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Fibnacci trading..Are U thinking what i'm thinking?

  • #1
  • First Post: Jul 20, 2007 10:44pm Jul 20, 2007 10:44pm
I've been fascinated with fibo's since the day they started working for me.

I normally enter on a 61.8/38.2 retracement once i see a candlestick formation.

but after reading trader888's post i am now wondering if fibonacci methods work or do they only appear to work

why am i saying this?

well, if fibo's are mainly used in conjunction with the trend, then buying/selling at fib#'s is really just entering a trade in the direction of the trend at a supposedly "cheap" price.

in an uptrend, we normally enter if the down retracement has died out (candles getting shorter and reversed) and if it is at a fib#

So i am wondering if it is just that the price is cheap or is it aesthetics?
100% of traders are losers. Just that some win more than they lose!
  • #2
  • Jul 20, 2007 11:20pm Jul 20, 2007 11:20pm
Quoting Mr demark
I've been fascinated with fibo's since the day they started working for me.

I normally enter on a 61.8/38.2 retracement once i see a candlestick formation.

but after reading trader888's post i am now wondering if fibonacci methods work or do they only appear to work

why am i saying this?

well, if fibo's are mainly used in conjunction with the trend, then buying/selling at fib#'s is really just entering a trade in the direction of the trend at a supposedly "cheap" price.

in an uptrend, we normally enter if the down retracement has died out (candles getting shorter and reversed) and if it is at a fib#

So i am wondering if it is just that the price is cheap or is it aesthetics?

I believe it is both. Obviously it's buying cheaply, but more than that, it's a visual tool that an enormous amount of traders use. The Fibonacci retrace is simply a self-fulfilling prophecy anyways.

So, the trick of course it to pick which one. This is where I believe the smaller time frames get to be important. It tells you that perhaps a reversal is coming. (i.e. buying at the 38% or whatever.)

Remember, it doesn't matter why the thing works, just that it does.

However, since just about everyone in the world uses them, I believe it will always be a bet that they work. Especially in the 4/8/24 hours charts.
  • #3
  • Jul 20, 2007 11:27pm Jul 20, 2007 11:27pm
I think some may call fibs an "observed phenomena" where like you said they appear to work but for what reason do they work? If they help you a lot, I guess if it ain't broke don't fix it.
  • #4
  • Jul 21, 2007 12:53am Jul 21, 2007 12:53am
Have to admit that I'm undecided about the predictive value of Fibos, pivot lines, Gann grids and the like.

There are so many ways that these lines can be drawn. We can choose a variety of swing highs/lows on any number of timeframes around which to base Fibos, although to be fair, some points seem more "obvious" to the naked eye, than others. Then it depends on whether we stay with the "major" 38.2, 60 and 61.8 retracements, or add in some minors like 23.6, 78.6, etc. Pivots can be calculated from any arbitrary starting point (e.g. midnight GMT, midnight EST). And so on. In other words, if we put enough lines on a chart, price is bound to bounce off some, or at least very close to some, just by pure coincidence. And it's all very well having (say) 6 horizontal lines on a chart, and even if we somehow knew in advance that price was going to bounce off one of them, is it really helpful unless we have some idea as to which one? Looks so obvious in hindsight, but of course that's way too late.

I agree with Clockwork71 about the self-fulfilling prophecy: that if enough heavyweight traders (albeit unwittingly) reach consensus that a reversal will occur at a Fibo (or pivot, or whatever), then their collective actions will drive price accordingly, causing it to happen. Hence I've often wondered, if when there is significant confluence between multiple lines, and possibly other trendlines, MAs or prior (horizontal) S/R, to what extent this increases the likelihood of a reversal at a given point. I haven't managed to find any statistical research on this topic. If the likelihood of reversal is significantly greater, then this has possibilities not only for timing entry, but also later scaling out to take some profit off the table.

For the moment, I use Fibos as a "ruler" to measure how far a trend has pulled back; between 50% and 61.8%, and I'm considering an entry, provided that (like Mr Demark) it comes with a persuasive enough candle pattern. I've yet to find a better use that happens consistently enough to make its application worthwhile.

