Where is the logic behind applying Fibonacci to trading? | Page 9 | Forex Factory

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Where is the logic behind applying Fibonacci to trading?

  • #161
  • Feb 13, 2016 9:53am Feb 13, 2016 9:53am
Where is the logic behind applying Fibonacci to trading?

There is no logic behind it.
See what you want to see. Like looking for patterns in tea leaves.

http://tasseography.com/stepfive.htm
  • #162
  • Feb 13, 2016 10:12am Feb 13, 2016 10:12am
The OP asked the question, lit the flame, then left at post #4

There was no need to start this thread, it's all been said before.

There is no logic to any form of TA, but you take what is useful to you to give you an edge that is better than 50 - 50 or toss of a coin.
Crowd psychology plays a big part in TA, again take what is beneficial to you in your trading, even if it has no logic behind it.

If Logic was the only criteria in trading, then an EA (robot) could be programmed to trade successfully.
It never gets easier, you just get better
  • #163
  • Feb 16, 2016 6:32am Feb 16, 2016 6:32am
Another high R:R trade CAD/JPY using fibonnaci retracements:

1. established downtrend on 4h chart
2. correnction wave in shape of flag/wedge pattern on 1H TF broken
3. PA tested and respected 50 % "fib" retracement, and 200 SMA on 4H chart
4. evening star candestick pattern formed below 200 SMA on 4H chart
5. Price of USOil started to fall again (H&S pattern formed on USOil 4H chart)
6. Retail traders are long on CAD/JPY (trade against the crowd)
...
7. The downer is that Saudi Arabia and Russia recent agreement to freeze oil output at near-record levels,
8. CAD manufacturing sales numbers came out better then expected
9. and that 1H flag pattern looks like V-shape reversal on 4H time frame (must watch what PA will do near 81 level)

Now, point 7 can be a game changer, but I think we're gonna see PA test at least 79 level one more time. If not, we could be in for bigger correction (possible double bottom forming on daily chart), so I have a stop loss placed above recent retracement high and 4H 200 SMA.
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  • #164
  • Feb 16, 2016 6:49am Feb 16, 2016 6:49am
PA in the gold chart I posted earlier in the thread: http://www.forexfactory.com/showthre...22#post8736422

The following chart is the same chart with the same Fib extensions and shows gold price hitting within less than a dollar of the 3.618 extension it typically targets.

Of course, none of this glorifies me, but it does show the utility and pervasive influence of Fibonacci ratios in charts. You just have to develop the (Elliott wave) sense of where to project them from. Again, the fib extension tools were left untouched since I posted the initial chart linked above, and every significant wave turning is pointed at by a .618 Fib level, including the level of the breach of the long-term declining channel trendline.

XAU/USD 4hr

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cryptocurrency everytime
  • #165
  • Feb 16, 2016 6:50am Feb 16, 2016 6:50am
Quoting Tom81
Another high R:R trade CAD/JPY using fibonnaci retracements: 1. established downtrend on 4h chart 2. correnction wave in shape of flag/wedge pattern on 1H TF broken 3. PA tested and respected 50 % "fib" retracement, and 200 SMA on 4H chart 4. evening star candestick pattern formed below 200 SMA on 4H chart 5. Price of USOil started to fall again (H&S pattern formed on USOil 4H chart) 6. Retail traders are long on CAD/JPY (trade against the crowd) ... 7. The downer is that Saudi Arabia and Russia recent agreement to freeze oil output at near-record...

@Tom81,

Hold on...while I appreciate your chart posting, let's be honest...the last one you posted in this:
http://www.forexfactory.com/showthre...13#post8742813

Certainly went nowhere near your PT. Yes, you said you got out at 1:2 due to fundamental reasons, but that was supposedly a "near perfect" fib entry with high R:R too.
Well, the last PT prediction was way off. In fact, you would have had to exit the trade not long after that pic you posted to get out 1:2. That was pretty much the low in that move, and after it retraced some 200 pips. Not exactly a prediction was it? So, in the UCAD chart...yes you were dreaming!

