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Why do people use Fibonacci in trading?

  • #201
  • Apr 17, 2013 9:28am Apr 17, 2013 9:28am
Quoting FerruFx
Pivots are one of the very first basics before understanding fibs. Even if I don't believe in S/R, fibs and all magical/mathematical stuff, you should start learn trading from the beginning. According to your postings since the last few weeks, you seem to have skipped a lot of basics. Don't try to find a preformated setup. Understand the market ... then and only then, define your own setup based on your own understanding of the market and which will suit your own trading style and risk.
I have suddenly got interested learning price action rather than indicators. And also got feelings that if I can understand price action well (may be through candle stick patterns) then I do not need to understand anything else. What do you think regarding my this thought?
  • #202
  • Apr 17, 2013 9:37am Apr 17, 2013 9:37am
Quoting Red Herring
I have suddenly got interested learning price action rather than indicators. And also got feelings that if I can understand price action well (may be through candle stick patterns) then I do not need to understand anything else. What do you think regarding my this thought?
There's nothing to be learned with indicators. Observe how they react with the price. If this work for you, then fine, otherwise trash them.

This must be a personal process as some indicators work for some but not for others ... and vice versa.

But sure in any case you must understand PA.
MT4/MT5 EAs/Indicators/Alerts coder
  • #203
  • Apr 17, 2013 9:47am Apr 17, 2013 9:47am
Quoting FerruFx
There's nothing to be learned with indicators. Observe how they react with the price. If this work for you, then fine, otherwise trash them. This must be a personal process as some indicators work for some but not for others ... and vice versa. But sure in any case you must understand PA.
I agree that it is essential that the trader must understand PA....implicitly, and the only way to get that knowledge is screen time. Some people get very anal when others use indicators, and it's silly.....it's just ego. As long as the trader understands PA and how to take pips from the market consistently, then it doesn't matter whether he does it with indicators or not. The end justifies the means!
Doing what you like is Freedom. Liking what you do is Happiness.
  • #204
  • Apr 17, 2013 9:51am Apr 17, 2013 9:51am
Quoting realjumper
it doesn't matter whether he does it with indicators or not. The end justifies the means!
MT4/MT5 EAs/Indicators/Alerts coder
  • #205
  • Apr 17, 2013 9:56am Apr 17, 2013 9:56am
Quoting FerruFx
So once defined your swing high and low, let the price retrace to a given level (ie. 23.6), then place enter the market in the opposite direction of the retracement. Of course the retracement level is just an example. With experience you will find your own best level. The one which works fine for you.
Oh I got it! Thanks

I will now compare this Fib with my understanding on price action.
  • #206
  • Apr 17, 2013 10:19am Apr 17, 2013 10:19am
Quoting GEfx
Red Herring, your fib tool uses a traditional approach to the fib levels which is reversed in my toolset (your .618 is my .386, etc). Keep that in mind when talking about fibs so as to avoid confusion. The charts you posted use historic data, and my charts do not go back that far. Here is an example of how I used fibs on the recent yen move up: {image}
Ya, that was from a very basic fib education tips but looks wrong as also confirmed by FerruFX. I am analyzing your example. Thanks for your response. All these helps.
  • #207
  • Apr 17, 2013 10:27am Apr 17, 2013 10:27am
Quoting foxybunny
Hi GEFx, I have just gone through your 20-pages of journal, good charts with notes on them. Your approach seem very consistent and low risk over the years. How do you determine whether to enter at the 0.50 or 0.618 ?? Are you usually watching the screen at that time to manually enter or you put in automatic entries ? What have you change this year in your trading method compared to previous years and AFTER you talked with your Banker friends? I prefer the retracement to 0.786, and then wait for it to bounced back to 0.5 to enter at 0.5. I see that...
Hi foxybunny,

Hope you are having a good trading day. Let me quickly answer your questions, as I am still trading and want to get back to my trades.