David
  • #5
  • Jul 21, 2007 6:48am Jul 21, 2007 6:48am
When we must use retracemments or expansions and how to use expansions? I donīt understand this point very well. I try to draw on diferent way. Somebody can help me?

Thanks for reply
  • #6
  • Jul 21, 2007 9:25am Jul 21, 2007 9:25am
Use this indicator to plot the weekly pivots and it does a pretty awesome job.
Good luck.

DL
Attached File(s)
File Type: mq4 WeeklyPivot.mq4   5 KB | 856 downloads
  • #7
  • Jul 21, 2007 9:50am Jul 21, 2007 9:50am
Quoting hanover
Have to admit that I'm undecided about the predictive value of Fibos, pivot lines, Gann grids and the like.

There are so many ways that these lines can be drawn. We can choose a variety of swing highs/lows on any number of timeframes around which to base Fibos, although to be fair, some points seem more "obvious" to the naked eye, than others. Then it depends on whether we stay with the "major" 38.2, 60 and 61.8 retracements, or add in some minors like 23.6, 78.6, etc. Pivots can be calculated from any arbitrary starting point (e.g. midnight GMT, midnight EST). And so on. In other words, if we put enough lines on a chart, price is bound to bounce off some, or at least very close to some, just by pure coincidence. And it's all very well having (say) 6 horizontal lines on a chart, and even if we somehow knew in advance that price was going to bounce off one of them, is it really helpful unless we have some idea as to which one? Looks so obvious in hindsight, but of course that's way too late.

I agree with Clockwork71 about the self-fulfilling prophecy: that if enough heavyweight traders (albeit unwittingly) reach consensus that a reversal will occur at a Fibo (or pivot, or whatever), then their collective actions will drive price accordingly, causing it to happen. Hence I've often wondered, if when there is significant confluence between multiple lines, and possibly other trendlines, MAs or prior (horizontal) S/R, to what extent this increases the likelihood of a reversal at a given point. I haven't managed to find any statistical research on this topic. If the likelihood of reversal is significantly greater, then this has possibilities not only for timing entry, but also later scaling out to take some profit off the table.

For the moment, I use Fibos as a "ruler" to measure how far a trend has pulled back; between 50% and 61.8%, and I'm considering an entry, provided that (like Mr Demark) it comes with a persuasive enough candle pattern. I've yet to find a better use that happens consistently enough to make its application worthwhile.

David
I believe that the biggest problem is that Fibos can be drawn on weekly, hourly, 15 min, etc.

BUT, I can say that if you draw a few from various swing lows, etc.....when you get two lines matching up, then you have a place to WATCH. And by watching, I am looking for a big nasty hammer, or something like that.

If you see that hammer.......you obviously are at a spot where quite a few traders have drawn their fibs, and therefore, its likely they are buying.

Its not perfect, but it is so much better than thinking.

Also, if you get a 50% or whatever, at a trendline, then you have a really strong signal in my opinion. Does it work 100% of the time? Of course not. But, if you bust through that trendline, you normally have an obvious stop loss point.

Just my two cents.Or Krone for you Denmark.
  • #8
  • Jul 21, 2007 11:04am Jul 21, 2007 11:04am
Quoting Forexpupil
When we must use retracemments or expansions and how to use expansions? I donīt understand this point very well. I try to draw on diferent way. Somebody can help me?

Thanks for reply
Hey FP

In my experience, fibs work best when you try to combine them with the theory in which they were first observed - elliot waves. I say try because I have found elliot waves quite hard to read. I don't try to hard to get a correct wave count all the time, but when it is obvious it is obvious, and these situations work well. Try to look for impulse waves (5 waves) as these will more often be followed by a rally from a fib. Also, look for confluence. For example, if the move is 3 waves, put fibs from 1-4 and 2-4 and you may notice for example that the 38.2 of 1-4 is at the same level as the 50% of 2-4. If price forms a reversal in a shorter timeframe at this level and perhaps lines up with a trendline, pivot point or previously respected MA then it is a no brainer.

As to why they work, if you get very long term charts you will see they respected many many years ago. And you will also see these numbers respected in many aspects of nature, which shares striking similarities with the markets. I believe that there are right fibs and wrong fibs, ones that should be respected and ones that shouldn't. The wrong fibs are respected due to trader activity and only create small moves. But that is great, exploit it!

