if you don't know what is forex
if u are beginner to forex world
if u want to know more about forex
if u want to get u first step in forex
then u are in the right place simply read this page it might change your life
why Fx-teacher
You will get some information about forex so you can get started and u will get all information resources.
This site gives u the following information :
what is forex ?
how to get started in forex world ?
which companies is the best ?
i will illustrate some treading programs
i will teach u some strategies
how to be professional in forex ?
finally i will give u some resources to improve u knowledge
Now all u have to do is to read the following step by step :
Chapter One : Your First Step
First Section : What Is Forex
What is Forex?
Whether or not you are aware of it, you already play a role in currency trading. The simple fact that you have money in your pocket makes you an investor in a nation's currency. By holding US Dollars, for example, you have elected not to hold the currencies of other nations. When a currency is traded, the transaction is carried out on the Foreign Exchange market (also referred to as the Forex or FX market). The Forex market is the largest financial market in the world, with over $1.5 trillion changing hands every day!
Unlike other financial markets that operate at a centralized location (i.e., the stock exchange), the worldwide Forex market does not have a central location. It is a global electronic network of banks, financial institutions and individual Forex traders, all involved in the buying and selling of national currencies. A major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.
Traditionally, access to the Forex market has been made available only to banks and other large financial institutions. However, with advances in technology over the years along with the industry's high leverage options, the Forex market is now available to everybody, from banks to money managers to individual Forex traders.
This introduction to the foreign exchange market continues with a quick but detailed explanation of how forex treading works. The other sections that will be covered in this introduction are presented below if you want to skip ahead.
Basic Concepts
The term Foreign Exchange means the transferring of one currency into another simultaneously. Since currencies are traded in pairs, to profit from an exchange rate move you need to buy the currency that you expect will strengthen and sell the other. For example if you believed that the Euro (EUR) was going to appreciate against the dollar (USD) you would buy the EUR/USD; or in other words buy the EUR and sell the USD. Alternatively, if you believed that the EUR was going to depreciate against the USD then you would sell the EUR/USD; or sell the EUR and buy the USD.
As can be seen there is no need to wait for a bullish market to profit, for at any given moment, one currency will be strengthening against another. The FX market is therefore constantly producing opportunities to invest.
Who Trades in the FX Market?
Foreign exchange traders can be separated into two groups, hedgers and speculators.
Hedgers: Governments, companies (exporters and importers) and some investors have foreign exchange exposure. Adverse movements between their local or domestic currency and the foreign currency of the group they are either doing business with (for the exchange of goods and services) or investing in will affect their bottom line. This is the core of all foreign exchange trading; however it only makes up approximately 5% of the actual market.
Speculators: These groups which range from banks, funds, corporations and individuals – create artificial rate exposure in order to profit from the variations or movements in the price.
Currency Pairs
Currency Pairs: Each currency is recognized by a three letter code. For example EUR (is the EURO and refers to the European currency), USD (is the United States Dollar). The worlds leading currencies (often referred to as the majors) are the EUR, USD, JPY (Japanese Yen), GBP (the British Pound or
Currencies are traded in pairs and are displayed as such. There is always the three letter currency code a slash and another three letter currency code. The first currency displayed refers to the "base", "leading" or "primary currency"; the second currency refers to the "secondary currency".
For instance when looking at the EUR/USD the EUR is the leading currency and the USD is the secondary currency. The "currency pair" or "currency cross" is then followed by a number; this is typically a five digit number with a decimal point after the first, for instance 1.2660.
The number represents the ratio of one currency against the other, and can be read as "the amount of the secondary currency needed in order to have one unit of the major currency". In the example just given, EUR/USD 1.2660, one would require 1 Dollar and 26.6 cents to exchange for 1 Euro.
Bid and Ask or Buy and Sell
There are always two numbers given after the currency pair, the first always has a smaller numerical value then the second. This can once again be shown using the same example (EUR/USD 1.2660 1.2663). The first number is known as the "Bid" or "Sell" and the second number is known as the "Ask", the "Offer" or "Buy".
The smaller number or the Bid (Sell) (1.2660) represents that price where one can sell the major currency and buy the secondary currency; sell the EUR and buy the USD. The second price the Ask (BUY) (1.2663) represents the price where one can buy the major currency and sell the secondary; buy the EUR and sell the USD.
In the trading window below the trader is able to buy the EUR against the USD at 1.2847 or sell the EUR and buy the USD at 1.2844. The trader is also able to buy the USD against the JPY at 117.60 and sell the USD and buy the JPY at 117.57.
Calculating your P&L
As discussed above the foreign exchange rate represents the value of one unit in the major currency in the terms of a secondary currency. Since when opening a trade you exercise the trade in a set amount of the major currency and when closing the trade you do so in the same amount, the profit or loss generated by the round trip (open and close) trade will be in the secondary currency.
