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

  • #21
  • Jul 23, 2007 9:32am Jul 23, 2007 9:32am
Quoting Agro
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
Hi Agro

Thanks for your help. I already red about Elliot Waves. 5 on up trend and 3 on dountrend. But, sometimes there are some little waves, and when we are going to count, there are 7 or 5. But I never put attention on the convergence of waves and fibbos, but now i´m going to see that.



Thanks Depleo for your indicator.


It´s better to use daily or weekly pivot?


Smalldog

How do you find these levels for Eur/dolar? Your graphic is very smal and it´s not possible to read your indicators.



Thanks and a good, godd luck for everybody
  • #22
  • Jul 23, 2007 10:26am Jul 23, 2007 10:26am
Quoting megadave5000
What is that deeper meaning?
Luke... I'm your faaaather!

Now seriously, how are fibs different from trendlines, pivot points or round numbers? they don't work because of any magic reason (at the end of the day they are just one like drawn across the chart). They work because tons of traders are positioning their stop/limit orders around them, and thus they become decision-taking points. Price is bound to react to such decision-taking points.
  • #23
  • Jul 23, 2007 11:15am Jul 23, 2007 11:15am
First off - who said fibos even work - know plenty of people who trade with fibos and lose money.

Why I think fibos can work - If you are trading with a trend, any simple entry system can work out well, if you are disciplined and have good MM. Fibos get you entrys at roughly 1/3, 1/2, and 2/3 retracement intervals, depending on how you perceive to be the strength of the trend. Either way you get in habits of entering on retracements - if you have good trend analysis, it should work out ok.
Man who scratches ass should not bite fingernails
  • #24
  • Jul 23, 2007 11:15am Jul 23, 2007 11:15am
Quoting WTB
Luke... I'm your faaaather!

Now seriously, how are fibs different from trendlines, pivot points or round numbers? they don't work because of any magic reason (at the end of the day they are just one like drawn across the chart). They work because tons of traders are positioning their stop/limit orders around them, and thus they become decision-taking points. Price is bound to react to such decision-taking points.
Absolutely. I think fibs work because everyone thinks they work - self-fulfilling prophecy.

As for why they worked in the past prior to the "knowledge" about fibonacci levels being applied to financial markets, I'm positive that astute traders in the past with no notion of fibonacci ratios noticed that pullbacks were an excellent place to enter a low-risk trade. Though they were not working specifically with fibo ratios, I cannot believe that somebody with some money and a little gray matter didn't notice that a pullback from a prior upswing would be a great long entry point. Puh-leeze! Just because fibo ratios were not en vogue in 1910 does not mean price pullbacks illustrate these ratios are some sort of crystal ball.

There is a good deal of randomness in markets that we try to explain when in fact it is just random noise (I can see myself getting attacked on this point here, but I'll say it anyway). I think that fibo ratios are a good attempt to explain the pullbacks, but no matter what they are really just lines we place on top of a random walk and we're (mistakenly) calling it solid proof of some other-worldly property of financial markets.

True, I have seen all manner of pullbacks signal an impending trend continuation. But I have also seen all manner of pullbacks lead to no trend continuation, or trend break-down, or the start of a new opposite trend. Fibo ratios do not work all the time, therefore I assert that they are our attempt to explain some of the randomness the financial markets exhibit and have always exhibited (and will always exhibit). Price is random. Period. Fibos do not change this.

Maybe somebody out there can prove to me that market movement is not random. But I doubt one can prove that fibos possess some supernatural ability to predict market moves. Causality, as you may or may not be familiar with, is EXTREMELY hard to certify. I know, however, that we can prove that price movement is random, it follows a random walk (run an autocorrelation test or partial autocorrelation test on price data and you'll see it yourself). Fibs work because we think they do, and because we think that everyone else thinks they do as well.

-=DAVE=-
  • #25
  • Jul 23, 2007 12:07pm Jul 23, 2007 12:07pm
fibs are self-full filling but like anything else if used properly in a well thought out trading plan can have their place and can give a trader means of identifying or when to be looking for entry/exits in a market. Do you need fibs to make money? No. Can fibs be used to make money? Yes.

