Why Fibonacci Retracements are Bullocks

Spot on. Everybody's top's and bottoms are different.... and timeframes too....

Yup, trading without a chart is possible. I have doing this 1 year, and I like it. I dont need chart tools to make a decission. I understand the price movements very well. The understanding of the price action is for everyone different. I use Microsoft Excel to let them calculate the top of bottom of a price action. It has 20% succesfull to predict the t/p. But my MM and RM are so powerfull that I can survive Forex.

It seems I have sparked the well worn argument of whether indicators are better than price action (or no charts at all) ... so I will clarify my position on this seeings I started the whole thing.

I trade naked these days ..... my charts as well .... but that doesn't make my method any more profitable than anyone elses. I am not talking about whether one persons method is better than anothers, I am purely talking about the true essence of fibonacci, and inflxshn has alluded to some of the elements about why I think fib retracements are just a bit of spin.

To me, if your method includes lines placed at whatever percentage you like and it works for you then well done, I would suggest however that if you are trading fibs blindly, that you are doomed to failure, if you are trading price confirmation around fib lines, then chances are you could pick any common sense division, look for that same confirmation and trade profitably.

If your method is to pick a direction based on what side of the bed you got out of, then bravo, I clearly got out of the wrong side of the bed and i'm naked as mentioned above, does that mean I need shorts?

It is moments like this that convince me I have read too many things on the forums for my own good.

On a similar note, have you felt that your lack of clothing has increased or decreased your predictive accuracy? I have found over the years that more clothing tend to make me less.. liberal with my judgments, hence more likely to take unnecessary risks. When you have clothes on you feel a sense of responsibility, especially if you're wearing a suit or a coat. You have to make respectable decisions, you know what I mean? When you're sitting in your underwear however (or worse, naked) life always looks rosy no matter what the market is doing. Another friend told me it's the opposite because you are more vulnerable without clothes, so you are more careful. There should be a study done on this. I would totally volunteer.

Since there are some that trade price action, I am curious, do they believe price has to move a certain way to the exact pip in order for that method to be considered successful?

And if not, why then does any other method have to be held to that standard.

No I don't, but I don't try to apply a strict mathematical principle to it but then give it leeway either. Anyhow my main message is their are usually other reasons (shown on the chart) why price turns where it does other than the square root of a golden ratio etc.

Now as for risk vs clothes ... I have found less clothes, the more careful I am ... anyone who has worn jeans with a zipper and no underwear will know exactly what I am talking about .... it works the same for my trading

Yes I totally agree. I use fibs cause they work for me. Could care less about the pyramids and nature etc.

They give me a map - nothing else. Too many traders overhype them and too many others just blindly use them.

But although I am far from an expert IMHO believe, if used and understood correctly, are hard to beat. But thats just me and not trying to convince anyone else unless there are trying to say differently about fibs. Which I would expect you may feel same about using price action.

fibonacci is holy grail to me..works wonders...but it must be combined with multiple timeframe

Exactly,

That's what I was weaving my way toward in my earlier post. As long as one has some kind of guide, be it price or support or fibs or barometric pressure, it provides structure to base a discipline off of.

I used to use daily pivots; I could trade pivots no problem. I used to think they were magical but when I started noticing that on a lot of days, the daily pivots were already visible in the previous day's price. I started taking pivots away and suddenly I was like,

"Wait a minute, this is mostly just previous support and resistance levels!"

The correlation was uncanny no doubt, but to go through all that math just to reiterate support and resistance? I realized then that the pivots were providing me the discipline to respect certain levels and follow guidelines to enter and exit trades efficiently and without as much subjectivity. Main diff was they sort of 'lit up' S&R more brightly. I still prefer them, same way I prefer this thread.

Fibonacci numbers present themselves in a lot of things in nature.
However, they present themselves a LOT in the ignorance of the simple minds. Those minds that "want to believe" everything that seems to be magic and it's simple to understand.
Fibonacci doesn't explain the markets, it just makes a lot of people to follow one specific path for selling and buying.
In other words. Price goes down after a double top not because that specific pattern is magic, but because a lot of sellers and buyers become aware of that specific double top and buy/sell in the exact moment that price reaches de peak.
Fibonacci is the same. People who say that fibonacci numbers present in markets by magic are just a little behind in their reading. Truth is that after all the years of people following Fibonacci numbers in the markets, make the market behave in a specific way when certain levels are reached. This is why when there's convergence of many different levels (support, resistance, fibonacci, double 00s, etc) the reaction can be heavier.
Fibonacci numbers are honey to the simple minds, and they try to see it everywhere, even in markets. The smart thing to do is to act just like the stupid. Because the more people acting the same in a specific price level, the stronger the reaction will be.
So let's all use Fibonacci. The stupid and the smart. Each one because of their reasons.