For example if a trader sells 100,000 EUR/USD at 1.2820 and then buys 100,000 EUR/USD at 1.2760, his net position in EUR is zero (100,000-100,000) however his USD is not. The USD position is calculated as follows 100,000*1.2820= $128,200 long and -100,000*1.2760= -$127,600 short. The profit or loss is always in the second currency. For simplicity's sake the P&L statements often show the P&L in USD terms. In this case the profit on the trade is $600.
As can be seen from the Open position window below in Ticket number 411 the trader has Bought 20,000 EUR against the USD at 1.2806 the current rate to close is 1.2844, therefore the trader has a current profit of 38 pips and 20000*0.0038= $76.
A Pip
We can see that in this case the trader made 60 points or pips. This is calculated as follows 1.2820-1.2760=0.0060; therefore 1 pip=0.0001 and on a 100,000 EUR/USD position 1 pip is worth $10. In a USD/JPY position where the market rate is 118.30 one pip is 0.01. We can therefore see that a pip is equal to the last decimal point shown on a rate. The value of 1 pip in USD/JPY for a 100,000 position can be calculated as follows: 100,000*0.01= 1,000 JPY, in USD terms this is equal to 1,000/118.30= $8.45 (rounded to the nearest cent).
Orders - Stops and Limits
As in other financial markets, one can enter the foreign exchange markets at the market or deal rate (this is often known as a Market Order) or at a future rate this is known as a Stop (often known as a Stop Loss) or Limit Order. However as opposed to other financial markets, placing orders in the FX market is much easier, gives far better results and has many more opportunities and variations on the order placed.
When you wish to enter into a trade at current market conditions one simply executes a buy or a sell market order. Often a trader may wish to either limit the loss of the position that he has open (in which case he is able to set a stop order) or he may wish to enter a trade but at a rate that is more attractive then the current market (in which case he can place a limit order).
As discussed above, a stop order can be placed on an existing open position to limit the possible loss on the open trade. For instance say if a trader is long 100,000 EUR/USD at 1.2820, he is obviously expecting that the EUR/USD rate will rise where he will be able to get out at a profit. However the trader may wish to limit the loss that he is willing to take on the trade. If the maximum loss the trader is willing to take is $1,000 and he knows that every pip is worth $10 in this case, calculated by 100,000 EUR*0.0001= $10, then he will want to set his stop order 100 pips from his execution price in this case 1.2720. At 1.2720 the client will lose $1,000 if it is not closed earlier and the AVA platform will execute the order if and when the Bid (since in this case the stop order is a sell order) reaches the stop rate of 1.2720.
Orders – O.C.O's, I/D's and Trailing Stops
As mentioned above there are many combinations of orders that are possible to you in the FX market and in the AvaTrader platform. Stop and Limit orders as described above are the basic orders available, all the rest are simply a combination of them or contingent orders.
O.C.O's
O.C.O's is short for "One Cancels the Other". This is used against an open position, and is done in the following way; the trader places a stop order and a limit order against an existing open position, the first one that hits closes the position (a loss if the stop order hits and a profit if the limit order hits) and when the trade is closed the remaining order is cancelled.
This can best be described by an example. Say the trader is short 250,000 AUD/USD at 0.7730 and he wishes to profit $1,250 USD but is only willing to risk losing $750 USD, then he would place the following orders. The trader would set a limit order 50 pips away from the execution price since 50 pips at $25 per pip is $1,250USD; therefore the limit order would be placed at 0.7680 at the same time the trader sets a stop order 30 pips from the executed open price since 30 pips at $25 per pip is $750US; therefore the stop order would be 0.7760. The orders would be placed O.C.O which means that one order can be hit or triggered to close the open position and when that occurs the remaining order is cancelled automatically.
I/D's
I/D's is short for "If Done". This is a spin on the O.C.O, where the O.C.O is placed on an existing trade, the I/D is placed on a trade that has not yet been exercised. This can best be shown by an example. Say the trader wishes to go short on the AUD/USD at 0.7770 in 250,000 AUD but the bid price is currently only 0.7730. Now as above the client wishes to profit $1,250 USD but is only willing to risk losing $750 USD; then he would place the following orders. The trader would set an original limit to sell the 250,000 AUD/USD at 0.7770 and place another limit that becomes active if the first limit hits (hence the term If Done).
The I/D order can also have a stop order attached as above, if the trader would like to set the same conditions as the O.C.O order above i.e. 50 pip profit and 30 pip loss then the full order would read as follows:
Sell 250,000 AUD/USD at 0.7770 I/D 0.7720 Limit and 0.7800 Stop.
Below we can see an actual I/D order with a combination O.C.O on the Orders worksheet where in Order number 205 the trader wishes to buy 20,000 EUR against the USD at 1.2680 if this occurs then there is a stop order against it at 1.2670 (a maximum loss of 10 pips) and an O.C.O limit of 1.2790 for a profit of 110 pips.
Trailing Stops
A Trailing Stop is an active stop loss that keeps a set distance away from the current market price and updates according to the market. This is best used in a moving market that is going in the direction the trader wants and the trader wishes to guarantee the profits made. This can be best illustrated by an example.