As for the market being random? The market itself is far from random.
  • #26
  • Jul 23, 2007 12:49pm Jul 23, 2007 12:49pm
Quoting mbqb11
fibs are self-full filling but like anything else if used properly in a well thought out trading plan can have their place and can give a trader means of identifying or when to be looking for entry/exits in a market. Do you need fibs to make money? No. Can fibs be used to make money? Yes.
Absolutely.

Quoting mbqb11
As for the market being random? The market itself is far from random.
Mike,

I love you and your posts. But I could not disagree with you more on this last one

-=DAVE=-
  • #27
  • Jul 23, 2007 12:52pm Jul 23, 2007 12:52pm
Quoting megadave5000
Absolutely.



Mike,

I love you and your posts. But I could not disagree with you more on this last one

-=DAVE=-
Most probably will, because most haven't been given the insights and information on this topic I have. But I trade off this non-randomness everyday. This doesn't mean the market is 100% predictable. It means, the structure/workings of the market are not random, and their are reasons for every movement, some more then others(micro-structure of our glorious market ).

take care dave
  • #28
  • Jul 23, 2007 12:54pm Jul 23, 2007 12:54pm
Quoting mbqb11
Most probably will, because most haven't been given the insights and information on this topic I have. But I trade off this non-randomness everyday.

take care dave

You too, Mike - always good to see you on the forum!

-=DAVE=-
  • #29
  • Jul 23, 2007 2:12pm Jul 23, 2007 2:12pm
Quoting mbqb11
Most probably will, because most haven't been given the insights and information on this topic I have. But I trade off this non-randomness everyday. This doesn't mean the market is 100% predictable. It means, the structure/workings of the market are not random, and their are reasons for every movement, some more then others(micro-structure of our glorious market ).

take care dave
I agree 100% with this.
I used to think that the market is more or less random.
And to most outsiders (retail traders) without knowledge of the inner workings of the market this is the case.

But price moves from a reason. Maybe we don't know why or cannot predict it, but that does not make it random.

Tom
  • #30
  • Edited 4:16pm Jul 23, 2007 4:01pm | Edited 4:16pm
Quoting moneybags
But price moves from a reason. Maybe we don't know why or cannot predict it, but that does not make it random.
On the contrary, I think you just supplied a terrific definition of randomness!!

{snip}

-=DAVE=-
  • #31
  • Jul 23, 2007 4:15pm Jul 23, 2007 4:15pm
My last post was way off topic. Sorry.

We should be talking about fibs - I have deleted parts of my last post.

-=DAVE=-
  • #32
  • Jul 23, 2007 4:29pm Jul 23, 2007 4:29pm
Quoting WTB
Luke... I'm your faaaather!

Now seriously, how are fibs different from trendlines, pivot points or round numbers? they don't work because of any magic reason (at the end of the day they are just one like drawn across the chart). They work because tons of traders are positioning their stop/limit orders around them, and thus they become decision-taking points. Price is bound to react to such decision-taking points.

That's not true at all. I have magic fairy dust I sprinkle on my trend lines before I put them up. It is like a universal force field.

FEAR MY BIG GREEN TREND LINES....

  • #33
  • Jul 23, 2007 4:35pm Jul 23, 2007 4:35pm
Quoting megadave5000

On the contrary, I think you just supplied a terrific definition of randomness!!

To be specific, I don't mean to say that markets never exhibit patterns, nor do I mean to say that there aren't reasons for price movement.

Please understand that prices follow a random walk. That means that the best predictor of the next data point in the time series (in this case it is price) is the previous data point. More simply, today's closing price depends on yesterday's closing price more than any other factor. Think of a drunk stumbling around, his right foot will come down close to his left foot, and his left foot has to remain planted. If you can envision the drunkard walking around, the location of his right foot depends in large part upon where his left foot is! Once his right foot plants, his left foot now staggers forward but will be "close" to where his right foot is. This repeats as he swaggers to and fro. Each time, it is impossible to say before each step where his foot will land, but we're really certain that each footstep will be close to where his planted foot has to remain (the drunk cannot detach a foot and throw it).