So far I've seen nothing that shows your fibo levels are in any way predicting anything.
On the UCAD trade you took however, a simple round number play from the 1.40 level would have proven quite lucrative.

So, is fibo any more or less valuable than anything else?
Wealth comes from what you keep, not what you earn
  • #166
  • Feb 16, 2016 7:04am Feb 16, 2016 7:04am
Isn't Gatorinla, one of the best traders this forum has ever seen, a Fib trader?
  • #167
  • Edited 7:41am Feb 16, 2016 7:14am | Edited 7:41am
Quoting trader34
{quote} On the UCAD trade you took however, a simple round number play from the 1.40 level would have proven quite lucrative. So, is fibo any more or less valuable than anything else?
As I said before, you can't trade lucrative Fibbonaci levels alone. It's just a measuring tool of PA movement. You can see that in addition to Fibbonacci I also use RSI(14) for establishing momemtum, 21 EMA, 50, 100, 200 SMA as filters, support/resistence levels, japanese, western chart patterns and always seek fundamental factors behind the technical trade I take. I would never short JPY in risk aversion environment, neither go short on CAD when prices of Oil start rising or go long on NZD when GDT Price Index falls again and NZ Inflation Expectations fall to 22-year low, no metter what fibbonaci or any other techinal indicator is telling me. Fundamentals move the market, technicals help us to get in cheap, nothing more, nothing less.

Being wrong is essential part of trading. With my trading style I have been wrong 59% of the time in the last eight years, but thats OK, I have to be right only 26% of the time to have an edge and Fibbonaci levels (along with other indicators) just give me that. After all, trading is not about being right, but making money.
  • #168
  • Feb 16, 2016 7:52am Feb 16, 2016 7:52am
Quoting Tom81
{quote} As I said before, you can't trade lucrative Fibbonaci levels alone. ... With my trading style I have been wrong 59% of the time in the last eight years, but thats OK, I have to be right only 26% of the time to have an edge and Fibbonaci levels (along with other indicators) just give me that. After all, trading is not about being right, but making money.
Well, then that's great for you. But surely you can see what I've been saying, and you have inadvertently proved my point:
If you are using fibo levels along with all you other filters and still been right only 41% of the time in 8 years...fibos are not actually a predictor of price, as some here have been claiming. The 41% statistic is insignificant in terms of scientifically proving a line/level has any more than a random chance of being correct.

Sure...they can be used as a measure...I never disputed that...but they have no more magical predictive powers than any other tool.
As you correctly said and as I said earlier on; fundamentals move the market. And when the market is moving, no one cares which fibo level is being tickled at that time.
Wealth comes from what you keep, not what you earn
  • #169
  • Feb 16, 2016 7:54am Feb 16, 2016 7:54am
It's a self-fulfilling prophecy and a psychological crutch. You could draw a bunch of random lines on a chart and short if price action crosses below and go long if crosses above. There's just more of a reaction with Fibonacci because other traders use it, thus the market responds. Again, self-fulfilling prophecy.


... or some magical force of the universe
Holy grail: risk management
  • #170
  • Feb 16, 2016 8:10am Feb 16, 2016 8:10am
Quoting trader34
{quote} The 41% statistic is insignificant in terms of scientifically proving a line/level has any more than a random chance of being correct.


