Fibonacci Indicator? Is it a big Joke?

To each their own I suppose.

I know several traders that are very consistent with their methods using rule based Fibonacci strategies.

I also know significantly more traders that are unsuccessful with Fibonacci, their also unsuccessful at any other strategy they try.

It is my opinion that without a rule based method to enter, manage, and exit the market you will, over time, be unsuccessful.

I work in a data research and analytic firm for financial traders of various institutions. The number one reason they attribute to failure in trading is subjectivity.

If you've never saw a Fibonacci level be respected then I can only guess you're drawing them completely wrong, they are respected all the time, you just never know which level and to what degree it will be respected. With solid risk management you can trade each level and lose 3 time but win on the 4th one and turn a profit. We see traders do it all the time.

Wish you will in your method though, I see no logic, but good luck!

Fibonacci ratios represents favourite levels superstitious retail traders like to place/make their trades at, makes them more confident than at any other spot on the chart, it's a psychological thing. So, if you need this psychological feel good prop then use it, if not forget it. It has to be some level anyway, and the exact number for every case is different and most likely not the fib ratio but somewhere 'there' wherever the 'there' is. And if it's true that many retail traders place orders at fib ratios so prices reacts at that level has this notion that retail volume is significantly large enough to move prices, which can't be true. And since reversal does not take place exactly at the fib ratio then it must mean that retail traders must have drawn their fibs differently from each other.

If you were to look at the market in analogies of physics ie. vectors, velocity, acceleration, momentum, volume, 'friction'(resistance) etc. things might start making a lot more sense... Of course you wouldn't use a constant like gravity or something however if you were to look at the 'nodes' where fib levels cross as more like probability clouds (electrons of atoms) where (likely self-fulfilling prophecies) push and drag price levels. Bayesian probability might be worth reading a little about [useful in EA development].

Perhaps, the market is a car or something and we can model a system with many component forces and physical properties (P/A, economic data, historical relationships, targets to be met and methods employed to 'redirect' the stream of price) dynamically interrelated and interacting in a perpetual flux; we can reach a satisfactory degree of precision in engineering a car without modelling every possible variable and their dynamics and still drive relatively safely. The greatest factor however, is the person driving the car, their skill, experience, mechanical-know how, etc. and to a lesser degree, the terrain on which they are required to drive today.

Short-version: You don't need to know the resistance of carbon dioxide molecules in the air to get an idea of how fast a car will go or if it's breaks are going to still work when you need them. But you do need to know when to drive, how to drive, and don't drive intoxicated, plus the more you know about the mechanics/limitations of the car the better informed you are when the car swerves and you need to make split moment decisions to stay alive.

Do you have an indicator or know how to get HLC bars as DM is using?

Yes. Fibonacci itself is not that reliable I find. One can imagine the reliability of an indicator based on an already unreliable system.

You are correct - Fibonacci is useless as an indicator. If it worked, then there would be lots of millionaire retail traders. But, of course, there aren't.
Most traders lose - most traders use indicators - what does that tell you?

Would you consider price action to not be an indicator? Candles and bars aren't either?

It certainly is just an indicator. While most people have a special reverence for 'pure' price action trading I don't see how using only price data in one's analysis is any different from using a derivative of it.

My point being that 'indicators' are just graphical representations of mathematical relationships between variables using statistics (and averages most commonly)

Candles or bars are the same thing however the indicators that most people discuss and want are actually displaying mathematical relationships between differently chunked sets of candles/bars[or volume,time,,retracement, indices etc.] the reason they may not seem useful is likely because the people trying to use them don't know what the pictures actually tell you. I think the most important thing to keep in mind is that this is a probability game fueled by peoples heuristic understanding of variables directly, strongly, weakly, positively, negatively or non-correlated to one another.
[edit:]

Usefulness is subjective. My point is that whether you use derivatives of price data or only price data, both approaches are equally sound or unsound depending in your opinion on the usefulness of analysing price data.

That's a fair point

May I elaborate and say that their usefulness is partially determined by the users understanding of the indicators' pro's and con's and knowing when to use it in the correct scenario? I mean, if you notice a high correlation between certain data sets consistantly (perhaps, even if there's a close to consistant percentage fluctuation in the correlation) that in itself would be the math part of an indicator, the next part is just deciding which 'color code' or 'algebra' you will use to see the relationships current performance at a glance of your charts.

I partially wrote this for other people that stop by, I think you do already understand what I've typed.

Regards,
Hat.

Interesting discussion.

It never ceases to amaze me how few humans understand the golden ratio and what it represents. Why does price react at or near Fibonacci levels? Because all life does. Fibonacci is not some magic trading indicator. Nor is it the reason life acts the way it does. It is simply the mathematical explanation for the very construct of all creation. From the smallest particles to the vastness of the entire universe and yes, accept it or not, your very DNA. Which, for those who dont know, is your program that dictates how you act overall. So price doesn't react to Fibonacci levels because they're simply drawn on a chart, like all other things in life, it simply has no choice but to follow the basic construct.