Or let me put it this way. Say the GBP/USD closes today at 2.0600. Where do you predict it will close tomorrow? Well, I'd call you foolish to guess 0.1200 or 4.1211. You'd be better off guessing somewhere around 2.0600, but the specific price - I'm sure we'd all agree - is random. As long as you keep in mind it is "anchored" to 2.0600 you'll probably be pretty close (on average!).

This unpredictability of the markets, coupled with their random walk behavior, is quite enough for me to call them random. Not to mention the dozens of statistical studies that have determined that financial markets are random....

Again, I am not saying it is impossible to make money trading. Nor do I feel like arguing about this, I'm just trying to explain my point.

In fact, because of this randomness and my ability to grasp the uncertainty of the market, I think I have quite an edge over less-knowledgable traders. I am saying that we only ascribe reasons for market movements AFTER the move has taken place. In hindsight, nothing looks random. However, tell me where price will end up tomorrow. If you cannot tell me with 100% certainty, then there is uncertainty and we now need to start assigning probabilities to possible outcomes (or just plain guess, which is random) - there are always errors in these types of estimations and now, viola, we're back to randomness.

In short, before a move takes place, I urge you to drawn out on a chart, tick-by-tick, what will happen and when (i.e. what price will be each moment in time). If this cannot be done, then we have a random process.

Contrast this, to say, boiling a known quantity of 100% H20 at a specific altitude with a constant, known heat source. If you know the starting temperature and the atmospheric factors and the energy being applied, you can pinpoint the time it will take for the water to boil (there is some randomness even in this problem, but it is VERY slight). In fact, you can change any variable and still we can determine how long it will take the water to boil. Water boiling does not follow a random pattern. Nor does dropping a ball from a pre-determined height in a vacuum. I'll bet you can predict the position of the Earth relative to the Sun on your next birthday at 10am GMT. These are all processes that are not random. You can repeat the experiments over and over and they will yield the same result. You CAN graph out the temperature of the water at each moment in time - say every 10 seconds - and essentially be right on the money. Not so with financial markets - they are random.

Whew. This was a long post, anyway, it's a subject near and dear to my heart. Hopefully this has been informative. Thanks for reading and I hope you have a great day!

-=DAVE=-
Well thought out post Dave, and we all trade our beliefs of the market and it is very clear what yours are. But don't be so quick to close out the possibility that the markets aren't as random as you have come to believe. Just because one can not draw tick for tick what is going to happen doesn't make them completely random. I am not talking chart patterns either, when I say the market isn't random, I am discussing how powerful participants are acting, and how their acting is not based on anything random. Again you say dozens of statistical studies have been done proving the market is random. This is a weak argument, to think that because people have done some research about their market beliefs that it is fact. Everyday certain things occur in the market that give the market a much more structured working then most know/or care to understand. To me those that subscribe to the random walk theory are often those that subscribe to the efficient market hypothesis(not saying you are as you stated this is not the case, but often the two have come hand in hand). Just because something can not be predicted with 100% certainty does not make everything completley random.

Most people don't have a deep enough understanding of the micro-structure of the market. I was lucky enough to be taught these things, or my beliefs may be very different then they are today. But my trading outside of what I do with price action, is based on the fact that the markets are NOT random. Just because something doesn't occur 100% of the time doesn't make all things random.

I am not trying to change your beliefs because it really has no effect on me. But I trade everyday based on the fact that the markets are not 100% random, and that what takes place is not completley unpredictable. I don't need to view a study to know that my beliefs are wrong. My bankroll shows that they are quite on target.

Just thought I would offer some of the other side, unfortunately I am not as good as Darkstar who taught me everything in getting my words across. I am far from the word smith he is

Again I must stress we all trade our beliefs of the market, and my post is not meant to offend those that don't/or don't want to subscribe to my beliefs.