The decision to enter on the .50 or the .618 depends on which one has been used by the bankers in the previous legs. If they tend to push through the .50 in an effort to get a better price, then I will adopt the .618 as my preferred price level for entry. However, I am really focused on the .50 and the .786. In addition, some pairs are more likely to see the .618 used as a target (e.g., GBP crosses).

As for using the .786, I will immediately enter on a .786 if it makes sense, if I have missed the other fib levels (due to focus on other pairs), and I see a reaction at two of the other fib levels. Typically, if the .786 is hit, there is a good chance we'll see a bounce/reaction.

As for how my trading has changed in the past year, I'd say not much. My consulting work with banks was several years ago, and I have stayed in touch with many of my contacts. I have copies of charts from 7 years ago that show how fibs worked then, and they continue to work today. The real change (for me) has been targeting the .50 today rather than the .618 in the past.

Of course, fibs are only one of the tools and techniques I use in developing a view of market structure (only trade when PA and your TA are aligned with market structure).

Good trading!
  • #208
  • Apr 17, 2013 11:43am Apr 17, 2013 11:43am
The different ways that you can use fib ratios is mind boggling. Connect a little swing low with the high with the fib retracement tool. Find the 423.6 fib ratio, draw a line through it. Then take another fib retracement and reverse it, from the 423.6 fib line, back up to the top of the swing. And look at where price is currently at.
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Time turns trend. - W.D. Gann
  • #209
  • Apr 17, 2013 11:57am Apr 17, 2013 11:57am
Same picture. Same line. Now connect the line with a swing top below it to find the next potential break, at bottom.
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Time turns trend. - W.D. Gann
  • #210
  • Apr 17, 2013 4:17pm Apr 17, 2013 4:17pm
Fibonacci is the biggest myth persisting in the minds of traders worldwide for a long time now.

Almost every single book on trading that I've read talks about Fibs and all of them admit that no one has a real explanation of why it is supposed to work. One of the best books - by A. Elder - does not say a word about Fibonacci (though it mentions briefly Elliot Wave).

I do not dismiss the possibility that there is some underlying principle which manifests itself in such price motion, but I suspect that any such principle would have been already discovered, given its significance.

People tend to regard the Fibonacci sequence and derivatives thereof as something almost magical because it is so fascinatingly common in nature, and thus they conclude that it must also apply to financial markets. The truth is, for every appearance of Fibs in nature we know the reason behind it, whereas in the markets no one is able to provide that reason.

Traders draw Fib levels on charts and expect some increased probability of the price reacting to these levels, usually by reversing. Given the numerous possibilities to draw the levels and the fact that no one expects these levels to actually hold to the pip, any price movement will look like it obeyed one or the other Fib level. And when it doesn't, they say: "Of course! Nothing works EVERY time!"

Fibonacci is one of the most convenient exponential sequences that allows humans to do quick calculations in their mind. The most convenient sequence is powers of 2, another one - is powers of 10. But 10 and even 2 are exponential bases which are too large and result in functions that grow too quickly. Fibonacci has the exponential base of approximately 1.618, which provides a more moderate growth pace.

I can very well understand a trading reasoning of this sort: "I will act on this pullback when it reaches a certain magnitude in terms of its preceding x-pip rally, e.g. (1/4)*x, or (1/2)*x, or x, or 2*x, etc."
This is just as valid as looking at (1/1.618^2)*x, (1/1.618)*x, x, 1.618*x, etc. Note that 1/1.618^2 = 0.38, 1/1.618 = 0.61, ... - do you recognize the numbers?

The above is a completely sane approach, and it does not assume any improved likelihood for the price to reverse at any of those levels.