Say a trader enters into a long 200,000 USD/CHF position at 1.2430 and set a stop order at 1.2380 with a trailing stop of 50 pips. The maximum the trader can lose is 50 pips as above, however the stop loss will automatically update itself as the market moves. For instance, if the market moves to 1.2450 then the stop loss would update itself to 1.2400, always keeping 50 pips from the maximum rate; the stop loss will keep updating itself until it triggers or the original trade is closed.
Hedging Trades
On the AvaTrader platform, traders have the opportunity to hedge their positions. A hedge is a trade that is in the opposite direction of an existing trade or open position. This can be a partial or a full hedge and does not close the position although it has the same affect. Some traders enjoy this feature and capability to hedge an open trade rather then close it out as part of their trading strategy. It should be noted that a hedge has the same affect as closing or partially closing an existing trade except for the fact that both the long and the short positions remain in the open positions table, are treated as open trades and must be closed at a later date.
Rollovers
Rollovers
On the AvaTrader platform all open positions are automatically rolled or swapped to the next business day. Traditionally all spot trades in the FX market are performed for a period of two working days when the delivery of the transaction is to take place. Since Ava through its AvaTrader platform does not permit delivery trades all trades must eventually be closed. Hence in order to avoid the delivery of the trade, the positions are automatically closed for the original trade date and reopened for the next trade date. In order to keep things simple and give a maximum advantage to its clients the open and close rates of the roll are kept the same as the open position rate. A premium is then either added or subtracted based on the interest rate differential between the two currencies being traded.
This is a very beneficial and time saving method to continue the trade on the traders behalf until such time as the trader decides to close the trade.
second section : advantages of forex
24-Hour Market
The FOREX market is a seamless 24-hour market. With the ability to trade during the
Liquidity
FOREX market operates huge volume of money which provides the traders with complete freedom to open or close their positions, regardless of size.
Leverage
It decreases requirements to the size of the initial deposit. For instance, if you deposit $ 10,000 (USD) into your account, you will have an opportunity to trade $2,000,000 (USD) using leverage 200:1.
Easy Access
With the development of Internet this sector of the financial markets becomes easily accessible and attractive for the investors of different levels.
Commission Free Trading
FIBO-FOREX.LT charges no commission or additional transactions fees to trade currencies online or over the phone. Combined with the tight, consistent, and fully transparent spread, FOREX trading costs are lower than those of any other market. FIBO-FOREX.LT is compensated for its services through the bid-ask spread.
Instantaneous Execution of Market Orders
On the FIBO-FOREX.LT Trading Platform, traders execute directly off real time streaming prices. There is no discrepancy between the displayed price shown on the platform and the execution price to enter your trade.
Short-Selling
Unlike the equity market, there is no restriction on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no bias to the market. Hence, a trader has an equal access to trade in a rising or falling market.
Diversification
Portfolios composed of equity and fixed income instruments lack sufficient diversification. Investing in FOREX reduces portfolio risk and enhances returns.
Import/Export
Importers and Exporters can exploit foreign exchange rates and lock in higher profits by making well-timed transactions.
Hedge Foreign Currency Risks
Protect your revenues from foreign currency transactions by hedging against exposure to adverse rate movements.
third section : Guide To Treading
1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it, set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade.
2. Let your profits run: Do not be emotional about a trade, you will lose some and win some – just know it. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan, move your stop loss as the market moves in your favor and let your profits run.
3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind, learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.
4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. For instance, if you deposit USD 25,000 your maximum loss should be USD 2,500 on a margin of 5% and a EUR 100,000 minimum trade that works out at about 2.5 figures or 250 pips (on a EUR/USD trade) as a maximum. Normally trade with a stop loss of under 50 pips and a maximum stop loss of one-figure or 100 pips and trade sizes of 100,000 to 200,000 base units (the leading currency), thereby risking substantially less then 10% and more like 2-5% of the deposit on hand. You might want to start small and increase your trade sizes as your confidence grows.
5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips, For if you do you’ll make more a lot more successful deals then unsuccessful ones, but the poor ones will ruin any your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.
6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit, for example you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.
7. Trending or Neutral: Learn to analyze the market; is it a trending market or a neutral market? In a trending market then follow the trend in a neutral market buy on lows and sell on highs as long as you use stop-losses you are controlling your risk.
8. Don’t fight the trend: Don’t try to buy on dips and sell on highs on a trending market. The old saying "the trend is your friend" is a good one, why fight it go with it!
9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time, however if it's wrong, the short-term traders should realize that they traded incorrectly, they should take the loss and move on. There is not much room for pride in short term trading. You should never add to a losing position.
10. Chasing a bad idea: Happens all the time, you see a potential trade - decide to wait till the next day to see if it sets up, when you see that it did exactly what you thought it may be too late. Review your reasoning for the trade, make sure your initial reason is still there if not forget about the trade. There will always be trading opportunities be patient and strike.