Hey all. Nice thread going here. I think it is a complete nonsense when I read that 1. fibs don't work, and 2. they sometimes work because lots of traders are using them. I've been studying price action and fibs for the last year of my life, and I can say with certainty that both of those assumptions are completely false. You have to study what fibs are to understand them in trading. I would venture to say that 99% of traders don't understand fib theory.
When we trade we are trying to express the value of something with numbers. Numbers are perfectly ordered by nature. Numbers count up and down and they logically follow each other. When we trade, no matter what the process we are all simply counting. Fibs work because numbers work. We cannot escape order.
When you throw time into numbers and counting it only complicates the matter. Luckily time breaks the market up for us to see it's algorithms.

WARNING: This message is kind of "out there" so you may just want to skip over this.


I think most people would agree that Fibonacci does occur in nature (sunflowers, galaxies, certain sea shells, etc, etc).

But how does this fact manifest itself in the markets?

The way I see it "The Market" is the collective consciousness of individuals trading. That collective forms it's own consciousness, so to speak, that is part of nature and being part of nature means following natural law, hence follow Fibonacci (which is part of nature and our universe).

You can take a look at a protest or gathering that turns into a mob or riot. The mob almost has a life of it's own, so to speak, even though it is made up of individuals. Interviews of people that were in a mob say things like they lost themselves in the moment, they weren't acting like themselves, etc, etc. Very interesting dynamic taking place and interesting to study from a law enforcement perspective as well.

I think something similar is taking place in "The Market". "The Market" is acting as an organism that is part of nature. It just makes sense that Fibo's work in Markets. Like people it can be rational or irrational. What is the old saying? Markets can remain irrational longer than you can stay solvent. Interesting saying...

If "The Market" is its own being, has its own consciousness, acts like an organism that is part of nature (this collection of individuals) then it makes sense the Fibs fit in so nicely and "The Market" follows Fibonacci numbers.



Before I get attacked, please understand this is just a personal opinion that I'm sharing. Not trying to convince anyone one way or another. Just another way to look at it. The way I look at it at least.

I use fibs along with S/R and Price Action.

Well friends, this is it.
The year is at an end -- and I have learned a lot from all of you!
Hopefully 2008 was a good one for you, and as profitable as you had hoped.
I sincerely wish prosperity and health for you and all my friends here at FF in 2009.

Happy new year to you!

I think you are being too sceptical on the method. I use the numbers with great success and I know other traders that have found ways and methods to use Fibonacci. To me it gives you an edge in finding the point where the market is likely to falter. As you can see from the chart, works well at 61.8% and at the 50%. A solid close above these areas would be a warning not to be short!

I'm assuming you're not versed at all about determinism in non-linear systems and Chaos Theory (the real one, not the one used to sell books about trading so they have a Hollywood title). I'm assuming you are not talking about chaotic triggers and it's interaction with momentum and dynamic variables.

Oh! Well! A WHOLE year?
You can start with Lorenz, that will take you 4. From there you can begin studying it's implications, Poincare mapping, Lyapunov exponents, Complexity... after that, if you still can say "with certainty" that the assumption is completely false, I'd stop smiling.

You do know it's not the number of traders but the weight that big ones have... do you? If ONE (only ONE) trader uses fibs and can trigger a dynamic set of variables (you could say "fixed" butterfly effect so you could at least say "Oh, I know that one!", that would be enough.
Again. It's not that 87.45% (just to use an invented number just like your "Venture to say that 99%") of traders would be in a Messenger chat window waiting for price to cross a line, it's the "trigger" that sets the Fib.


The problem with Trading is that anybody can trade (including you and me). People see green bars aligning with curves going up, and suddenly they have a system and think they can "beat the market". People make a bunch of pips and suddenly they think they can discuss mathematics and psychology:
Being good at trading news doesn't make (AT ALL) a person somebody who understands mass psychology. Just as being good at waiting for a bar to cross a label named "61.8" and click "buy" doesn't make (AT ALL) a person somebody who understands the implications of Chaos Theory.

Bottom line: If you are going to insult a fellow trader by saying that what he says is "complete nonsense", and say that is "completely false", you better know the subject.

I accept your criticisms. I don't know everything about fibs, heck I've only gotten my feet wet. But to say that traders using fibs is what makes fibs work is silly to me. There are so many ways to trade fibs that I cannot believe this idea. This is more what I was shooting down. Lot of traders don't even use fibs. I believe there is something bigger and much more complex going on, what it is I don't know yet. I cannot explain why fibs work, it is a great mystery to me. My goal was not to insult anyone, but to insult the idea that fibs work because lots of people trade fibs.

I believe that we could get a lot farther in our trading if we would focus on why fibs work and what they mean. That is my personal goal as a trader. I have found that .618 applied to time and price is much more complex than simple ranges growing divided by 61.8% Its more on an ocean than a puddle of a problem.

You relied on lots of specialized terms and ideas to reprimand my post by virtue of appearing to be smarter, but you still proved nothing more than myself. By all means, keep smiling.

The problem with the idea that 'traders using fibs makes them work,' is that it is is nearly impossible to prove or disprove.

