Like, why does price seem to bounce off the 50 or 61.8 fib line? What is the root cause for that price activity?
To someone with no idea what is behind the market, they believe that the fib line will be respected because it was respected maybe 58% of the time in the past 5 years of back testing, or whatever. All of their research tells them that every time these certain conditions were met before, price behaved kind of similar. Similar enough that it should do it again, right? I think this is the extent some traders go to of figuring out why there trades succeed or fail. Which is to say they really have no idea either way. If it succeeds, they think it is because the probabilities were in their favor. If they fail, they think it is just all part of their distribution curve, and take no responsibility.
Why is a fib line REALLY respected? Well, order flow.
Order flow effectively explains every single market movement. This is not to say that any individual order flow trader knows exactly what will happen or even has happened every time the market moves. But you can guarantee that some one out there does. Therefore the only way a fib line will actually influence the market is if enough traders are trading it to create the sufficient amount of order flow to move the market. Notice I said nothing about price simply bouncing off of the line. Price not not need to behave like it is "supposed to" for it to be influenced by something like a fib line.
Let me explain. You also must consider that if there is that much order flow built up at a fib line, there are other (probably smarter) traders who really know whats going on and are anticipating what the probability based TA traders will do. Therefore price will respond in a way that will most likely shake out as many of the fib traders as it can. Honestly I would guess that a scenario like this is a rare one, because I doubt a fib line creates this much order flow. Why? Simply because your fib line is different than mine (replace fib with almost any TA tool, even trendlines and S/R). TA traders are most likely very spread out, especially on shorter time frames.
When TA matters the most is when it is very clear on a larger time frame. Most TA traders agree with this, but at its core it is an order flow philosophy. A higher time frame signal gives traders more time to notice it, it is more obvious, talked about and built up over a longer time span, allowed to build up bigger positions, etc... The bottom line is that it attracts more orders. At this point consider my paragraph above this. Blindly trading probabilities will not allow a trader to even consider that fading their precious fib line might be exactly what other traders want them to do...
Now I know that a fib trader could come on right now and post 15 charts of where price bounced off of a fib line to the pip. I have always been disgusted with this because price will most often turn around for very different reasons, and when it does the chance it will be close to any of the 5 (or whatever) damn fib lines is just too easy. When there is a fib line every 15% of a move of course it is going to look like price bounced off of it!
So an order flow trader can use fib lines to his benefit, but will do so way differently than a TA trader. THAT is the difference between a probability mindset and an order flow mind set. When you consider the participants in a market and how orders are worked in and out (ie microstructure), you view something as simple as a fib line completely different. And it is that difference that might allow you to take an extremely low risk trade at the cost of hundreds of other retail traders. That is how you win.
Damn, I feel like there are other points I want to make, but I need to head of to work (
). I might elaborate later if I need to.EDIT: Son of a bitch! I wake up every day an hour before work to catch up on what the markets did overnight. This morning I spent that damn hour writing out this post. During that time I missed a perfectly good trade because I was not paying attention. This really pisses me off.
All I ask for is a chance to prove that money cannot make me happy.
Anyway, my disagreement were more nit picky, and not even worth debating I am sure, espescially in light of recent posters. 