11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts too within a short moment) is already built into the price of the cross. You should know what indicators are coming; particularly the majors and you should know what is already anticipation by the market. There are many publication of market anticipation for major indicators.
12. Trading - a game of probabilities: You will not be correct 100% of the time, it’s a fact. Good experienced traders roll know this, it’s a numbers game, and you’ll make some and lose some the idea is simply to win more than you lose, not to catch all the fish in the pond. Understand trading is a game of probabilities and if you do the right thing in the long run, you will come out ahead. Learn from mistakes, when you start trading you may well lose more in the beginning than you make, think about what you did wrong, try not to be emotional about the trades, if you stick to your game plan and learn hopefully your profits will out weight your losses.
13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive have a plan, this way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases work for you, look for them and trade those.
14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out, then reevaluate and decide once more.
15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break, something isn’t working, go away regroup, don’t be afraid to take a break.
16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas, you should always know why your in the trade.
17. Have Fun: Enjoy what you do, keep calm, stay as unemotional as possible - you will be more successful.
Chapter Two : The Technical Analysis
there are many ways of the technical analysis i will illustrate just one strategies here :
Using Fibonacci to determinate market goals :
Part I: Introduction
Leonardo Pisano, better know as Fibonacci, explained the development of natural growing phenomenon through his famous numerical sequence. He proved that this series was highly connected with the growing of dynamics structures, and the most important use is relationated with its ratios.
The objective of the present work is to demonstrate that the application of these rules, have an important probability of success in financial markets, and principally in FOREX.
We start with the premise that the human society is a dynamic system, and its behavior is represented in financial markets through prices.
That is the reason why we will try to prove that there is an important probability to predict the behavior of prices in Forex, joining Fibonacci numbers with Zig Zag Oscillator.
So, we will try to determine the objectives zones, or where the prices tend to go using Fibonacci. We will study the prices corrections against the major trend.
The Method: Fibonacci, and his legacy
In the beginning, we start using the most important correction ratios discovered by Fibonacci. These ratios came from the famous Sequence.
Many contributions were applied to mathematics science by Fibonacci, but the most relevant discover was denominated by the French mathematician, Edouard Lucas, as Fibonacci Sequence in the XIX Century.
The sequence. Properties and principal characteristics
This sequence is a rule that explain the development of natural growing phenomenon. Formed by adding the last two numbers to get the next one.
The formula is:
The Fibonacci Sequence is: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, etc.…
Fibonacci proved that this sequence could be found in the evolution of many natural phenomenons. He used as example the rabbit reproduction process. He wanted to know how many rabbits will be born in a year, knowing that:
- A couple of rabbits could birth since the fist month, but the others couples just can do it since the second month.
- Each labor brings two new rabbits as result.
If we suppose that any rabbit die, the process will be the like this:
- In the first month there will be born two rabbits. So, we will have two couples.
- During the second month, the initial couple will born another couple, and then will be three pair of rabbits.
- In the third month, the initial couple, and the second one, will produce new couples. Then, there will be five couples.
Continuing with the present analysis, we could see in the next table the results of the rabbit’s couples forming the Fibonacci Sequence.
Despite all this, we find the major utility of the sequence in these fundamentals properties:
- If we divide two consecutives numbers, 1/1, 1/2, 2/3, 3/5, 5/8, 8/13, etc. We could find that the results tend to 0.618.
- If we divided two non consecutive numbers from the sequence, ½, 1/3, 2/5, 3/8, 5/13, 8/21, etc. We could see that the result obtained tend to 0.382.
- If we calculate the division between any numbers of the sequence to the next lower, 21/13, 13/8, 8/5... the results tend to 1.618, which is the opposite of 0.618.
- If we calculate the division between any numbers of the sequence to the higher low non consecutive, 21/8, 13/5, 8/3... the results tend to 2.618, which is the opposite of 0.382.
E.g.; 144 / 233 = 0,618 144/89= 1.6179
The ratio 1.618, or the opposite 0,618 were denominated by the Old Greeks “Golden ratio” or “golden section”, and they are represented with the Greek letter phi, referenced by the greek author, Phidias. Chirstopher Carolan mentions in his book that Phidias was the author of the
This ratio, who’s opposite is the same number more the unit, characterize all the progressions of this kind, where ever it is the initial number.
The most important ratios are 0,618 and it’s opposite 1,618, but not the only ones. We can continue on the ratios derivation of the Sequence, just increasing or decreasing the distance between the Fibonacci numbers.
So, each number is relationated with the higher next trough the 0,382 ratio, and with the lower next with the opposite ratio, 2,618.
E.g.: 144/377=0,3819 144/55=2,618
In the same way, the division between a number and the third next, bring as a result, 0,236, and the proportion between a number and the third lower next is 4,236.
