ForexNewsNow – Trading foreign currencies with online forex brokers may appear simple to observers, but it’s serious work – especially if you intend to make a profit. There are so many components that go into making a successful (ie profitable) forex trade: market analysis, timing your entry, timing your exit, no slippage, absorbing volatility, being in sync with the current market trend, stop loss points, trailing stops – the list goes on….
There are many methods to analyze the forex markets including technical analysis, fundamental analysis and pyschological analysis. Traders investing with online forex brokers should be familiar with all three in order to increase their chances of keeping their pip count high and positive.
In addition to analysis, there are many forex trading tools that are available to retail forex investors in order to help determine when and what to trade and how to trade it. This article will discuss a few forex trading tools that can be used with forex trading brokers in order to increase one’s chances of trading forex profitably.
Fibonacci retracement is a term used in forex technical analysis that refers to a way of aiding in the identification of strategic points to enter and exit forex trades based on drawing a trendline between two extreme points and dividing the vertical distance between them by key Fibonacci levels. This forex indicator is based on the sequence of numbers identified by Leonardo Fibonacci in the 13th century which is formed by adding the two previous numbers in the sequence together to the get the subsequent number: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so forth. For more information on Fibonacci retracements, refer to this article.
A Fibonacci calculator helps one compute basic Fibonacci retracement and extension numbers for any foreign currency pair by entering the high and low values for the specific forex pair you’re trading and generating the key Fibonacci retracement levels for that pair. These retracement numbers are intended to give traders an indication of which values the currency pair will find resistance and support in order to help traders decide what points to enter or exit forex trades.
Here is an example of what a Fibonacci calculator looks like and the retracements and extensions it computes:
The Fibonacci retracements are typically most accurate when the markets are trending (either up or down). The idea is to buy a currency pair (go long) at a Fibonacci support level when the market is trending up and sell (go short) on a retracement at a Fibonacci resistance level when the market is trending down. (BabyPips provides an excellent tutorial for Fibonacci retracements here.)
This is only one of many free tools that forex traders can easily access to help increase their forex trading profits when trading with online forex brokers.