Where is the logic behind applying Fibonacci to trading? | Page 12 | Forex Factory

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Where is the logic behind applying Fibonacci to trading?

  • #221
  • Feb 19, 2016 8:06am Feb 19, 2016 8:06am
Quoting simond2002
{quote} From FF homepage {image}
Exactly!
  • #222
  • Feb 19, 2016 8:09am Feb 19, 2016 8:09am
Excellent. Long time with FF, usually reading. I write for the first time and I'm glad that I got one of my favorite topics. I've long wondered what's the point of?
I agree with traders that don't believe in Fib retracement lines. But at the same time is stupid to deny the psychological factor.
I know many of my friends traders pay attention to the levels of 61.8 or 38.2. Take as a basis for opening or closing orders on.
But after spending a few tests in hindsight i realized Fib works as any indicator or line whatever. They clearly comply these levels and chart is really in this area takes on some levels.
Fun pips to all of you.
  • #223
  • Feb 19, 2016 9:30am Feb 19, 2016 9:30am
Quoting TheFxAnalyst
{quote} We know 70% of all traders lose money every quarter, if we're assuming that the vast majority of them are using Technical Analysis, Chart Patterns, Price Action and so on, then by those statistics most of this stuff is garbage.
Money management of most retail traders is garbage. Without proper risk management even the best trading system will bankrupt you eventually. DailyFX analysed over 43 million real trades placed on FXCM’s trading servers from Q2, 2014 – Q1, 2015 and found out that most retail traders use negative R:R ratio.
Another interesting finding is that "... data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent."

No system works in every trading environment, so you have to lose small when your system is failling you and win big when it is working.

https://www.dailyfx.com/forex/fundam...ders-make.html
  • #224
  • Feb 19, 2016 9:36am Feb 19, 2016 9:36am
Quoting TheFxAnalyst
{quote} We know 70% of all traders lose money every quarter, if we're assuming that the vast majority of them are using Technical Analysis, Chart Patterns, Price Action and so on, then by those statistics most of this stuff is garbage.
Are you sure they are all TA traders, could it be more like 61.8 % of all retail traders lose ?

Sure, it is a very low entry level business, that is the draw for many, but one of the hardest to master for people to don't want to do the work.
It never gets easier, you just get better
  • #225
  • Feb 19, 2016 9:47am Feb 19, 2016 9:47am
Quoting Shabs19
could it be more like 61.8 % of all retail traders lose ?
lol
  • #226
  • Feb 19, 2016 10:06am Feb 19, 2016 10:06am
Quoting Shabs19
{quote} Are you sure they are all TA traders, could it be more like 61.8 % of all retail traders lose ? Sure, it is a very low entry level business, that is the draw for many, but one of the hardest to master for people to don't want to do the work.
haha...
When you hit 50, coffee becomes part of a proper modeling pipeline.
  • #227
  • Feb 19, 2016 10:22am Feb 19, 2016 10:22am
Quoting simond2002
{quote} I agreed with pretty much everything you said until I read the last bit, which I would respectfully disagree. I do not believe that experienced price-action traders make up part of your 70%.

That would mean a lot more if you had basis for it.

This is the problem we're addressing, believing something doesn't make it so. If you had a way to measure and express "price action trading" in a meaningful way that could be duplicated across a statistically significant set of trades (+1500), then you could draw inference. The problem with TA (even some of mine falls into this) is it requires individual interpretation to use. This makes it impossible to measure and so it's basically protected from ever being proven wrong (or wright for that matter).

If you can't prove something invalid, people will continue to latch onto it because of the appearance of success of other's who are also using it, when that success is never actually confirmed over a meaningful period of time. Even if it is, it isn't necessarily representative of the larger statistical truth surrounding the method.

I'm not suggesting anyone shouldn't use Fib or Price Action etc, but I don't think it hurts to have an honest opinion about the underlying issues with any method that is so vague and dependent on interpretation that it thwarts rigorous testing and confirmation.
When you hit 50, coffee becomes part of a proper modeling pipeline.
  • #228
  • Feb 19, 2016 10:29am Feb 19, 2016 10:29am
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?

Nor, for that matter, nothing is impossible to confirm the exact Forex, except for what has already happened. The market is so volatile that it is better to carry a few tools for analysis. It's not just exactly in the Fibonacci sequence. Any indicator can be subjected to criticism. If it works - so good!
  • #229
  • Feb 19, 2016 11:07am Feb 19, 2016 11:07am
Quoting TheFxAnalyst
{quote} That would mean a lot more if you had basis for it. This is the problem we're addressing, believing something doesn't make it so. If you had a way to measure and express "price action trading" in a meaningful way that could be duplicated across a statistically significant set of trades (+1500), then you could draw inference. The problem with TA (even some of mine falls into this) is it requires individual interpretation to use. This makes it impossible to measure and so it's basically protected from ever being proven wrong (or wright for...
The problem we're addressing is people demanding proof. The OP (would've been nice if he'd have commented a little bit more, but hey-ho) asked about the logic behind fibs. There's been enough posts addressing that. Personally I think the thread should've ended there.

