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Help with Fibonacci retracement setup.

  • Post #1
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  • First Post: Sep 20, 2006 9:19am Sep 20, 2006 9:19am
Help with Fibonacci retracement setup.

I have read a few threads on Fibonacci retracements, and I am trying to clarify a few thing up:

1. From where to where do I draw the first line. In an up trend, Do I draw from the low of one bar to the high of the other? Or do I use the close of the low to the close of the high? Basically, do I use the real body of the candlestick, or the shadows?

2. How is a low or a high defined? in the case of a high, do the candlesticks on either side have to be lower, or at least equal? opposite when defining a low.

3. How long do you wait to tell if it is an fact a retracement? if it took 8 bars to define the line from low to high, how many bars should the line from high to retracement take? Should I move on if it doesn't retrace in a specified amount of time?

Rusty

- Just a newbe trying to swim in shark infested waters.
Quoting rusty105
Help with Fibonacci retracement setup.

I have read a few threads on Fibonacci retracements, and I am trying to clarify a few thing up:

1. From where to where do I draw the first line. In an up trend, Do I draw from the low of one bar to the high of the other? Or do I use the close of the low to the close of the high? Basically, do I use the real body of the candlestick, or the shadows?

2. How is a low or a high defined? in the case of a high, do the candlesticks on either side have to be lower, or at least equal? opposite when defining a low.

3. How long do you wait to tell if it is an fact a retracement? if it took 8 bars to define the line from low to high, how many bars should the line from high to retracement take? Should I move on if it doesn't retrace in a specified amount of time?

Rusty

- Just a newbe trying to swim in shark infested waters.
Hi there Rusty and welcome to the Factory,

All questions are good ones, I will try to answer them ...

1. The most common usage is to use the wicks/shadows of the candles, i.e. from low to high, or high to low rather than close to close. So your suspicions were correct.

2. You have really answered your own question correctly, a high in the most basic form has a candle before it and after it with a lower high, and vise versa for a low.

3. In terms of time for a retracement, there really is no hard and fast rule, I have not found a quick or slow move changing it too much, although I do encourage you to not ignore time in your trading but that is another matter all together.

I did a very basic tutorial on a blog I no longer keep up to date here:

http://akuma99.blogspot.com/2005/10/...fibonacci.html

Best of luck!

Cheers
Akuma99
You can quit and they won't care, but you will always know.
Quoting rusty105
Help with Fibonacci retracement setup.

I have read a few threads on Fibonacci retracements, and I am trying to clarify a few thing up:

1. From where to where do I draw the first line. In an up trend, Do I draw from the low of one bar to the high of the other? Or do I use the close of the low to the close of the high? Basically, do I use the real body of the candlestick, or the shadows?

2. How is a low or a high defined? in the case of a high, do the candlesticks on either side have to be lower, or at least equal? opposite when defining a low.

3. How long do you wait to tell if it is an fact a retracement? if it took 8 bars to define the line from low to high, how many bars should the line from high to retracement take? Should I move on if it doesn't retrace in a specified amount of time?

Rusty

- Just a newbe trying to swim in shark infested waters.
Hi Rusty
Akuma's reply is spot on, but to see some stuff in-depth, it's worth reading through this thread.
As to Q #3 it also, obviously, depends to a certain extent on the time scale of your charts. Price can drop/rise dramatically during any time frame, but one of the main points is to see what price is doing at the major fib levels, once it gets there. This link will help, particularly on the longer-time frame charts.
http://www.forexfactory.com/forexfor...ead.php?t=2331
Peter
So I seem to be on the right path? That is good.

I set up a retracement on USD/JPY last light, and set up a sell limit order for near the 61.8 level. I'll post the chart later, when I get home. When I woke this morning I found the order was placed, and alredy headed into profit, but when I look at the chart, the price went from the 0 level back up to about 30ish level, then back down below the 0 level, then retraced right back up to about the 61.8 level,triggered the order, and as of earlier this morning (6am EST) it was in profit. I haven't been able to check lately, due to working at my J.O.B. But I am not sure this would be a valid retracement, due to the previous retracement to approximately the 30 level. I think you can have retracements withen retracements, but this one went back below 0 before it came back up to 61.8. What are your opinions on this?

Rusty

- Just a newbe trying to swim in shark infested waters.

ps, anybody know a good screen capture program??
OK, here is that chart I promised.

I set up the first line A - B. It only retraced to about 38 % level, then continued to drop to below 117.05, which would have been my take profit, had the sell order been filled. The sell order eventually got filled at point C, it then dropped a little, then turned around and went slowly back up. Had I placed my order near the 31% level, all would have worked out fine, don't worry this is only a demo account. So did I not set this up right, or sometimes it just goes this way.