Agro
  • #9
  • Jul 21, 2007 11:58am Jul 21, 2007 11:58am
Hello to you all,

I have been looking at fib numbers in % terms and using them to count forward in days both calender days and traded days, guess what you can use them to predict turns if you also know how to count elliot waves and have an idea about cycles and repeating patterns in the stock market.

Gann said that the market always repeats itself. Now here I am going to put my money where my mouth is.

27th July 2007 is the day I have predicted as a turn for the eurodollar, S&P 500 DJIA

how will we know if I am right well do not place a trade and close your eyes and prey, god does not bother with us poor traders. Wait for the next days bar to take out the low of the previous day, once it does this you have an indication of a possible trend change, try to wait for a retrace up so you limit your exposure and set your stop one point above the high of the previous day. If I am right you will be looking for a close mid August and well over 400-500 points.

The big sell off in the S&P was I think a little too soon, but if we do not see a move back up I am 7 days out on what could potentially be the top of the market for the year!

On the euro dollar a close above 1.3836 would mean my target for the high on 27th July 2007 is correct @1.3923. If it cannot get above 1.3836 and close it means that the move down has already started.

Time will tell if I am right, and I found that fib levels work excellently on days weeks and hours, but not so well in smaller time frames.

I will try to post a chart to show my calculation


All the best
to everyone.

Smalldog
  • #10
  • Jul 21, 2007 12:10pm Jul 21, 2007 12:10pm
Hope this one loads up
Attached Image
  • #11
  • Jul 21, 2007 6:20pm Jul 21, 2007 6:20pm
Quote by smalldog2
27th July 2007 is the day I have predicted as a turn for the eurodollar, S&P 500 DJIA


Hello smalldog2,

Your name made me laugh... (we allways talk about the big dogs... so indeed we must be the smalldogs)

I see you use DT software how is that working for you? . Just a note in addition to your prediction ...
from Gann's writings... July 21 to 24 are dates (stocks) will have tops or bottoms.

Lou
  • #12
  • Jul 21, 2007 6:35pm Jul 21, 2007 6:35pm
I received a few articles mentioning 23 July.
Let's wait and see.
Seems ( only seems ) a drop of total from the high 10 % in the DJIA is expected.
  • #13
  • Edited Jul 22, 2007 4:45am Jul 21, 2007 9:04pm | Edited Jul 22, 2007 4:45am
anyone interested to buy my fibonacci indicator, please email Link Removed
i sell at usd10 by egold.
{Link Removed}]
  • #14
  • Jul 22, 2007 3:49am Jul 22, 2007 3:49am
Fibonacci etc "works" because thatīs the way universe works.
  • #15
  • Jul 22, 2007 9:04pm Jul 22, 2007 9:04pm
Quoting johs
Fibonacci etc "works" because thatīs the way universe works.
I looked through my copy of A Brief History of Time by Stephen Hawking, Hyperspace by Michio Kaku, and The Elegant Universe by Brian Greene and none of them mentioned that Fibonacci retracements/expansions had anything to do with the fundamental mechanics of the universe. Though my sample size of physics books is relatively small and written for the non-physicist, these are three of the most impactful, leading minds in science. I doubt they would have left out fibs if they were "how the universe works". Especially since fibo concepts pale in comparison to the complexity of even the most mundane quantum mechanics problem.

Although I love fibo levels and couldn't imagine trading without them, I'm going with "self-fulfilling prophecy" as to why they work when they do. Most of the time - ironically enough, as long as you're dealing with anything besides theoretical physics - the simplest explanation is usually the correct one.

-=DAVE=-
  • #16
  • Edited 10:03pm Jul 22, 2007 9:23pm | Edited 10:03pm
Quoting Mr demark
I've been fascinated with fibo's since the day they started working for me.
Ditto.

Quoting Mr demark
So i am wondering if it is just that the price is cheap or is it aesthetics?
Probably both. In an uptrend, if you buy on a fib retracement, price is definitely "cheaper" at the 61.8% level than at the 100% level (high of the upswing).