I don't want to get into a kind of "cerebral" debate with you on this, but taken to the limit, the issue of proof or statistical significance before drawing inference negates the whole point of offering up a point of view about anything.

I trade price-action. It's what I see through my eyes, and as I've said many times before on FF - one needs to focus on what one sees through one's own eyes because we can't and never will be able to trade vicariously. John, I can tell you that I recently read on FF someone dismissing price-action all together - "It doesn't exist - it's all BS" (or words similar). If trading has taught me anything, it's taught me that for every opinion, there's a contra-opinion!

I also recently saw one person post a 1000 word essay on why he took a trade. Well, for me, a picture's worth a thousand words. On the chart below, demand came into this market pushing up price, price then retraced, hit a level (some might call it a fib level, some might not) that I'd pre-marked as worthy of my attention, and then price-action (in some respects we could argue that it's all price-action, but this is vapid) told me that there was continued big (enough) money buying action, and so I bought with it. Can I prove to the world over 1500 trades that this will work or that price-action exists in any meaningful way? In fact, am I even willing to do so? I'm afraid the answer has to be no on both counts.

Attached Image (click to enlarge)
Click to Enlarge Name: EURAUDM1.png Size: 36 KB
  • #230
  • Feb 19, 2016 11:27am Feb 19, 2016 11:27am
Quoting simond2002
{quote} The problem we're addressing is people demanding proof. The OP (would've been nice if he'd have commented a little bit more, but hey-ho) asked about the logic behind fibs. There's been enough posts addressing that. Personally I think the thread should've ended there. I don't want to get into a kind of "cerebral" debate with you on this, but taken to the limit, the issue of proof or statistical significance before drawing inference negates the whole point of offering up a point of view about anything. I trade price-action. It's what...
You've just summed up the entire problem with retail FX in your first sentence. No one ever wants their comfort zone challenged because "muh beliefs". I'm not talking about a cerebral debate where two political or religious sides argue over vague and baseless belief biases. I'm talking about science and establishing meaningful basis for decision making that has a direct impact on the outcome of ones trading. I've avoided these threads over the years just for this express reason, people have no interest in fact, they would rather trade from a leap of faith and hope for the best. It is what it is... The realities will play out whether someone wants to face it or not.
When you hit 50, coffee becomes part of a proper modeling pipeline.
  • #231
  • Feb 19, 2016 11:32am Feb 19, 2016 11:32am
Quoting TheFxAnalyst
I'm talking about science and establishing meaningful basis for decision making that has a direct impact on the outcome of ones trading.
Me too. We should talk offline sometime.
  • #232
  • Feb 19, 2016 11:50am Feb 19, 2016 11:50am
Quoting simond2002
{quote} Me too. We should talk offline sometime.
I'm easy to get too, but can be hard to get a hold of... Reach out any time. [email protected] or on skype jputmanii
When you hit 50, coffee becomes part of a proper modeling pipeline.
  • #233
  • Feb 19, 2016 12:42pm Feb 19, 2016 12:42pm
You two get a room please...............

I wouldn't put out my email on the www, use pm's
It never gets easier, you just get better
  • #234
  • Feb 19, 2016 4:04pm Feb 19, 2016 4:04pm
Quoting Shabs19
You two get a room please............... I wouldn't put out my email on the www, use pm's
haha... I appreciate the concern, that email has been in the wild for over ten years. It's been on FXStreet since 2005, DailyFX since 2004 and so on. It doesn't connect to anything important (anymore). Besides that, if I didn't get the occasional notice that I've just won the Ugandan Lottery, I think I'd feel like I was being left out.
When you hit 50, coffee becomes part of a proper modeling pipeline.
  • #235
  • Feb 19, 2016 6:50pm Feb 19, 2016 6:50pm
Why? Because all the big boys and citi boys use it. That's reason enough for anybody here to smak the fib on your charts. If not you are not seeing what the bank traders are seeing which means you are trading blind. You want to trade blind my friend?