Thanks
Rusty


- Just a newbe trying to swim in shark infested waters.
Attached Image
Quoting rusty105
OK, here is that chart I promised.

I set up the first line A - B. It only retraced to about 38 % level, then continued to drop to below 117.05, which would have been my take profit, had the sell order been filled. The sell order eventually got filled at point C, it then dropped a little, then turned around and went slowly back up. Had I placed my order near the 31% level, all would have worked out fine, don't worry this is only a demo account. So did I not set this up right, or sometimes it just goes this way.

Thanks
Rusty


- Just a newbe trying to swim in shark infested waters.
Hi Rusty. Welcome to the Factory.

One thing that I see on your charts, and a lot of other charts posted elsewhere on this forum, is that you are trying to apply precise methods to an inprecise market. As far as I can tell you drew your fibs on a 40 pip move. The difference between any 2 fibs is only a couple pips. A couple of pips is simply market noise. I gave up fibs a long time ago but when I did use them I had an informal rule that I would not draw fib lines on less than a 100 pip move for the same reason I stated above. Even on a 100 pip move the difference between the 50% and 61.8% is only 12 pips. That is well within commonly accepted market noise levels.

The good thing is that if you believe in fibs and they are only 4 pips apart you can always say price touched one.

Phil
Quoting philmcgrew
Hi Rusty. Welcome to the Factory.

One thing that I see on your charts, and a lot of other charts posted elsewhere on this forum, is that you are trying to apply precise methods to an inprecise market. As far as I can tell you drew your fibs on a 40 pip move. The difference between any 2 fibs is only a couple pips. A couple of pips is simply market noise. I gave up fibs a long time ago but when I did use them I had an informal rule that I would not draw fib lines on less than a 100 pip move for the same reason I stated above. Even on a 100 pip move the difference between the 50% and 61.8% is only 12 pips. That is well within commonly accepted market noise levels.

The good thing is that if you believe in fibs and they are only 4 pips apart you can always say price touched one.

Phil
hey this is really good point

i'll try to learn from this
sorry I have a question, hope it's not stupid

when I draw a fib line, I usually match the tip of the wick on the 2 candles

Do i draw from the top of the wick of a bullish candle to the bottom of the wick of a bearish candle

OR can i use the top of the wick of a bearish candle if that tip is higher than the bullish candle??

confusing?

maybe i will post 2 charts and someone can comment which is "correct"
thanks!
Attached Image
File Type: bmp Chart A.bmp   655 KB | 1,004 download
how about this??


which is "correct"

thanks!
Attached Image
File Type: bmp Chart B.bmp   655 KB | 994 downloads
Quoting bobztoise
how about this??


which is "correct"

thanks!
With the risk of confusing you.... BOTH!!

They are both the right type of moves to be drawing fibs off of. In fact you've done well! Some don't get it at all and pick all sorts of places.

This is where confluence comes into play.
Draw BOTH those fibs in at the same time.
Where lines match up, or are close to each other, the more chance that area is of becoming support/resistance.

Some people would draw them the way you did in the first one. Other people would follow the other one. The trick is to get the most people to agree. Dig?? Your looking for the place where the MOST people are waiting for a reaction. If you got a Pin bar at that point you'd have a pretty strong case to go with it.
Bundy's status today: "Waiting..." :)
thanks bundyraider
Quoting bobztoise
how about this??


which is "correct"

thanks!
Most fib people draw from extremes meaning they include the wicks. In most cases, if you use a large enough move it really shouldn't matter too much.

I would say your second chart is more correct because the first one ignores the true high the defines the begining of the move down. Fibs should be drawn from significant peaks and valleys.
Quoting bobztoise
sorry I have a question, hope it's not stupid

when I draw a fib line, I usually match the tip of the wick on the 2 candles

Do i draw from the top of the wick of a bullish candle to the bottom of the wick of a bearish candle

OR can i use the top of the wick of a bearish candle if that tip is higher than the bullish candle??

confusing?

maybe i will post 2 charts and someone can comment which is "correct"
thanks!
in reference to whether the candle is bullish or bearish, doesn't matter since you are taking the top/bottom of the wick which is still the significant high or low
:waiting:
thanks for all the reponses

now moving on to work on Fib extensions which also seem rather tricky
  • Post #15
  • Quote
  • Last Post: Feb 24, 2009 8:12am Feb 24, 2009 8:12am
If you still have trouble with where to draw fib lines use the Zig Zag indicator which filters minor moves out of major moves.

You can adjust the settings on most versions to your own personal requirements. Look for the indicator on this forum or you may have it on your chart provider already?
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