ForexGen studies past price and volume changes in order to build up simulations on future price movements. ForexGen's analysts mainly make use of charts and financial formulas to gather enough information used in technical price speculations.
Fibonacci technical analysis is based on the fibonacci numbers and the golden ratio, which exhibits itself in the nature and seemingly, in trading charts.
There are many ways in which fibonacci numbers are used in technical analysis.
For example, many who use the fibonacci levels calculate them through drawing of a trendline between two extreme points (top/bottom) of a price movement and then dividing the vertical distance by Fibonacci ratios of:
- 61.8% and
These levels provide levels of either resistance or support, depending where the current price is in relation to the fibonacci level.
If, in a bearish trend, the price is dropping towards a fibonacci level, the fibonacci level acts as a resistance and any fibonacci level above the current price acts as a support level.
On the other hand, in a bullish trend, if the price is rising towards a fibonacci level, the fibonacci level acts as a resistance level to the price movement and any fibonacci level below the current price acts as a support.
In trading, those technical analysts who use chart reading based systems often focus on levels such as those from fibonacci, and see how a test of the level goes before making further decisions on how to invest.
A fibonacci resistance, for example, often provides a chart pattern of a 'double top', which to those using chart reading technical analysis may refer to a trend reversing pattern.
The fibonacci levels are calculated from historical price trends. It is up to the trader to decide which historical trends to use for the fibonacci levels.
Most traders recommend that you are consistent with the use of data on drawing the levels, meaning that you stay consistent on your usage of daily, weekly, or monthly, or intraday data, as an example.
One can also use the ongoing price movement as the basis for drawing the levels, where the two extremes are the bottom of the trend and the most recent top.
Some have dismissed anecdotal evidence of how price movements often seem to stop at fibonacci resistance and support levels as evidence of self-fulfilling prophecy, as the fibonacci method is one of the most popular ones available, and one of the easiest to use.
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