Are there variances? Sure, just as there are in all life. We've all seen that price doesn't always react to an exact fib level but, with the exception of big data releases that can send price wild for a few (I think part of the reason for the variances), show me where it didn't react in some way at, or very near to one. Perhaps it was merely a pause, maybe a nice bounce or even a turn but if you watch closely, you'll see a reaction at these levels the vast majority of times.

I have always used Fibonacci in my trading. Not because I learned of it from trading, but because since I was a child, I've inherently understood the natural construct. In fact, whether you're aware of it or not, we all have because its nature itself. As are we. Its the mathematical base on which all is constructed including us. So why does price react at these levels? Because we do. Self fulfilling prophesy? Or simply the natural order of things? I let each to their own decide because no matter your definition of it, it doesnt change a thing.

Life doesn't "follow" the Fibonacci sequence of numbers. The Fibonacci sequence simply explains the construct of creation and life from a mathematical standpoint. Therefore, its not simply a valuable tool for trading but for understanding the flow of creation itself. (Kind of why it's called the Golden Ratio)

Now, about those natural variances we all see? I've been working on a little theory of mine involving that. I have recently come to learn this nothing new in trading. Some of our longest standing and well respected members here have been doing it for some time. The fun part for me is I came to it myself first .... and then learned folks like KenA, Gator and others have indentified and used it long before I did. (I've always enjoyed discovering new things on my own and then seeing support for it elsewhere)

I would invite you to flip through some charts and trades of mine. You can skip the commentary if you like and just look at the trades. Each is solely based on Fib levels with a couple modifications seeking to narrow down, or, identify those variances a little better. Holy grail? Hardly. But since I came back to trading at this point with only limited time to do so, these are the only trades taken. You can see they're all pretty good (and yes, live not demo ), but the key for me is how quickly Im able to enter and cover with little to no DD first. I think anyone who trades seriously can appreciate that.

This is just an example and not about bragging. Trust me, some of these trades could have, and should have been managed better for more profit. Ill give myself a "little" break on that due to my time constraints during them. Some of them (if not most), I should have simply walked away from the charts for a few days as I tend to look for and trade patterns on time frames of 1H and up. I use the 5m and 1m to watch structure build around the levels of interest for entry/exit. So you'll see plenty of 5m and 1m charts but Im not scalping or setting out to.

Im sure the debate over the use of Fibonacci will rage on forever. For me? There is no debate. I will always use it because It simply is ... what it IS.

Call it mechanical, psychological, superstition, pure crap or whatever. They're all correct because they're all part of life. And life, is what Fibonacci explains. One note, on the charts where you see no Fibs drawn or just some lines? Its only because I don't much care for busy or cluttered charts. But you can be sure the levels are all based on Fibs.

Just my 2 cents. (and a few fib based trades of course)

http://www.forexfactory.com/showthre...07#post8438107

Hi albchr thanks for joining in!

I have to say that i heavily lean towards your stance on fib numbers having a greater connection outside of trading though with our meager understanding of physics and 'reality' i don't think it's right to say that fib is the answer for everything. If one was to consider the fib to be like a moving average on one time frame {an average of 'special spirals'} and for deviations in the flow angle from initial point to end point to be different groups or taxonomic ranks of 'averages' we would be closer to the truth when we say 'fib numbers are the foundation of existence' or something akin to that.

Hat.

On that chart, you have dotted yellow and green lines like SR ...do you want to post that indicator, please?

Do all price charts from different brokers, all look exactly same to the exact pip ?
Do all people draw fibs from exactly the same points on a chart ?
Do all people use the same timeframe to draw fibs ?
Do you expect price to turn exactly on a fib level to the exact pip ?
Do you even know which fib levels are relevant for that currency pair ?
Do you even bother to do your own research or just follow the crowd ?

Trading is about probabilities not precision. When you get a confluence of factors at or near a certain price level, do you pay attention to that ?
Do you not think professional traders are waiting for reactions from the market at these price levels ?

Lack of training / understanding or incorrect use does not make something useless.
This could be said about all the technical / fundamental analysis tools.

Thank you, that was effectively what I was trying to say

Hi Hat

Well, I don't think I said it's "the answer for everything" (perhaps I could have worded better? ) Only a mathematical explanation of the universal construct. While it is true we are still infants in the area of understanding "all" physics, reality is actually quite a bit clearer to me. I'm a simple guy with no formal education but there are certain mathematical "bases" that cannot be argued with. Added to perhaps as we learn more, but the base remains a constant. Through life and countless examples, I believe the Fib sequence is such a base. All higher contemplations aside, it simply works for me.

Fib or any other indicators are just tools that support trader's understanding of market and to help to be patient and disciplined. if any of those is missing then nothing can help including fib.

Hi ruma29

It's not an indicator. Simple lines drawn manually that represent levels of interest to me based on Fibs.