The bottom line is: while there is certainly a place for Fibonacci in technical analysis, it is quite different from expecting the Fib levels to act as support/resistance, which unfortunately is exactly what every example/analysis with Fibs that I've seen is trying to do.
  • #211
  • Apr 17, 2013 4:24pm Apr 17, 2013 4:24pm
Quoting ForExtraPips
The different ways that you can use fib ratios is mind boggling. Connect a little swing low with the high with the fib retracement tool. Find the 423.6 fib ratio, draw a line through it. Then take another fib retracement and reverse it, from the 423.6 fib line, back up to the top of the swing. And look at where price is currently at. {image} {image} {image}
My friend, you are deluding yourself.
What is any ocean but a multitude of drops?
  • #212
  • Apr 17, 2013 4:58pm Apr 17, 2013 4:58pm
Quoting ForExtraPips
The different ways that you can use fib ratios is mind boggling.
The different ways you can use pivots are mind boggling. Well... not really. I prefer simpler.
Support pivots are that and resistance pivots are that. Depending upon interpretation at
the time of S/R trials.

When something becomes ( "fib ratios is mind boggling.")
mind boggling, could that be a problem ???
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When the Joker is in the deck.. fear not and play it well
  • #213
  • Apr 17, 2013 4:59pm Apr 17, 2013 4:59pm
Quoting Fradix
Fibonacci is the biggest myth persisting in the minds of traders worldwide for a long time now. Almost every single book on trading that I've read talks about Fibs and all of them admit that no one has a real explanation of why it is supposed to work. One of the best books - by A. Elder - does not say a word about Fibonacci (though it mentions briefly Elliot Wave). I do not dismiss the possibility that there is some underlying principle which manifests itself in such price motion, but I suspect that any such principle would have been already discovered,...
This out of all of the efforts at an explanation is my favourite. . Clueless...
  • #214
  • Apr 17, 2013 8:02pm Apr 17, 2013 8:02pm
Quoting GEfx
Hi foxybunny, Hope you are having a good trading day. Let me quickly answer your questions, as I am still trading and want to get back to my trades. The decision to enter on the .50 or the .618 depends on which one has been used by the bankers in the previous legs. If they tend to push through the .50 in an effort to get a better price, then I will adopt the .618 as my preferred price level for entry. However, I am really focused on the .50 and the .786. In addition, some pairs are more likely to see the .618 used as a target (e.g., GBP crosses)....
Hi GEfx, thank you as your replies clarify that you are looking at other entries and not just 0.5.

Would you show a chart on how to know the Bankers used in the previous legs as 0.5 versus 0.618?
And how would you tell that move is by Bankers?

Yesterday was not a good trading for me, as I kept trading on multiple Longs on E/U downtrend as looking for reversals all the way down, and testing more on fibs 0.5 on H1 that I should not be doing while trading.

Good trading to you.
  • #215
  • Apr 17, 2013 8:31pm Apr 17, 2013 8:31pm
Quoting foxybunny
Hi GEfx, thank you as your replies clarify that you are looking at other entries and not just 0.5. Would you show a chart on how to know the Bankers used in the previous legs as 0.5 versus 0.618? And how would you tell that move is by Bankers? Yesterday was not a good trading for me, as I kept trading on multiple Longs on E/U downtrend as looking for reversals all the way down, and testing more on fibs 0.5 on H1 that I should not be doing while trading. Good trading to you.
Hi foxybunny, I will post the next example of .618 vs. .50 fibs. Shouldn't take long for one to come up over the next few days. As for knowing if a move is by bankers: the forex is run by bankers, with the major players being the big tier 1 banks (e.g., DB, Citi, HSBC, etc) or the CBs. If PA is moving, you can thank the bankers. Sorry to hear about you day today. I, too, started the day with a long bias on the E/$, but managed to see the move south once it got underway in the context of the E/$ market structure. The E/J turned out to be a better euro cross for me today. Just posted my last trade from tonight on my Journal. Have a good trading day!
  • #216
  • Edited 10:58pm Apr 17, 2013 10:46pm | Edited 10:58pm
There are some cynics posting on here that make me laugh. I employ Fib ratios combined with Elliott Wave Principle (itself a Fib-based method) for every trade I execute. For me, there is no question about the application of Fib levels in TA and PA. Most of my targets derived via Fib ratios are met within 25pips and once or twice a week right to the pip.

