Fibonacci Analysis and Elliott Waves Theory

Fibonacci Analysis and Elliott Waves Theory are two commonly used technical analysis tools in the foreign exchange market.

Fibonacci Analysis:

Fibonacci Analysis is a tool that is based on the Fibonacci sequence of numbers. The Fibonacci sequence is a series of numbers where each number is the sum of the two preceding numbers. The sequence starts with 0 and 1 and continues indefinitely. The sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, and so on.

In Fibonacci Analysis, traders use the Fibonacci sequence to identify potential levels of support and resistance. The most commonly used Fibonacci levels are 38.2%, 50%, and 61.8%. These levels are calculated by dividing a number in the Fibonacci sequence by the number that follows it.

Traders use Fibonacci levels to identify potential areas where the price of a currency pair may reverse or consolidate. When the price of a currency pair approaches a Fibonacci level, traders will often look for other technical analysis tools or fundamental analysis to confirm their trading decision.

Elliott Waves Theory:

Elliott Waves Theory is a tool that is based on the concept of wave patterns. According to this theory, the price of a currency pair moves in a series of waves. There are two types of waves: impulse waves and corrective waves.

Impulse waves are the larger waves that move in the direction of the trend. There are five impulse waves in an uptrend and five impulse waves in a downtrend.

Corrective waves are the smaller waves that move against the trend. There are three corrective waves in an uptrend and three corrective waves in a downtrend.

Traders use Elliott Waves Theory to identify potential areas where the price of a currency pair may reverse or consolidate. When the price of a currency pair completes an impulse wave, traders will often look for a corrective wave to follow. They will then look for other technical analysis tools or fundamental analysis to confirm their trading decision.

It’s important to note that both Fibonacci Analysis and Elliott Waves Theory are subjective and require a lot of practice and experience to use effectively. Traders should also use other technical analysis tools and fundamental analysis to confirm their trading decisions.