Regards,

Scotty B

Scotty:
Your approach is valid and I think we have a good discussion here. Some heat from each side but, if we keep it respectful, I think we have interesting points so let's try to SUM I apologize, I just react when I feel I'm being attached, maybe it was not your intention. But let's do this a positive discussion.
Well, enough flowers, and let's discuss

I think I may be able to prove an important point using both Economics and Chaos Theory:

The economic side, it's just supply and demand. Price is fixed by this. If a lot of people begin to do something similar in a specific moment, price will be affected directly. For example, when a company goes down, everyone tries to sell the stock. This makes price goes down (supply<demand). On the other hand, if a company receives a very good news (financial reports, new product, merger, etc.), everyone wants to buy, so price goes up.
If a lot of people buy in a specific moment, price will go up and you'll see it reflected in the chart.
There's a very easy way of proving it: do it in scale (calculate how would 100 people react in specific supply/demand situations). Or ask any economist.
The fact is that when a lot of people do the same (sell or buy) there's an immediate reaction. This is the most basic economic fact, beyond of believing that is true or not, or if it can be proven or not. This is how markets work.

Now, in Chaos Theory there's a very interesting explanation to some phenomena very similar to Forex markets: if there's a situation in which a lot of people are "waiting to react", and there's an action that triggers reaction, it will often act like a chain reaction. Sometimes it will bounce immediately (you can see this often in news reactions) but a lot of times it will create a good market movement in a specific directions. This is seen a lot in breakouts.

If you make a line to join both points (I don't know the words in english) you'll see that: If there's enough people waiting for a 61.8%, and they react in a specific way, they can very easily trigger a market movement.
Now, it obviously doesn't happen 100% of the times. This makes people say that fibs are some mathematical crap.
Fact is, a lot of professional traders use fibonacci as their daily tool, and they are very successful. If fibs were just a bunch of crap, they wouldn't be able to consitently make a profit.

I am an artist myself (part time, that is), my work has been published and it's in the "Latin American Contemporary Artists Encyclopedia". This is not to talk about my work but just to make it clear that it's not just some wannabe talking about art, where Fibonacci progressions are studied.
That being said, I really believe in Fibonacci's numbers as part of a LOT of things in aesthetics and life itself. I even think that it's not something that appears from nowhere but something that appears because there is no other way for things to be. Take growth equations for example. You go from "Wow, how does this appear, is it God's work?" to "Hmm, if you think about it, there is no other way for things to grow". It's like looking at planets and saying "Wow, a sphere, and it appears in every planet. This is some kind of mystic symbol". Well DUH! a sphere is the most obvious way for planets to form if you take variables as gravity, density of the elements, speed... were you expecting a cubic planet?

So, I'm a absolute Fibonacci believer. As I said its way beyond searching for it but believing it's the only way some things can be. But I don't think the numbers appear in markets just because we want to think of markets as some live thing, some macro-organism. I believe they appear as trader's reactions to obvious patterns, but not as a "I want to believe" kind of thing.

Thanks for your kindness my friend. I appreciate your response. I understand your thinking and it makes sense to me, but I don't think it is the underlying principle that makes fibs work. Here is a question that I like to ponder. Would charts look the same or different if nobody traded or knew about fibs? Would there still be retracements and extensions related to .618 unbeknown to the market participants? I submit to you that it most certainly would. I don't know who brought the fib concept to trading historically, but whoever he/she was found something amazing; a phenomenon that happens naturally. I cannot prove what I believe about fibs mathematically, I can only conjecture and speculate about what I see on the charts. What I see is amazing.
Here is what I believe:
I think that fibs work as a scale of sorts. The side of the scale with more weight (buyers or sellers) wins and the market goes in that direction. When price breaks out of a range, it often moves to a fib extension that coheres with an inner fib level. I think that when price breaks below a certain range, that it is telling us that there is enough weight in the market to now fall or rise to a certain level. I believe that the market must go to these levels to achieve balance again. I think you are right on in saying that things must happen a certain way. The implications of chaos theory don't surprise me because I believe in an order giver- God himself. I believe that we cannot escape order because it is hard wired into our beings. As hard as we try and as far as we look we will not find disarray except that which is in our souls. I think this is why God hates sin. Sin at the core is disorder and the breaking of laws and boundaries. I don't want to get totally spiritual in the midst of this topic, but I believe it's all connected. For every action there is a reaction, when one thing happens so does another. This is why I spoke of watching algorithms in price which is all fibs really are. We don't trade until we see a familiar sequence of events; price breaking certain levels, retracing and so on. I trade fibs that most would call pretty wacky. I have spent thousands of hours studying fib fans which call on not only price but time as well. I have taken principles from the horizontal and applied them to my fan. I'll attach a couple charts with some example trades that cannot be explained by traders using fibs at the same time. Nobody would have seen what I saw. I believe my fib fans work because the market cannot move any other way. I don't know what all you know quantum, but I am thinking of starting specialized fib thread..Maybe we could put my knowledge in practice together with your knowledge in theory. I found the mold on the bread kills the bacteria and you can help me figure out why.


Regards,


Scotty B

Hey there. While I'm at it I thought I'd show my daily horizontal fib as well. Talk about conformity. Must be because so many market participants are buying and selling at the obscure levels that don't make any sense.

Again...The market cannot help following fibs.

Scotty B