Take care all
Mike
  • #34
  • Jul 23, 2007 4:37pm Jul 23, 2007 4:37pm
Quoting mbqb11
fibs are self-full filling but like anything else if used properly in a well thought out trading plan can have their place and can give a trader means of identifying or when to be looking for entry/exits in a market. Do you need fibs to make money? No. Can fibs be used to make money? Yes.

As for the market being random? The market itself is far from random.

Quoting WTB

Now seriously, how are fibs different from trendlines, pivot points or round numbers? they don't work because of any magic reason (at the end of the day they are just one like drawn across the chart). They work because tons of traders are positioning their stop/limit orders around them, and thus they become decision-taking points. Price is bound to react to such decision-taking points.
As usual Mike and WTB the ones talking straight out sense.

And to say it myself as well: as I stated before, the market isn't random, nor are reactions random.

The market will give off clues and it's our jobs as traders to utilize them. We/I do this with TA and quite frankly, anyone saying there are no such things as fib bounces (go look at Traex's journal with +33% per month on entering with EW and .618 fib relations) or no such thing as functional trendlines, channels, s/r flips then I have to say: you just have to learn to distinguish between blind gambling and TRADING.

Having price hit one out of 5 random fibs of a randomly drawn swing will do NOTHING except lose money. Same for arbitrary trendlines(don't remind me of some of the things I've seen people draw), s/r, etc.

However: entering long at a 38.2%, 50%, 61.8% fib coming together with a prior s/r or prior high AND (here's the important part!)a bullish price action setup = money, money, money.

Is it really that difficult to believe after seeing it occur a few hundred times every year?

And it's not like there aren't hundreds and thousands of charts posted to that effect with examples

Questioning what you see instead of what you believe is the wrong way around


Didn't I post to an almost exactly similiar thread last year? Same question / topic really...and as usual it had a lot of..."interesting" positions hehehe ;p
Trust price. Know yourself.
  • #35
  • Edited 5:04pm Jul 23, 2007 4:49pm | Edited 5:04pm
Oh and since I read this:

Quote
In short, before a move takes place, I urge you to drawn out on a chart, tick-by-tick, what will happen and when (i.e. what price will be each moment in time). If this cannot be done, then we have a random process.
Did that quite a bit the last 2 weeks for GBPCHF and EURUSD, the latter involving the .618 fib and GBPCHF involving prior resistance turned support

Also did it for some USDJPY and GBPCHF areas 2-3 weeks ago for potential bounce areas. Came through for both. Had 3 spots marked, the second one already "did it" for GBPCHF. This can be verified pretty much by anyone also a member of the private forum where I posted it.

The "Random Walk" is just an excuse for not needing to be diligent in analysis

It's a nice idea and all, but it's only good for the scientists as a pastime interest.

That you can't say "at 16:30 and five seconds price will trade at xx.xxx" is obvious, but that you CAN say "this here will most likely cause a reaction" has been observable to me personally often enough to disprove any sort of "randomness". There's plausible chance, there is not randomness.

And all we need for successful trading is chance on our side. We don't need to predict a thing, just trade the high chance setups as they appear.


Since I'm talking about it: another non-randomness example is price projections and targets. I'm gonna attach a Gold chart I posted a bit back on the 18th for a highly likely to be hit target after a descending TL was broken. Also with a fib. Look where we are trading and stalling right now(681$, the area was hit 2 days later on the 20th) if you have a Gold feed - at another descending TL in this very area.

I was and still am in this trade.
Attached Image
Trust price. Know yourself.
  • #36
  • Jul 23, 2007 5:26pm Jul 23, 2007 5:26pm
There is to much order in the market for it to be just self fulfilling. Price, time and price/time relationships.
  • #37
  • Jul 23, 2007 5:44pm Jul 23, 2007 5:44pm
Although I appreciate your opinion Dave, we'll agree to disagree.
Just because we can't predict price down to the pip, does not make the market random. I guess everybody's definition of random is different.

