1.4350 at least.  Check out the video for coverage on this new pair.

New members please note: If I am looking to take a trade long, at for example 1.5000 , I place my order 10 pips above & 10 pips below for a short. This is because price often does not quite reach a major line and you need to allow for spreads.

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Hope you enjoy the analysis!!

If you would like to know more about using fibs in forex check out this article and video: CLICK HERE

This article, analysis and video was originally posted in the members area of our Forex Mentor Program. We teach how to trade forex and give daily analysis, in advance of where we are looking to place trades. If you would like to know and even have the chance to try it for 7 days for only $1 then CLICK HERE

Weekly Outlook Video

http://www.youtube.com/watch?v=egtpXVgdzPU&feature=share&list=UUh9jKEbExtwL0MnwLBeyoyQ

Using Fibs