Also, when you enter on a suspected fib retracement, many times you have the opportunity to place your stop much closer to your entry. For instance, if you enter long at a 50% fibonacci retracement thinking that the trend will be upwards, you can be reasonably certain that your guess at trend direction was wrong if price takes out the 23.6% level, so place your stop there. You've only seen a decline of (50-23.6) 26.4% of the recent upswing.

If your guess was right and you target the 161.8% area, you profit (161.8-50) 111.8% of the recent upswing. Let's see, 111.8/26.4 = 4.24:1 reward:risk. That looks like some pretty good aesthetics to me! If you hit the 261.8% level you're killing the market with (261.8-50) 211.8% of the prior upswing for a 211.8/26.4 = 8.02:1 reward:risk. Almost makes me want to trade the 5-min chart....just kidding.

If I am correct with my math, you can shoot for the 161.8% mark after entering on a 50% retracement, be wrong 4 times for every 1 correct trade and still be able to print money in the long run. In other words you have a win/loss rate of 20% and still can be profitable - worse than a weatherman, or a batter for the Detroit Tigers, or the approval rating of Congress.

-=DAVE=-
  • #17
  • Jul 23, 2007 3:55am Jul 23, 2007 3:55am
Well, just a little update on this S&P chart I posted, I sat down on Sunday and analyses the S&P all the way back from the crash in 1988, well I then measured the wave from the bottom of the crash, to the first main rally, then I dropped it onto the October low in 2002, our current market is twice as high as that move and equal virtually exactly 1 of the last move down from the high in March 2000. Now, that seems a little odd that we saw the market hit those two points and then fall 1% on Friday.

However, as we know markets always move in reactions as well, so to prove to me, that this is the years high and yes I think it might be, I would want to see a rally back up, to the previous high on the 16th July 2007, if it beats it by a single point then the move up is still on upwards. As I said all my cycles are hitting in this month and once the market tells me what it going to do I will be riding my tricycle all the way down this fall :-).

Lou I called myself smalldog, as I started trading and lost a shed full of money. I then realised how it works and studied the market with a dedication akin to madness. I lived it slept it, I even dreamt about it.

I wanted to prove I could master this market and started to use a test account having learnt that the market is the hardest thing you will ever face. If you are wrong it will take your money with no emotion or pity.

My stops are typically 20 points and not more, if I am wrong then I lose 20 points, My targets are typically 400 points or more. I can get it wrong a lot of times, typically I am right 60% of the time, life is good and getting better all the time.

Hopefully, I will be a big dog one day.

Kind regards to you all
  • #18
  • Jul 23, 2007 5:52am Jul 23, 2007 5:52am
Quoting megadave5000
I looked through my copy of A Brief History of Time by Stephen Hawking, Hyperspace by Michio Kaku, and The Elegant Universe by Brian Greene and none of them mentioned that Fibonacci retracements/expansions had anything to do with the fundamental mechanics of the universe. Though my sample size of physics books is relatively small and written for the non-physicist, these are three of the most impactful, leading minds in science. I doubt they would have left out fibs if they were "how the universe works". Especially since fibo concepts pale in comparison to the complexity of even the most mundane quantum mechanics problem.

Although I love fibo levels and couldn't imagine trading without them, I'm going with "self-fulfilling prophecy" as to why they work when they do. Most of the time - ironically enough, as long as you're dealing with anything besides theoretical physics - the simplest explanation is usually the correct one.

-=DAVE=-

When did Fib become popular in trading? Itīs more than Fib. Look at old charts and see if they still follow the same patterns. Supply/demand but it also has a deeper meaning.
  • #19
  • Jul 23, 2007 7:01am Jul 23, 2007 7:01am
Quoting johs
When did Fib become popular in trading? Itīs more than Fib. Look at old charts and see if they still follow the same patterns. Supply/demand but it also has a deeper meaning.
What is that deeper meaning?

-=DAVE=-
  • #20
  • Jul 23, 2007 7:22am Jul 23, 2007 7:22am
Quoting megadave5000
What is that deeper meaning?

-=DAVE=-
Not sure but emotions and thoughts probably. From a site:
"Changes in stock prices largely reflect human opinions, valuations and expectations. A study by mathematical psychologist Vladimir Lefebvre demonstrated that humans exhibit positive and negative evaluations of the opinions they hold in a ratio that approaches phi, with 61.8% positive and 38.2% negative"
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