E.g.: 89/377=0.236 144/21=4,238
The same occurs with 0,618 and 1,618, these ratios are more exactly, when we use higher fibonacci numbers. The next table shows some examples:
| | |
| Ratios de 1,618 | Ratios de 0,618 |
| 1,618 2 = 2,618 | 0,618 2 = 0,382 |
| 1618 3 = 4,236 | 0,618 3 = 0,236 |
| 1,618 4 = 6,854 | 0,618 4 = 0,146 |
Carolan emphasized that the Fibonacci ratios could be order as follows: 0,146, 0,236, 0,382, 0618, 1, 1,1618, 2,618, 4,236, and 6,854. Then we could find and additive sequence with the properties of the Fibonacci Sequence, because each number is the sum of the immediately two before, and moreover, each number is 1,618 times the number before.
The verification of the Fibonacci Sequence in many real phenomenon’s, makes lots of people decide to study the relationship between these mathematics of nature and the behavior of the financial markets.
May be this is the most curious and captivating, so it has be proved that the Fibonacci Sequence appears in nature, forming physical structures and defining the process of chance of this dynamics structures. Many authors have mentioned this concept in theirs books.
At the end of XIX Century, a botanist calls A. H. Church, had discovered, studying the sunflower the presence of Fibonacci. His seeds are arranged around the middle in 89 curves, turning 55 of these in one direction and the others 34 to the opposite direction.
From here, the botanists have found Fibonacci numbers in different pieces of Nature. For example, the margarita forms spiral model similar of the sunflower in the middle of his flower. There are also many varieties of flowers where the numbers of petals are Fibo numbers.
A mathematician from Arizona University, Alan Newell, and his pupil Patrick Shipman have been studying recently the cactus to determinate the reason why this numeric pattern is universal. These researchers analyzed the form of this plant, his skin size, and another biomechanics that surge in his growth. When their introduced all of the data in the computer, found by surprise, that the more stable configuration followed the forms based of the Fibonacci Sequence.
We can find other applications, for example the spiral that many trees developed in their branches; the number of little branches in a big one, and the follow of the same vertical is a Fibonacci number, if we use to calculated one of the to branches.
The Fibonacci numbers appear also, in the human body. The men have five appendixes (two arms, two legs, and a head); each arm and each leg are divide in three parts, ending each of them in five appendixes (five fingers), divide each of them in three little phalanx, except two of them which have just two. In the same way, the head has three outstanding characteristics (two ears and a nose), and three inlaid characteristics (two eyes and a mouth). In the end, the human body has five physical senses: sight, ear, sense of smell, taste, and touch.
”The human body presents the golden number or phi”. Leonardo Da Vinci, in his famous picture, the Vitrubio man, illustrated the Luca Pacioli book “Divine Proportion” edited in 1509. This book, describes witch must be the proportion of artistic creations. He proposes that a human figure where each part of the body must respect a specific proportion to be harmonic. This perfect man, for Pacioli, is based on the following mathematical calculation: the high of the men, (side of the square) divided the distance between the navel and the extreme of the extended hand (circle radio), represents the divine number.
Also, many animals body have a trunk and five appendixes, (head and four legs); birds have 5 projections too: a head two legs, two wings.
Fibonacci is also present in music: see for example the piano. The division of the keyboard in scales of eight white keys and five black ones; the black keys are distributed all along the keyboard in groups of three and two. A complete keyboard has eleven scales, and could have one more key, meaning 89.
The chords that allow us to identify any tone are formed by the first, third, fifth and eight note of the scale.
Since professors Church and Hambridge, the interest on Fibonacci numbers by many researchers end in the creation in 1963 of the Fibonacci Society in California, formed by mathematics, witch main objective is exchange ideas and stimulate research on Fibonacci’s relationship with nature.
It has been proved that the Fibonacci sequence is highly connected with the progressive development of dynamical structures, an as society is a dynamical system, human history could be running according to this Nature Law, based on the proportion 3-5 or 0,618; if we add to this concept, the idea that financial markets are the reflect of mass behavior, we can conclude that Fibonacci sequence could be applicable to those markets.
In the next session based on these concepts, we will develop a model to prove the proposed objective on this work.
art III: Application in the Objective Market
Wednesday, June 14, 2006 12:25 PM GMT
by Facundo Molina
Definition of the sample
Once chosen the objective market, the study was focused in 4 (four) currency pairs, in the Forex International Market.
In order to make it as objective as possible, the study was based in those pairs with higher volume trade in the Forex market, because they accumulate the 85% of the daily transactions.
- Pair EUR (Euro)/USD (United States Dollars)
Since it’s apparition in December 1999, the Eur, soon replace the German Mark, and becomes the second currency in the world, getting day by day more importance. The strength of EUR is based on the power of the European Economic Community, no matter how many political factors may affect it. - Pair GBP (Great Britain Pound)/USD
It was the reference currency till Second War, and most of the transaction involving it. Took place in London, the biggest international market regardless his small volume during American market sessions. - Pair USD/JPY (Japanese Yen)
This is the third currency trade in the world, making market liquid 24 hours a day. Notice that oriental economy moves according to Japan, and so, Yen is very sensitive to oriental agricultural production, technological factors, salaries and NIKKEI. - Pair USD/CHF (Helvetic Confederation Franc)
This is the other European currency not included in Eur or G-7, but at the same time, it seems favour related to politic uncertainly of the European Community. Practically, we can say that Swiss Franc moves almost the same way that EUR in relation with the USD.
