FOREX TRADING

In all the good trading books, it always mentions that you should make detailed records, mainly for yourself, but also for tax purposes. What they never seem to do is go into any detail regarding analysis.

The goal and aim of a profitable trader is to constantly improve himself and make him the best he can possibly be. To do this, you need to analyse your trading results and then take action to constantly improve them!

One of the most misunderstood and not very useful statistics is the ratio of winning trades to losing ones. This is what most people who are not traders, will ask you, thinking that if you win more than 50% of your trades, you must be doing well.

The reason it is not a true reflection of your trading capability is that on average, you may lose eight out of ten trades, but still make money. If your risk and money management are good, and you do do this, you could be losing around 10 pips on each losing trade, but making around 100 pips on each winning trade. Now you can see that an ‘eight out of ten loser’ may actually be considered a good trader!

A better gauge would be to calculate your ‘average winning trade’ (The number of pips / number of winning trades) and conversely, your ‘average losing trade’ (The number of pips / number of losing trades). If you now subtract the losers result from the winners result, you will see the difference. If this is negative, you are not making money and need to revise your strategy! – This is the most useful and general guide to your trading profitability.

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Fibonacci, Actually named Leonardo of Pisa, was born in Pisa, Italy about 1175 A.D.. Today, he is recognized as the greatest European mathematian of the middle ages. Fibonacci is credited with introducing the Arabic-Hindu numeral system to Europe. He also introduced the decimal system. Both became the basis of mathematics we use today. Enough background for now.

Although Fibonacci covered an entire realm of mathematics, the main numbers used in trading are actually percentages. The percentages are 38.2%, 50%, and 61.8%. These areas are viewed as trend retracement points. The most commonly held theory is that a 38.2% retracement of a trend is a failed reversal and the overall trend should continue. A retracement to the 61.8% mark signals that the retracement is the beginning of a new trend. The 50% level is used for different strategies if confirmed by several other signals

The use of Fibonacci numbers in trading has become increasingly popular in recent years. It does not take long when looking at charts to see several examples of Fibonacci tracements. On numerous occassions I have watched analysts making market predictions on T.V. shows. I will often check the charts about what they discussed. Some of the predictions for new price levels are dead on Fib. retracement numbers.

Fibonacci numbers, as with all technical indicators should not be used by themselves. They should be combined with other indicators to make a complete system to trade with. I do believe that Fibonacci numbers should be a part every traders list of indicators. They do seem to be extremely accurate, This could possibly a self fulfilling prophecy. If enough people believe it, they will cause it to hold true.

In any case, if you do not currently use them, you may want to look into it.