Yet, every week I see at least one dismissive post filled with ridicule and explaining-away-of-explanations - and these are mostly directed at either Fibonacci ratios or Elliott Wave principle. It is not OK for some people that others should go beyond the conventional or perhaps have some way of looking (and analysing) that they don't understand. The variety of ways that Fib ratios can be found and applied in charts is truly mind-boggling, as said and illustrated a few posts before. If you find an idiosyncratic application of Fib ratios that works for you and your instruments and your trade then sooner or later some bitter individual is going to dismiss it. These are the sceptics that somehow have the inclination to spend mental energy on "debunking" rather than "constructing".

Well, I begin by saying that they make me laugh, but these are the same vipers who enjoy inquisitions and kill Galileos. (shiver)

As for the contention that the transference of Fibonacci ratios from Nature to the markets is a myth: the transferring agent is the human who, no matter how complex, is a product of Nature. Our limbs and DNA (and by Fib extension) our psychology manifest by Fib ratio - and yes, not "to the pip", your Honour, but by approximate ratio. As for the belief that there is a single TA method that has 100% success and applies the same way everytime - well, what kind of pretzel logic dismisses a TA method for not "working everytime"?
cryptocurrency everytime
  • #217
  • Apr 17, 2013 10:51pm Apr 17, 2013 10:51pm
Quoting Xhale
My friend, you are deluding yourself.
if your intention is truly benevolent, "my friend", then qualify your statement.
cryptocurrency everytime
  • #218
  • Apr 17, 2013 10:54pm Apr 17, 2013 10:54pm
Quoting venzen
These are the sceptics that somehow have the inclination to spend mental energy on "debunking" rather than "constructing".
Well said.....and those people usually exude biblical amounts of arrogance, as we have seen not too many posts back.
Doing what you like is Freedom. Liking what you do is Happiness.
  • #219
  • Apr 17, 2013 10:55pm Apr 17, 2013 10:55pm
Quoting venzen
MapleLeaf, this is a trading forum. There are winners and losers here. Winners also lose but have strategies to minimize losses and extend gains. If taking a calculated risk on a probable outcome is equivalent to gambling, then every business venture, every book written, every aspirational thought - hell, even getting out of bed - is "gambling". Not that gambling is even - in itself - an evil. I know some profesional card and casino gamblers who are both successful and full of love. Some come here to collaborate and improve; others come here to...
99.6% of people lose money after 1 year of trading.

That gives us the number that ONLY 4 traders in 1000 make a profit after 1 year of trading.

Let me ask you a simple question "venzen", do you make a living trading exclusively ONLINE RETAIL FOREX?...

Did you make a living trading exclusively ONLINE RETAIL FOREX for the past 5 years?..

We all know the answer. You cannot hide the Sun with one Finger, "venzen".
The Black Swan: The Impact of the Highly Improbable
  • #220
  • Apr 17, 2013 11:03pm Apr 17, 2013 11:03pm
Quoting FerruFx
You are wrong. You are wrong again.

Wrong??

I already asked you in another thread if you were doing a living TRADING RETAIL FOREX and you clearly EVADED the question, then you said that you are a CODER FULL TIME... So, why do you say im wrong? You are CONTRADICTING YOURSELF.

Here we go again, to make it clear.

FerruFx, do you make a living Trading RETAIL ONLINE FOREX every day?

Did you make a living TRADING RETAIL ONLINE FOREX for the past 5 years?

Don't contradict yourself, FerruFx, because people will see it.

I would think a lot of times, before hiring a coder that contradicts himself... Or listen to advice of people who don't trade...
The Black Swan: The Impact of the Highly Improbable
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