Don't over complicate things. Use what works and fibs do work very well.

traderjoe
  • #236
  • Feb 20, 2016 5:58am Feb 20, 2016 5:58am
Quoting simond2002
{quote} The online room thing is a bit of an odd one. In the past I've found them great for a bit of banter etc, but not so brilliant in terms of helping one improve trading. In the end I stepped back from them altogether because I began to notice we'd all be looking at the same chart but "seeing" something completely different; and in the heat of the market all that contra-opinion became too much of a distraction. Perhaps one way of doing it would be a room where one person "leads" the analysis, although it's not something I'd wish to be involved...
Sorry my humour gets the better of me sometimes. You obviously haven't heard this expression before.
It never gets easier, you just get better
  • #237
  • Feb 20, 2016 7:43am Feb 20, 2016 7:43am
Quoting TheFxAnalyst
{quote} You've just summed up the entire problem with retail FX in your first sentence. No one ever wants their comfort zone challenged because "muh beliefs". I'm not talking about a cerebral debate where two political or religious sides argue over vague and baseless belief biases. I'm talking about science and establishing meaningful basis for decision making that has a direct impact on the outcome of ones trading. I've avoided these threads over the years just for this express reason, people have no interest in fact, they would rather trade from...
I read a funny post on Facebook today: there are 3 kinds of people in the world. Those good at math and those who are not. Anyway...

You could categorize retail fx traders into 2 groups: those who demand mathematical, statistical proof, and those who make profits. No No No just kidding again!

Several years ago, I exchanged posts on FF with a good guy and I think friend, RedLion, about the need for mathematical and statistical proof of TA tools. Red is one who seeks empirical proof, has studied nearly every tool in use today, and is very good at what he does. I have a masters degree in finance, and that part of my brain and experience understands what he is saying and in a way, I like that approach to seeking the right tools for trading.

However, I also have a masters degree in behavioral economics, and my trading brain hangs out there a lot. For me (and just me, I'm not insisting its the only way or the way everyone must trade), it's easier to think of the markets as made up of people, doing specific, assigned things, in a pre-define way, as opposed to some giant mathematical model that must accommodate the toolkit I'm using before I can believe. I think Simond2002 and his supply/demand approach is closer to reality that any statistically significant proof about fibs.

After consulting with and studying bank traders (among others), here is one piece of the logic behind fibs. Assume the currency pair is going up (which is due to a fundamental shift and is clearly supported by market structure). As a trader, as the market rises and pulls back, if you consistently buy at peaks, you're going to get fired. Period. Buying at the high puts you in a terrible position to take quick profits. YOU WILL BE WORKING AT STARBUCKS TOMORROW IF YOU DO THIS!!! So when your friends, at you bank and your virtual friends at other banks around the world, take some profits and the price falls back a bit, you have an opportunity to get in, causing the market to rise again and a new high to develop, and so on, and so on. When does this stop? When the market falls back beyond a previous support. What happens then? A deeper pullback but eventually another run up (gotta get back up there to rescue those trading friends left behind). So, one, just one piece of the logic of fibs, is that bank traders don't want to get fired.

If you can put together a mathematical model of that behavior, that's great! It's up to you to find the significance of your findings, when to use it, etc. But, it's probably easier to have trust in the human behavior behind the markets, and faith in the continuation of the cycle that has been present since I started trading in 2003. One of the tools that can help you monitor this behavior as it unfolds, it fibs. Take 'em or leave 'em.
  • #238
  • Feb 20, 2016 8:46am Feb 20, 2016 8:46am
Quoting TheFxAnalyst
No one ever wants their comfort zone challenged because "muh beliefs"...
I'm talking about science and establishing meaningful basis for decision making that has a direct impact on the outcome of ones trading. I've avoided these threads over the years just for this express reason, people have no interest in fact, they would rather trade from a leap of faith and hope for the best.
Yes.

The people who approach speculation demanding the highest standards of rigour and empirical proof tend to become wildly successful. A speculator only trades his/her beliefs and opinions about markets. The successful ones allow their beliefs to be shaped by the inferences drawn from empirical testing. In contrast, the average retail trader operates with this process backward. It is very obvious to me when I see someone trying to rescue his pet system/idea by compromising the standard of testing and research.

Profitable trading systems have been known for decades. However, if one were to simply follow the evidence where it leads you would find something anathema to many popularly held beliefs in FF.
  • #239
  • Feb 20, 2016 8:59am Feb 20, 2016 8:59am
Quoting Shabs19
{quote} Sorry my humour gets the better of me sometimes. You obviously haven't heard this expression before.
Hehe - yea, you're right - not an expression I'm familiar with
  • #240
  • Feb 20, 2016 9:27am Feb 20, 2016 9:27am
If your new. Don't use fibs.. Don't use indicators... don't use trendlines. Read the market structure and price action...

Too many new people love to put indicators and fibs and trendlines on a chart... and pay very little attetion to structure of the market..


Trading is hard.. Its never gonna be as easy as just putting fib up... and cashing out million dollar paychecks...
The only system that will work is one designed by and for yourself.
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