What we're trying to say is that the direction price moves towards is not random in the least. Maybe the exact point as in 1.2255 cannot be predicted (sometimes). But why and where price goes (general area) has reasons.
Because if we get caught up in the motion that the market is 100% random, then we might as well go play the roulette instead of wasting our time here.

And when I said that "we" don't know why it moves or cannot predict it, I was speaking in general. "I" know why price moves. I'm working on the prediction part.
In addition, I have also read many other studies that looked into what moves price based on the market micro-structure and other factors in the background. And the conclusion was not that price is random, but quite the contrary. But I guess studies in every subject can always have opposing results.
I won't go into detail about this subject because I guess it boils down to beliefs. But I can guarantee you that there are things in the background that drive price to a specific destination.

Tom
  • #38
  • Jul 23, 2007 5:55pm Jul 23, 2007 5:55pm
Quoting mbqb11
Well thought out post Dave, and we all trade our beliefs of the market and it is very clear what yours are. But don't be so quick to close out the possibility that the markets aren't as random as you have come to believe. Just because one can not draw tick for tick what is going to happen doesn't make them completely random. I am not talking chart patterns either, when I say the market isn't random, I am discussing how powerful participants are acting, and how their acting is not based on anything random. Again you say dozens of statistical studies have been done proving the market is random. This is a weak argument, to think that because people have done some research about their market beliefs that it is fact. Everyday certain things occur in the market that give the market a much more structured working then most know/or care to understand. To me those that subscribe to the random walk theory are often those that subscribe to the efficient market hypothesis(not saying you are as you stated this is not the case, but often the two have come hand in hand). Just because something can not be predicted with 100% certainty does not make everything completley random.

Most people don't have a deep enough understanding of the micro-structure of the market. I was lucky enough to be taught these things, or my beliefs may be very different then they are today. But my trading outside of what I do with price action, is based on the fact that the markets are NOT random. Just because something doesn't occur 100% of the time doesn't make all things random.

I am not trying to change your beliefs because it really has no effect on me. But I trade everyday based on the fact that the markets are not 100% random, and that what takes place is not completley unpredictable. I don't need to view a study to know that my beliefs are wrong. My bankroll shows that they are quite on target.

Just thought I would offer some of the other side, unfortunately I am not as good as Darkstar who taught me everything in getting my words across. I am far from the word smith he is

Again I must stress we all trade our beliefs of the market, and my post is not meant to offend those that don't/or don't want to subscribe to my beliefs.


Take care all
Mike

..................mike, once again.................
  • #39
  • Jul 23, 2007 9:26pm Jul 23, 2007 9:26pm
Well, it appears that I am fighting a losing battle here!

Thank you all for a great discussion - I am greatly enjoying your posts and responses to my "randomness" arguement. Thank you for being thoughtful and not nasty - the folks on FF are truly awesome!

Allow me to show you that I am pretty good at making predictions as well:

Quoting megadave5000
There is a good deal of randomness in markets that we try to explain when in fact it is just random noise (I can see myself getting attacked on this point here, but I'll say it anyway).
Talk about walking into the meat grinder!!

-=DAVE=-
  • #40
  • Jul 23, 2007 9:47pm Jul 23, 2007 9:47pm
Quoting megadave5000
Well, it appears that I am fighting a losing battle here!

Thank you all for a great discussion - I am greatly enjoying your posts and responses to my "randomness" arguement. Thank you for being thoughtful and not nasty - the folks on FF are truly awesome!

Allow me to show you that I am pretty good at making predictions as well:



Talk about walking into the meat grinder!!

-=DAVE=-
Dave forgive me if you felt attacked, or anything. I just felt the need to state what I have come to learn, know, and make money with. And it is only meant to be taken however one wants to take it. Like anything else, everyone gets what they want out of the market.

I was just offering my views also. Wasn't meant as any type of attack,

Thanks for your contributions,
Mike
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