You can't just take my 41 % winning rate and say Fibbonacci levels are meaningless. If I'd seek trades with 1:1 risk/reward ratio, that would be a fair assessment, but my real time risk/reward ratio is 1:2.63, If I discount first two years of trading it would be over 1:3 now. I look at Fibonacci levels as possible support/resistence zones. I find that quite often price retraces to 50 or 61.8 % fib levels and waits for important news to hit the market and then reverses or continues its main trend. If you can predict where big boys will be taking positions, thats all information you need. If you're positioned wrong you get out with small loss, If market moves in your direction, just let it run.
  • #171
  • Feb 16, 2016 1:08pm Feb 16, 2016 1:08pm
Quoting Tom81
Another high R:R trade CAD/JPY using fibonnaci retracements: 1. established downtrend on 4h chart 2. correnction wave in shape of flag/wedge pattern on 1H TF broken 3. PA tested and respected 50 % "fib" retracement, and 200 SMA on 4H chart 4. evening star candestick pattern formed below 200 SMA on 4H chart 5. Price of USOil started to fall again (H&S pattern formed on USOil 4H chart) 6. Retail traders are long on CAD/JPY (trade against the crowd) ... 7. The downer is that Saudi Arabia and Russia recent agreement to freeze oil output at near-record...
Well done! Good trading to you. I like this one as much as the first one you posted earlier. I don't trade any of the cads so I think your posts are interesting. If you have time, post your follow on trades as this develops, or what you do if you get the reversal. I would have a different stop, but can see several places for your second and third trades. Good trading and thanks for your posts.
  • #172
  • Feb 17, 2016 7:06am Feb 17, 2016 7:06am
I do not use fib in my strategy.
This mathematical regularities, that we'd like market respected.
But market is a living organism. He more responds to fundamental factors.
You can of course use Fibonacci in connection with other tools TA, but it's not for me.
I don't believe in Fib.
  • #173
  • Edited 7:28am Feb 17, 2016 7:12am | Edited 7:28am
Quoting Tom81
{quote} You can't just take my 41 % winning rate and say Fibbonacci levels are meaningless. If I'd seek trades with 1:1 risk/reward ratio, that would be a fair assessment, but my real time risk/reward ratio is 1:2.63, If I discount first two years of trading it would be over 1:3 now. I look at Fibonacci levels as possible support/resistence zones. I find that quite often price retraces to 50 or 61.8 % fib levels and waits for important news to hit the market and then reverses or continues its main trend. If you can predict where big boys will be...
Yes it is meaningless. In most cases when it reached the magical 50 something it was infact somewhere between 40 and 60, and 50% is the center of 1-100. So obviously for a retrace, half of something will have a significance if you stare at it. But then performing a ritual dance around some secret magical numbers is not proving fibs have any meaning.

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Take a look at this screenshot from babypips.com. Do you really thing the 0.61 line has real meaning?
Price-Action Extremist
  • #174
  • Feb 17, 2016 7:56am Feb 17, 2016 7:56am
Quoting bagman
{quote} Yes it is meaningless. In most cases when it reached the magical 50 something it was infact somewhere between 40 and 60, and 50% is the center of 1-100. So obviously for a retrace, half of something will have a significance if you stare at it. But then performing a ritual dance around some secret magical numbers is not proving fibs have any meaning. {image} Take a look at this screenshot from babypips.com. Do you really thing the 0.61 line has real meaning?
Yep, great example.

Notice how babypips (and often many others) fail to mention, or draw attention to, the confluence of the 61.8 fib retrace with the SR structure to the left of price? It could be argued that the SR structure itself, being imbued with the magic ratio qualities, offers evidence for the "existence" of fib, but I guess that's why the discussions of whether "to fib or not to fib" often become circular.