Sample: scope
This work was developed based in the following time frames, because they represent a prominent quantity of subjacent quotation time, and allows reducing “noise”, in short time:
- Daily sessions: 24 hours of transactions or quotations. We use it to deeply analyze the trend in Medium Term (weeks) and Long Term (months).
- 4 (four) hours sessions, that gives us more detail of temporality, due to in a 24 hours day trading there are moments with higher transaction volume, like the opening or close of the biggest world financial centers (Tokyo, London, Frankfurt and New York).
Anyway, we invite the readers to extend this analysis to sessions with more or less duration, where you can find similar results.
Field work
Once introduced Leonardo Pisano and his invaluable contribution to science, we will stop at his more important ratios, specifically in the target zones created because of them.
Based on what we can see in financial markets, there are retracements or backward movements in a certain percentage. According to Fibonacci, in a strong tendency, a minimum retracement generally address in its first impulse to the zone of 23.6% of the rally; and in case this zone is broken, the quotation usually goes to the zone near the 38.2%, then to the 50 % zone, and in a weaker tendency, the maximum retracement could reach the 61.8%; but if this point is broken, the quotation will continue to a point not consider by Leonardo Pisano, but very important to remark, because of the results given in our diary work, the 76,4 % to finally reach the 100 %.
Once the quotation runs over the 100 % retracement, and confirms that point, we can suppose that the dominant tendency has changed, and price will look for other objectives, that according to Fibonacci, will be at first place the 161.8%, then the 261.8% and finally the 423.6%.
In Table 2, you can see Fibonacci ratios, coming from the division of each number of the numerical sequence he developed by the one before it.
Now we propose combine the price Fibonacci retracements with the Zigzag Oscillator, in a major defined trend, to corroborate the accomplishing of the target quotations.
The popularity and use of Zigzag oscillator are based in three main characteristics: is a good “noise” filtering; it represents the main trend clearly, and is a simple indicator for the market price final interpretation.
However, this oscillator has as main disadvantage his natural dynamic: the last line of its draw marking trend could be tricky and needs confirmation.
It works simply presenting the major movement by connecting picks (high prices) and depressions (low prices) with straight lines.
The inclination parameter of the slope in the specific quotation specifies the percentage that this price has to move to draw a new line or Zigzag line.
Its formula is:
ZZO= 100 * (CL-BASE)/BASE
Where base is the initial price (maximum or minimum) or the Zigzag leg
CL or Last Closing of the before session
This oscillator filters the changes in the subjacent chart, smaller than the quantity specified in the inclination parameter of the scope. It only shows significant changes. The minimum price movements are fixed as percentages, and could be based in close price, or in maximum/minimum ranges.
For example, the Zigzag established in a 10% respect to the OHCL (Open-High-Close-Last) candles, will draw a line that will only change direction if the changes between maximum and minimum exceed the 10%. This means any smaller variation will be ignored.
Then, after we defined the system used to calculate the bullish or bearish rallies objectives, through Zigzag Oscillator, we start the empiric confirmation of the information for each pair under study, main subject of the next session.
Part IV: Model's description
Wednesday, June 14, 2006 3:33 PM GMT
by Facundo Molina
Firstly, I whish to remark that the different Technical tools named in this work, were used to make diagnostics about the probable price behavior, find the triggers (sell price and buy price), and to calculate the stop loss, and the price target, every day since more than a year.
Well now, to develop this work as objective as possible, and get rid of all subjective coming from trader criteria, in order to apply the concepts developed above, we use a simple Microsoft Excel model, where we try to find, in historical data the accomplish of this system objectives.
The population defined for each currency pair under study, could be seen in the following tables:
EURUSD:
CHFUSD:
GBPUSD:
YENUSD:
Step 1
Using Metatrader trading platform, V 4.00, we are able to see the currencies prices in real time. This system allows us to see the different quotation charts of all majors currencies in Forex and besides, the quotation of NYSE most important stocks, and gold.
This application not only let us see real time quotation, but also keeps historical record of each pair in it’s different time frames.
We proceed to isolate a significant number of records (sessions) in a continuous time serie: date (and hour, in the case of 4 hours sessions) maximum price of the session (HIGH), minimum price (LOW), opening price (OPEN) and close price (CLOSE or LAST PRICE).
o LAST PRICE).
Ex.: EUR/USD, Dialy
Then we proceed to apply the Zigzag oscillator in the chart, in order to identify the bullish or bearish rallies, their end and duration for each studied session. In the case of bullish rallies, we take the minimum price of the session (low) as start, and the maximum (high) as the end. This last one, becomes the next bearish rally beginning.
