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Akuma99 Dec 1, 2007 3:57pm | Post# 1

Why Fibonacci Retracements are Bullocks
Ah fibonacci retracements, there isn't a day that goes by where I don't here some analysis claiming xxx/xxx is heading north due to a fibonacci retracement here and a fibonacci retracement there, and like most I followed the masses, trod the same well worn path and threw fibonaccis around on my chart like they were going out of style.

Only thing is, to me there are much more logical explanations as to why price is turning then the mathematical phenomenon that is fibonacci in nature applied to price. I could go into a thousand words on the topic, but I'll let pictures say those words for me.

Let's look at the current pound charts for the most recent 4H upward trend (always shows the best retracements). I'm sure there are many places around the web claiming the beauty of fibonacci retracements with a chart similiar to this:

.. I have a question though, firstly, why, when dealing with retracements we seem to ignore the overshoots, that first black retracement didn't retrace 38.2% at all .. it retraced somewhere around 41.9% ... where is the golden ratio in that number? ... it is the same of all subsequent retracements ... if we are going to claim proportions according to the golden ratio, we can't claim 41.9%, 69.7%, 52.1% etc. are moving to the beat of fibonacci. Am I being picky ... yep most definitely

To me pure logic seems to make more sense to me ... taking the same chart, lets look at each retracement seperately and see if there is another reason other than fibs to explain why price turned:

So did price move because a sunflower is in perfect proportions to the golden ratio, or the egyptians (oh how I could go back to that time) built their pyramids to it ... or because of simple supply and demand? Position protection and liquidation? .. and how do we explain all the other ratios that price shot straight through, what happened to the magic of fibs then? ... to me there is always a more logical explanation.

cgldsmth Dec 1, 2007 4:17pm | Post# 2

the fact that a large number of traders do actually believe in fibs make them a self-fulfilling prophecy. That in large part is how a lot of popular indicators work, just by massaging crowd behaviour

Lou Dec 1, 2007 4:29pm | Post# 3

Let the floodgates open.

fx_amateur Dec 1, 2007 4:30pm | Post# 4

It is very simple: there are people out there teaching all that stuff and producing thousands of fresh would-be traders who believe in fibonacci , stochastics , bollinger bands and god knows what else

Basically there is a very real way to make money with fibonacci: start teaching people how to trade using it

yes , fibonacci is indeed a self-fulfilling prophecy but definitely not on FX as people who move the FX prices don't case about this stuff and people who do care about this stuff don't have enough buying power to move currency price

Plutonite Dec 2, 2007 12:11am | Post# 5

the fact that a large number of traders do actually believe in fibs make them a self-fulfilling prophecy. That in large part is how a lot of popular indicators work, just by massaging crowd behaviour
That's right. The argument then becomes whether it is possible for traders to agree on the usage of something even as simple as this, and in what sort of conditions. If they can't, then fibs cannot be self-fulfilling because there is room for disagreement.

Truth is, nobody really needs fibs if they know how to read price action sensibly -at least in my case. I used to use them religiously, then discovered that I was kidding myself - 61.8 and 32.. simply correspond to "most of the way back" and "some retracement" respectively. I think Darkstar and some other veterans wrote a while back about fibs, in a positive way. philmcrew and Akuma hate them. Life goes on.

This thread is a good way to revivify (did I just say revivify) that discussion.

Mina Dec 2, 2007 2:03am | Post# 6

to me support/resistence is only there if price bounced at that level before I wouldn't give a ^&*(# about a 61% or a 38% fibo if price didn't respect it before but if it did, it's valid support/resistence even if it's called uncle tim's 4287 retracement

on a side note you'll propably notice that a healthy number of this suport/resistence -to my amazement- will coincide with major fibo retracements on the yen (I'm talking intraday)

I mean I won't pull the trigger because a fib exists but rather because price respected this fib before among other factors

piptart Dec 2, 2007 2:51am | Post# 7

Fibos vs Cams vs Classic pivots, et al
Hey, don't knock it! I have found FIBOS to be a solid guidepost to where the market is going....sure its not as "up to the minute" as the MA, BB, MOM, et al, dependent upon your time frame...but double check your figures and you will see a definate correlation on longer time frames. IMHO, the best method as individual investors is by using the same figs and charts that the Big Boys are using....thereby going with the flow and catching the good trades.

tdion Dec 2, 2007 3:57am | Post# 8

Gonna disagree here. It would be true if all fibs were acted on in the same timeframe. But because Bank X looks at fibs on H1, Bank Y on H4, etc.... there is noise....

Not to mention the fundamentals discussed in Post 1. Bravo for this great thread!

the fact that a large number of traders do actually believe in fibs make them a self-fulfilling prophecy. That in large part is how a lot of popular indicators work, just by massaging crowd behaviour

Akuma99 Dec 2, 2007 4:47am | Post# 9

the fact that a large number of traders do actually believe in fibs make them a self-fulfilling prophecy. That in large part is how a lot of popular indicators work, just by massaging crowd behaviour
See I don't agree in that often run out statement (no offense intended cgldsmith) .. I would if price was turning "in mid air" so to speak because so many people were watching the 61.8% retracement, but that's not the case, the aim of the above charts was to show that price was turning not because everyone was watching a "self fulfilling" level, but because there were orders in the waiting and desperate traders from previous trades giving it a reason to turn, all of the above has a prior reason for that level to be a turning point.

