Are Fibonacci levels overrated?

I was first introduced to Fibonacci levels when I read a trading system by Quantum Global. Basically, if there is a "wave" greater than 40 pips in height, you were supposed to play the Fib levels, and filter your trades based on RSI.

I backtested the method for a year or two, and found that it won 50% of the time.

I could flip a coin and have the same results... 50/50.

I realize many traders swear by Fibs.... and yes you can find Fib "patterns" in charts a lot. But how valid are Fibs really? My problem is that I believe too many traders are playing Fibs in different timeframes... consequently a lot of noise in the charts.

Oh and I firmly believe the banks are not trading to make profits.... they are buying Forex future contracts to hedge their country's economies based on fundamentals.... they are exercising the contracts and not selling them for profit. That's why price action is my bread and butter for now.

I don't know how good they are but some people are making pips from it. One thing that I'm not sure is the attitude of the users. Do they believe in Fibonacci because the market watch for it or because it's a natural tendency of the nature ?

They always claim that "you can find Fibonacci in seashells and the nature" but unlike the market, the seashells do not observe and adjust themselves according to Fibonacci numbers (if the seashells really know Fibonacci exists).

So, I'm not sure if the Fibonacci phenomena in markets are a result of market natural behavior or because the market observe and act upon them.

It's because people act on them.

mostly fib work because everybodi(almost) use them

Since Jan 1 2006 up until last week the gbpusd has retraced to the below mentioned fib levels (with in 7 pips) at the end of each day or before the close of the following day. Normally well over 50% these retracements begin around 9:30 am eastern standard time.

97.2% of the time it retraces to the 23.6 fib level
86.9% of the time it retraces to the 38.2 fib level
76.9% of the time it retraces to the 50.0 fib level
63.8% of the time it retraces to the 68.2 fib level.

Using the fib retracements for this pair can be very helpful in determining exit and entry strategy. Fib expansions and Fib arcs have not really studied that closely. Eurusd and UsdChf have similar regularities also.

Also taking note of the on the weekly fib retracement of the gbpusd is helpful too.

Hi goodthings!

What do you mean by the retrace start at 9.30 EST? Does it means that, the market start to reverse every 9.30 EST? and goes to those fibonacci level? From what point to what point do you take the fibonacci? Is it daily fibonacci?

Cheers,

Bangun

The below is a quote from another thread of a fella explaining why this happens. The fib levels are taken from the days high and low to that point. The day typically starts at 5 or 6 eastern time. So you would take the high and low from that time up until 9:30 am or so. Check your charts and look at what happens in the market at around those times.

Goodthings:

I was told by a former bank trader that options expire each weekday at 10:00 USET. As a result, he said you can expect "strange" things to happen during the 09:30-10:30 USET period. This may explain what you have been observing.

I consider myself an active-swing trader; but most of my trades are intraday; and the 09:30-10:30 USET period has been one of my favorite "fishing holes." I sometimes catch a trade in one direction leading up to the 10:00 USET option expiration and a trade in the opposite direction after that time. The pip movements during this hour or so are not usually what most of us would call significant, but it has been a profitable time period for me so far.

Congratulations on recognizing and sharing what may be a very helpful observation to a lot of traders browsing this forum.

...\larry.bye

that 5 or 6 eastern pm

An example of the gbpusd touching the 38.2 fib level from the previous days high and low.

Goodthings good work.

Going long/short to meet the 23.8 retracement level as a TP the next day seems like an interesting idea. That is, until I read "within 7 pips of....."

So do you trade this as part of your aresenal?

Yes when I can. I work during the day. I am rarely in a trade past 10am. Hey nothing is exact there has to be some type of filter. When you are looking at an exact mark with in 7 pips is a good breather. If I am aiming for the 38.2 I normally go half way between the 23.6 and 38.2 just for safety. High probabilities like that are nice to go on.

Green fib is previous days (50 fib level) and the yellow fib is last weeks 23.6. Both are points of support now.

Not to keep beating the same drum but here it stalls at the 61.8 fib of previous days high and loww

My mentor, a very successful long term trader, likes going against fib's because he believes more money can be made.

Goodthings: what time is this GMT?

I make my living as a trader and if I would have to attribute any one thing to my success it's using fibs. Today not yesterday, today I made money because of fibs...look at the EURUSD 60m on March 30 and draw a fib from the last swing from the low on the 28th of march to the high on the 29th of march. You will see the 127 extension at 13290. After getting short at 1.3342(no fibs on this entry) during the day of the 29... I used the 127 as a price target. I got out of my short and went long at 1.3290 and what happened? I got out at just about the bottom pip and got in before a 90 pip run up.. 143 pips of profit ALL based on fibs.

ALSO...what's it matter if Fibs are voodoo magic or a self fullfulling prophecy? Your focusing on the wrong facts.

Ryan

...is not that fibs don't work, but that they work TOO well. There are so many relationships on so many time frames that my chart gets too crammed full of lines when I use them. And that is before expansions which are a bit different animal...So which to choose? it soon creates a mess. Which is support? which is resistance? TP at 38%? 62%? 50%? (50 not technically a fib% by the way...) Buy/Sell at 1.382/.786/2.618? I would appreciate hearing the opinion of anyone using Fib studies successfully!

When scalping off a 5 min chart, my fibs will more often than not tell me where I can look to take profit (using a neg measurement). Fibs very seldom lie.

I read a quote on another forum today that if price retraces to 61.8%, then it's generally believed it will go to full 100% retracement.

About an hour later at 1500 GMT I was trading the eurodollar and that's exactly what I observed happening.

Take a look at this chart...

I use the following
38.2 retreace should go to 161.6
50.0 retrace should go to 138.2
61.8 retrace should go to 121.4
78.6 will either reverse or continue the trend....low risk place to enter trade
take bounce with small stop or take break with small stop 3-4 pips on the otherside!
I see this work day in and day out and this is all based off of previous days trading range. example...draw your fib lines on mondays high to low or vice versa, low to high for tuesdays fib levels and wait for your retracements.
works best at london open.