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  • #175
  • Feb 17, 2016 8:36am Feb 17, 2016 8:36am
Quoting simond2002
{quote} Yep, great example. Notice how babypips (and often many others) fail to mention, or draw attention to, the confluence of the 61.8 fib retrace with the SR structure to the left of price? It could be argued that the SR structure itself, being imbued with the magic ratio qualities, offers evidence for the "existence" of fib, but I guess that's why the discussions of whether "to fib or not to fib" often become circular. {image}
I think people get so attached to fibs because of superstition and the desire to find meaning in things. But from what I can see in reality, there is no meaning, only some structures that can survive chaotic circumstances long enough so that it appears as if there is meaning. If you apply mathematical probability to anything in nature, then fibs are completely useless. Most mechanisms or structures in nature do not follow fibs. A tiny amount of things do, but then we got selective perception again fooling the observer.
Price-Action Extremist
  • #176
  • Feb 18, 2016 1:32am Feb 18, 2016 1:32am
Quoting Ponzi Jr
Can someone please explain to me why Fibbonacci levels are used in technical analysis? Where is the logic behind assuming that price will respond to these 'magic' levels? Or do they just form a self fulfilling prophesy due to the vast number of people who watch out for them?
I think the most important thing there is that Fibonacci retracements can identify potential support / resistance levels. In a nutshell, it's all about getting Fibonacci numbers or ratios right then we are in for use. For instance,
From a trading perspective, the most commonly used Fibonacci levels are the 38.2%, 50%, 61.8% and sometimes 23.6% and 76.4%.
So we should put this in mind;
In a strong trend, which we always want to be trading, a minimum retracement is around 38.2%; while in a weaker trend, the retracements can be 61.8% or even 76.4%.
  • #177
  • Feb 18, 2016 5:07am Feb 18, 2016 5:07am
Quoting wayn
{quote} So we should put this in mind; In a strong trend, which we always want to be trading, a minimum retracement is around 38.2%; while in a weaker trend, the retracements can be 61.8% or even 76.4%.
It's so much individual about Fibonacci applying and interpriting in analyze. Some traders use Fibonacci to trade inside it, another one use it to determine brakethrogh.
  • #178
  • Edited 5:39am Feb 18, 2016 5:19am | Edited 5:39am
Quoting wayn
{quote} I think the most important thing there is that Fibonacci retracements can identify potential support / resistance levels. In a nutshell, it's all about getting Fibonacci numbers or ratios right then we are in for use. For instance, From a trading perspective, the most commonly used Fibonacci levels are the 38.2%, 50%, 61.8% and sometimes 23.6% and 76.4%. So we should put this in mind; In a strong trend, which we always want to be trading, a minimum retracement is around 38.2%; while in a weaker trend, the retracements can be 61.8% or even...
My point exactly. Fibbonacci levels are nothing more than fiction in traders mind. But, if a lot of traders act in accordance to the same fiction, you get support and resistance zones around these levels. It doesn't work all the time, in fact it often doesn't, but when it does, it gives you a good risk to reward ratio, and for swing traders that's all that matters. Price action is a mixture of traders psychology (greed vs. risk aversion factor) and collective fundamental news anticipation and perception. It can't be predicted with any tool. Goldman Sachs reversed 5 of 6 this year's trade recommendations in january! If these guys can't predict in which direction price will likely move in the next few months, no one can. It's all just a game of probabilities.
  • #179
  • Feb 18, 2016 7:00am Feb 18, 2016 7:00am
I do not understand why there is such a battle. Everyone decides for himself. For example, I believe that Fibonacci grid works, because I have some experience of using it. That's all I need to know to make money.
  • #180
  • Feb 18, 2016 7:55am Feb 18, 2016 7:55am
I think a few of us have provided our logic in using fibs. I appreciate the direct comments from those who have chosen not to use fibs. But comments such as, "when the market is moving, no one cares which fibo level is being tickled" (actually, if you knew what you are talking about, you'd know that the only time you care which fib level is being "tickled" is when the market is moving), "a self-fulfilling prophecy" (no, they are not), "yes it is meaningless" (to you, but that is because you don't understand), "superstition and the desire to find meaning" (no, the desire to put context to the markets on-going dialog with the professional traders who can read the market), and "no meaning, only some structure that can survive chaotic circumstances" (anyone who sees the market as chaotic or random, run away from them, they are dangerously naive), are just plain silly. Like I said in a previous post, professional traders know how and when to use fibs, or what tool to use to perform the same kind of analysis that you can get with fibs.
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