Most people hate congestion for some reason, I would suggest to pay more attention to it as it shows when there was a decision being made, and no-one likes their decision being wrong.

styxgroup Dec 2, 2007 4:55am | Post# 10

i also use fibo retrace to defined posible trend line / Price acceleration

Akuma99 Dec 2, 2007 5:22am | Post# 11

The current GBPUSD 4H chart shows what I am talking about as well ... the common fib levels of course are 23.6, 38.2, 50.0 and 61.8, so why were some ignore and some were magically "watched and so self-fulfilled" levels? .. seems to me it's because at the 23.6, and the 61.8 there was no reason based on previous price action, their corresponding levels looking back in time just show a straight run through during the upward move, no indicision, no reason for large amounts of orders to be placed in both directions ... however the 50 and the 61.8 levels both show reasons, the 50 has previous support, and the 61.8 sits right in the middle of all the congestion, the area of uncertainty as I like to call it, of course there are going to be plenty of reasons for traders to be covering or opening new positions there. Again I don't think it has anything to do with fibs.

SeekingLight Dec 2, 2007 6:40am | Post# 12

You can think what you want.

Fibs just like s/r don't rely on on the pip obedience. This topics(fibs don't work, are random, etc) has been discussed to death and why people that don't like them must "disprove" them I can't understand.

Elliot Wave relies on ratios a lot, Traex has made insane % using EW, people constantly reiterate fibs and EW are curve fitted myths.
Well, his trades and % aren't.
I'll go with reality on those two there.

As for what I believe - I believe in a lot of things others don't and I do it because they've worked FOR ME(s/r, TLs, MAs, Fibs, Fib projections/expansions/expansions).
If others can do without them or feel they're no good well hooray, if others still CAN use them and work well with them well hooray again.

Whoever makes money wins, no matter why. Who cares about the "real truth" as long as what you do generates income.

Btw Akuma congratulations on the swing trades(EURAUD, GJ), seems we did an almost identical trade on EURAUD
Really great trading =)

I find it interesting you're also still holding some UJ leftovers ;p

Say, maybe you've got a spy cam in my room somewhere... ;p

Be careful to not let UJ alone erode what the other trades all made.
(Btw, do you have a reasoning and chart discussion for that somewhere? Couldn't see it on the page.)

forexian Dec 2, 2007 9:35am | Post# 13

1 Attachment(s)
If you see some strange price movements on your 1H chart, go back in time (on all bigger time frames) and draw your Fib. retracements and (especially) Fib. Fans and Fib. Arcs, and you will have your explanation! In my attached chart you see GBP/USD with Fibs. from the monthly, daily and 4H charts, and I think it looks very understandable. Some of the Fib. levels in this chart go all the way back to the highs of Oct. 1980 and the lows of June 2001 !

The big FX market movers do observe such ancient Fibs. and act accordingly, whether one consider it a self-fulfilling prophecy, a natural phenomenon, or simply the way traders do their trades, it is up to each one of us to decide. I myself bellieve in the Fibs. because they are present everywhere in Nature, from mountains to plants to animals and even in the proportions of our own human body.

Wish you all a lot of pips!
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Size: 139 KB

ktrade Dec 2, 2007 9:50am | Post# 14

Akuma, good stuff here. It's like Murrey Lines, MA's and timeframes, etc.

How many times do you hear (especially in these mega 30,000 + posts ad-nauseum threads where everyone is using different TF's. MA's, Fundamental nonsense, etc)

"Look how the price is sitting right on my 4hr 100MA blah blah...Look how the price is at my 30M 62% Fib.. blah ...blah...

Yes, we can justify a million different ways ESPECIALLY when it comes to fibs!

It's like Igor always says "Is there really a trend in place or is it that we're making one up because we want to place a trade so badly" ((or sumpin' like that))



P.s. Good to see around Akuma!!

DutchTrader Dec 2, 2007 10:19am | Post# 15

the fact that a large number of traders do actually believe in fibs make them a self-fulfilling prophecy. That in large part is how a lot of popular indicators work, just by massaging crowd behaviour
have to agree with that statement.

JodyOng Dec 2, 2007 11:19am | Post# 16

Imo, we have to ask ourselves one thing. How truly does our charts reflect real market prices? And secondly, I bet we all notice that different brokers have different prices.

But I'm not defending fibs, in fact, my opinion on them is that if you draw several lines on your chart, some of them will bound to be a good s/r point.

PS: Nice to see you back Akuma! Hope you're well and healthy now!

GaPs Dec 2, 2007 11:42am | Post# 17

Hmmm... forexian... i think i can agree with you... is there anybody try to calculate their winning and loosing in their trading? let us try, is our achievement (win&lose) fulfill the ratio of fibs?? if it's true then what forexian said is can be true that the ratio of fibs is 'in' nature...of the universe....

have fun...

MrFuture Dec 2, 2007 3:59pm | Post# 18

Just a coincidence ?
1 Attachment(s)
I like Fibos. I do not thing they are useless, not at all.

Just take a look at this 1HR chart of the GBP/USD.

Obviously, as you can see, you have to use retracements, fans and curves to have a better idea.

I circled in green everytime price stopped at a FIBO level. Just a coincidence ?
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SeekingLight Dec 2, 2007 5:53pm | Post# 19

Hope you're getting better as well(checked out the webpage forum shortly).

billbss Dec 2, 2007 6:45pm | Post# 20

If everyone drew fibs the same way, they might be of value.

I don't believe they are a self fulfilling prophesy because there is no objective, universal standard for drawing them.

You can get any fib retracement you want by selecting different swing points to draw them to and from. That puts them into the tea leaf category..IMO

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