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Fibonacci levels, whether they are retracements or extensions, are simply support and resistance that is calculated from the last major move. Another way of saying that is that the markets continually retrace their moves, and we can identify these when we locate the most recent, most significant rally or sell-off. Within these moves are the levels that price action will attempt to climb up or climb down, and that’s the way support and resistance works. Fibonacci analysis is subjective because there could very well be more than one last major move. Consider that when analyzing a pair, the last major move could be different from time frame to time frame. This is exactly why charting analysis should be confined to the time frame that you are setting up the trade on. The subjective nature of Fibonacci can be a bit of a turn off for some traders. But given time you will be able to recognize Fibo levels with ease and then you will see clearly why it was worth the effort. The best reason that Fibonacci works is not the fact that so many traders use it. In fact, the way a 200 simple moving average can affect trading is based upon the widespread use of this moving average at the 200 period setting. Fibonacci is not that objective. On a given chart there could be multiple moves from which a group of traders could identify a Fibonacci Retracement series so it’s not the commonality that makes them work . . . it’s far more interesting than that. Fibonacci, because it is a law of nature, will take a move and calculate what it’s most likely to do after making that move. It’s the idea of the natural ebb and flow of life, the way all things in nature contract and expand. Fibonacci simply measures human nature, fear and greed, as it plays out in the markets. This is why it works even when you don’t necessarily have the “most correct” last major move. This subjectivity is very uncomfortable to traders who need to put market behavior in convenient categories—as if human nature were always that simple to decipher. All Fibonacci seeks to do is identify support and resistance or “decision levels” at which bulls and bears will try to see who is in control. Whether the levels used are Fibonacci-derived, pivot points, psychological levels, moving averages, chart patterns, and so on, the idea is the same: What is the psychology that got us here? Where (at what price) will the next decision to go either higher or lower be made? Regardless of what tools you use to analyze the markets, that is the only aim of chart analysis. There is no way a book full of canned set-ups, and I call them canned because of their generic application to the market, can make you a successful trader. The aspect that most traders fail to examine is the application of a strategy. There is little discussion of when to use particular strategies as the emphasis is simply on recognizing them. I can tell you that a triangle can occur almost anywhere on a chart but that the triangle that you should trade must occur in a sideways market cycle. There’s a big difference between finding a set-up and setting up the market cycle. Forex (Foreign Exchange) or stock trading is something that you need to learn in depth. You need to get yourself familiar with USD, GPB, EUR, JPY, CHF, AUD, NZD, and others in order to understand the system. Most traders experience haphazard results exactly for this reason. The consideration of what the market is doing must dictate how to trade it. I think that traders are not necessarily to blame here; it’s the educators and writers and analysts that are really at fault, because the idea of applying the right tool to the right job is often lost or ignored in the message. Frankly, I think this is because there was no real-time tool that was available to make decisions about market cycles before. Now you have one, the Wave. We start all analysis with the Wave. This will keep you focused on the right and most effective chart patterns, indicators, and set-ups, and it will save you time. Time, trading time in particular, is another aspect that the Forex in Five trader uses to her advantage. Understanding the role of individual financial centers is absolutely vital to knowing when and when not to trade! We have spent plenty of time on this topic, and I recommend that you review the discussion of Power Stats until you have a feel for the ebb and flow of the market. This means you are acutely aware of who is awake, market overlaps, and economic data releases. Forex in Five traders know that sitting down to trade or enter trades is not a matter of convenience but actually a matter of effectiveness. You can fit the forex into your schedule, but you must always be aware of time as it will present different levels of participation and volatility. Most forex traders find that they are too active in the Asian session or stay up for the Frankfurt and London session without considering pip movement at each hour of the day. Trading at those times is not necessarily wrong, but there are factors like follow-through and those offbeat hours themselves to be aware of! Foreign exchange is good for individual trader while stock market more towards big entity which involve higher risk if you do not know what you are doing.