To explain the graph analysis, we choose a random set of time for EURUSD quotation, and applied the ZigZag oscillator.
In the following chart of a week session (Chart 4) you can see a bullish rally that starts on 09/03/2003 with a minimum price at 1.0762, that ends on 12/30/2004 at 1.3665 USD dollars against Euro.
Chart 4
To this bullish rally of 2903 basic points, we apply the ZIGZAG oscillator (red line) showing 3 trend lines:
The first one bullish till 1.2930 day 02/19/2004, second bearish until 1.1759 day 04/26/04 to finally return the bullish trend with it’s third leg.
After isolating the major trend, in this particular case for week sessions, we start analyzing the currency behavior inside it. That’s why we apply the ZigZag oscillator to a 1 day chart (next inferior time frame) in order to find out through charts the minor trends or sub trends, and it’s corrections.
Then we proceed to isolate the first week dominant trend (Chart 5) starting at 1.0762 ending day 02/18/2004 at 1.2930 in the maximum of the session. When we apply the ZigZag oscillator, we found out 5 sub trend lines: 3 bullish (A1, A3 and A5), and 2 bearish (B2 and B4).
Chart 5
According to what we say before, we can see that A1, A3, and A5 are minor bullish trends that correspond with the major one, while B2 and B4 are just price corrections.
Continuing with the model development, we put together the tables for each currency under study, where we list every price rally, showing it trend: Bullish or Bearish and the start and end price. In the particular case of EURUSD, daily session we came out with the following results.
Table 8
As you can see on table 8 the Number 2 rally, starts on day 05/18/1995 at 1.3380 dollars per Euro, and ends the day 05/26/1995, with a maximum price of 1.4235. This rally last 7 days, or 168 hours and represents 855 basic points.
Step 2
Afterwards, we move the following fields-data to a new table: minor rally number, start price, end price, duration (in hours), and the distance in basic points or pips.
Then, we move the major trend direction to the new table, came up from the application of the Zigzag Oscillator to the major period under study.
After the legs of the ZigZag were found (bullish and bearish rallies), we apply the Fibo’s ratios at any leg (“zig” or “zag”) that coincide with the major trend (In this case, Week), and so, we check if effectively the price retracements will go to the Fibo’s zones, or zones define by this special numbers.
Beginning with the graph example, where it explains the Zig Zag application, we continue the main analysis with the objective of verify graphically the behavior of the Fibo’s ratios in the retracements.
Inside the major trend we isolate in Graph 5, we proceed to apply the ratios of Fibonacci to the bullish rallies A1, A2, and A3.
In case of Rally A1, we take the complete distance from its minimum price at USD 1.0762, to the end at 1.1862 dollars per Eur. Then, we apply the Ratios of Fibonacci trying to see where the prices go after have reached the peak, and started the retracement.
In case of the bullish rally A1 with 110 basic points, and applying the Fibonacci Retracement ratios, we calculate the price for any ratio, trying to find the possible zones where the quotations could stop, so:
Looking at graph 6, and after the price retracement have begun, in opposite direction of the major trend, the price goes to the 23.6% zone. Firstly, the price couldn’t break this zone, and start to reduce the speed, and begun a change direction turning bull. This change is not considerer by the Zig Zag Oscillator, because the slope is lower than 12%.
After the price stops, it moves to the 38.2% zone, where its value is USD 1.1442. According to the results of Zig Zag Oscillator, the quotation stopped in an intermediate zone between 38.2% and 50%.
Secondly, we study the Rally A2. This rally begin after the B2 retracement has finished, at USD 1,1375 per Eur, and finishes on 01-12-2004, with a price value of 1,2900 dollars per Eur (Graph 7).
Besides, we apply again Fibonacci’s retracement ratios, to know the possible quotation behavior,
In this case, we can see a price retracement with a minimum value at 1.2334 dollars per Eur, near to the Fibo’s ratio, 38.2%. After that, the quotation rebound, and continues with the dominant trend.
Finally, and following with the bullish trend on Rally A5, the price goes to 1.2930 and change later the dominant trend, as we can see in graph 5. To confirm a change of the dominant trend, the retracement must be more than a 100% of the last rally, in the present example the price need to break 1,2317.
Continuing with the Statistic Analysis, we calculate the price values of any currency pair under study. In this example of EURUSD, you can see them in the next table:
As you can see in Table 13, the Bullish rally number 4 begins at 1.3836 dollars per Eur and ends at 1.4249. We apply the Fibo’s ratios, and we obtain the corresponding prices. For example, for ratio 23.6% the price is 1.4152 dollars per Eur. In others words, once the quotation rebounds at maximum USD 1.4249 per Eur, should go back to the first target of USD 1.4152.
Step 3
Once the prices targets for any rally were obtained, we proceed to probe the objective success of the system. Previously, we define 3 scenarios, or zones around the price, and test the truthfulness of the retracements go to these values or zones.
Each zone was defined with a percentage of the rally distance (zig or zag). For more information, we refer that we select the complete rally of the leg of the Zig Zag under study, for example: 100 pips, and if the price goes to the zone defined in more or less 7,5% (in this case in more or less 7,5 basic points) of the Fibonacci’s price, so the propose target is accomplished.
The scenarios are:
- 15% Zone: +/- 7.5% of the total rally, above the Fibo’s price.
- 20% Zone: +/- 10% of the total rally, above the Fibo’s price.
- 25% Zone: +/- 12.5% of the total rally, above the Fibo’s price.
Then, using the logical formula, we try to prove if the retracement of the price will go into the define zone.
In case that the final price of the next rally (mean the retracement), go into the Fibo’s define zone, the logical sequence is True, and so, successful. In the other hand, is False, and do not achieve the target.
Step 4
Finally, we proceed to calculate the number of retracements which go to the objective zone inside the dominant trend. In the present example, where we analyze the behavior of the currency pair EURUSD, Diary, we obtain the following results for the 15% zone:
As we see at table 14, we obtain a success of more than 70% of the propose objective. We refer that the retracements go to the Fibo’s price zone, when the minor trend correspond to the major. Meanwhile in case that the minor trends have different direction to the Major ones, the Fibo’s ratios have not got a significant success.
Thank you very much to all readers for continuing the interest till the end. We want to invite you to see the final part where we offer the investigation results, and the final conclusion
Final Results
Then, and based on the model developed to prove the original hypothesis, we came to the following results:
Pair EUR/USD:
Pair USD/CHF:
Pair GBP/USD:
Pair YEN/USD:
If after finishing this job, someone ask me if it is possible to predict the future, mi answer will still be “NO”. I don’t believe that could be, in fact, I don’t believe either we can predict what will happen in the next minutes…
Although this seems the opposite of the objective of this work, I personally want to remark the difference between one thing and the other.
As a technical analyst and according to what was explained above, I maintain technical analysis postulates, and use them with statistics and mathematical tools, to forecast probable target price zones.
And here is the difference: in one hand, you have the certainty, in the other the probability. I personally believe there is no complete certain of what will happen, but using some specific tools, you can determinate probabilities in a defined scenario.
We use mathematic and statistics tools to analyze hundreds of data in order to prove the objective of this work.
That’s why we can affirm than more than 70% of the times, using Fibonacci retracements and ZigZag oscillator, we can determinate the target zones where prices will go, when they show retracements against major trend.
As a conclusion of this work, we propose to you to use Fibonacci tools in intermediate time frames, in order to obtain better results in markets with a defined trend, excluding moments of excessive volatility, but with enough price fluctuation, becoming and excellent tool for short term technical traders.
Finally, I want to invite you all to extend the application of this system to smaller time frames, and to the rest of the currencies in FOREX Market, and also, to other markets, such as futures, options, or any stock market.
Last Chapter : Some Forex Companies And Programs
1) ifcmarrkets { http://www.ifcmarkets.com/ }
advantages :
1. own trading platform with new possibilities for the clients.
2. Trades possible of any volume beginning from $100.
3. Trading with fixed prices.
4. Automatic execution of the orders.
5. Possibility of opening two opposite positions.
6. Fixed spread from 3 points for all account types.
7. Possibility of opening account within 10 minutes from any part of the world.
8. Money withdrawal through the terminal without filing special separate requests
9. Language support by telephone, internet chat, e-mail.
program : download from here
very good program with many options. it is helpful program
2) marketiva { http://www.marketiva.com/ }:
very good company with many helpful resources and its program is simple and powerful
download program from here
3) avadorex {http://www.avafx.com}
advantages :
· Demo Account: Practice on our demo account, all the live features are available on our robust full-featured trading platform – with all the same features you would find on our live platform.
· Full Streaming Rates: Up to the second flowing executable exchange rates 24-hours a day.
· A wide range of currency crosses to choose from.
· No Costs whatsoever.
· Leverage Trading: Clients can trade with a leverage of up to 200:1 – that means a greater opportunity to profit.
· Orders: Trade professionally with single-click market executions, or with double-click market trading. Place Stop-Loses, Limits, O.C.O's and more.
· Charts: Professional charts, easy to use, updated instantly, the ability to save multiple charts on separate worksheets.
· Technical Analysis: Use the various technical indicators to help with your decision making, a wide variety of indicators are available.
· Updated Economic Calendar and Analysis: Follow the economic announcements, know when they are and what they are, and use the Ava FX's daily commentary and analysis to stay ahead.
· Service – Simply speaking, we are here for you, service is key and we deliver; our 24-hour staff is always available for any question or request.
excellent site with a lot of recourses
excellent program .
4) fxsol { http://www.fxsol.com/ }
excellent company for beginners with excellent real values in virtual market
my advice for all beginners this one is the best
download prodram from here
download FX accucharts from here
really it is the best one for beginners
with my best wishes to all
(more info will be added soon)
Learn Study Practice Then start
Learn Study Practice
Then
start
