Where is the logic behind applying Fibonacci to trading? | Page 13 | Forex Factory

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Where is the logic behind applying Fibonacci to trading?

  • #241
  • Feb 20, 2016 10:03am Feb 20, 2016 10:03am
Usage of 'Fibs' is not a predictor of profitability. Two 'Fib' traders can both believe in the same concept while interpreting it to produce different results.

A better predictor of profitability is the extent to which a trader is long during a bull market and short during a bear market and what he does to manage risk. How you choose to flavour this is up to you.
  • #242
  • Feb 22, 2016 5:13am Feb 22, 2016 5:13am
Quoting bloodpoodle
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...

absolutely!
  • #243
  • Feb 24, 2016 12:14pm Feb 24, 2016 12:14pm
Lost or you earn does not depend on the indicator you use, it depends on the capital management and knowledge of the elementary rules of forex. Fibonacci and Ichimoku nothing to do with if you do not know the rules of trade.
  • #244
  • Feb 25, 2016 2:24am Feb 25, 2016 2:24am
Last time Fibo lines work much more better. It depends on trader preferences as my opinion. The market isn't nature's creature. People form it. So the more popular some instrument became the more market influential it became.
  • #245
  • Feb 26, 2016 4:00am Feb 26, 2016 4:00am
Quoting Al.En
Lost or you earn does not depend on the indicator you use, it depends on the capital management and knowledge of the elementary rules of forex. Fibonacci and Ichimoku nothing to do with if you do not know the rules of trade.
I agree. Fibonacci or other indicator - this is an assistance not more. We need to focus on capital management in the first place, instead of looking for the meaning of the existence of indicators.
  • #246
  • Feb 29, 2016 6:02am Feb 29, 2016 6:02am
IMO fibs are best used alongside EW to help prove or disprove a likely wave count, but knowing when and where to use them is (obviously) key;

Attached Image (click to enlarge)
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Here wave 5 was 61.8% of wave 3 (one of three popular levels to look for). At this stage i did not know if the indicated ensuing correction would be deep/shallow/complex/simple etc...

It turned out to be 'irregular' with wave 'b' making a HH;

Attached Image (click to enlarge)
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Here again fibs give a good indication of possible wave end, with wave 'c' being exactly 161.8% of wave 'a'.

I then use other methods (123's divergence etc) to place trades accordingly.
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  • #247
  • Feb 29, 2016 6:32am Feb 29, 2016 6:32am
IMO, Fibs can be used quite effectively to find symmetrical moves in price, and potential target zones for the most profitable exits.

Cableguy posted some nice examples. Here is another example from last week, ES in 2h timeframe.

Attached Image (click to enlarge)
Click to Enlarge Name: ES 2h w 447 Fibs No Indicators 20160226.jpg Size: 161 KB


You can see how price retraced to the 44.7% fib level (arrow 1), made new highs but failed to reach a first fib target (arrow 2), retraced again to find support near the 50% and 61.8% fib level (arrow 3), and finally made new highs again, hitting the -44.7% fib level (arrow 4), in perfect symmetry to the initial 44.7% fib retracement (arrow 1).

When you recognize a precise hit of a fib level like at arrow 1 here, there is a good chance that the ideal target for this move would be near another fib level. It doesn't always work out that nicely, but here the actual high was at ES 1968.75 (the fib target was 1968.5), and since then there was a drop of about 40 ES points. Taking profit at 1968.5 was a perfect exit.

There are many other methods to find good exits, of course. In this case, ES 1968.75 was also the 50% retracement from all time highs...
  • #248
  • Feb 29, 2016 10:27am Feb 29, 2016 10:27am
44.7% fib... really?
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  • #249
  • Feb 29, 2016 10:29am Feb 29, 2016 10:29am
Keep it simple.

Dax 1min earlier;

Attached Image (click to enlarge)
Click to Enlarge Name: dax1m29-02-16.png Size: 128 KB


'C'=200% of 'A'
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  • #250
  • Feb 29, 2016 10:39am Feb 29, 2016 10:39am
It's easy to see why fibs have it's critics when people draw every conceivable line possible and claim that it was this fib or that fib which was cause for a reaction.
Utter waste of time. As i said, they should be used to prove a count. No more, no less.

This from this morning on the EU50 15min;

Attached Image (click to enlarge)
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here we have ABC move, C is always in 5w. Within this, wave 5 was extended and was 100% of waves 0-3 (also commonplace), it was also an ending expanding diagonal (thus abcde).

I added the labelling below (and result);

Attached Image (click to enlarge)
Click to Enlarge Name: eu5015m29-02-16a.png Size: 141 KB
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  • #251
  • Feb 29, 2016 11:21am Feb 29, 2016 11:21am
>> 44.7% fib... really?

Well, yes, I was initially surprised as well, but I found that for some instruments, these 44.7% levels show a reaction in price more often than 38.2% or 76.4%. So I started to look for it... But you don't have to, everybody should try to find their own system.

In my system, I am looking for entry signals near moving averages and 50% levels, for example, with profit targets near -23.6%, -44.7% or -61.8% fibs, based on prior retracements in the move.

Btw, for the DAX, I found these fib levels less useful. But symmetries and measured moves do exist there as well, of course (like your example with 100%, 200% shows).

So, it depends, I guess. For me, fibs are just part of the toolbox, like moving averages, regression channels, keltner channels etc.. And I fully agree with previous posts that money management is the most important element of a trading system. More important than exit strategies. And exits are more important than entries (which unfortunately appear to be the main focus of most newbie traders).
  • #252
  • Feb 29, 2016 5:06pm Feb 29, 2016 5:06pm
Wow...a sudden burst of cogent discussions.

I totally agree with the idea of combining fibs and EW, although I am not the best EW counter and get confused with the ABC correction stuff. But it is a great tool set when analyzing structure.

As for the 44.7 fib, I think that is a miss. However, the observation about the 44.7% retrace pattern is very good work. I tell my people that they are required to study ever pair they trade for just such tendencies in a pair. You will begin to see these patterns after studying 5,000 to 10,000 pullbacks and replacements. We regularly compare 4 week running averages for retracements, pullbacks, bounced, trend changes, etc on all the pairs we trade. If you don't know this kind of information, you are gambling. If you know if, you are confident and unshakable.
  • #253
  • Mar 1, 2016 4:08pm Mar 1, 2016 4:08pm
>> As for the 44.7 fib, I think that is a miss. However, the observation about the 44.7% retrace pattern is very good work.

Thanks for the feedback. Let's not call it a "44.7% fib" then, but a "5% frontrun of a 50% retracement level".

Maybe this is how these patterns are actually created: some folks programmed their bots for frontrunning common retracement levels...

This happens quite frequently, actually. Here is another example, crude oil futures, from today, "45% retracement", to the tick (arrow).

Attached Image (click to enlarge)
Click to Enlarge Name: CL 10min w 447 or 45pc Retracement 20160301.jpg Size: 132 KB
  • #254
  • Mar 2, 2016 10:39pm Mar 2, 2016 10:39pm
I make a note about that 44,7 fibo level. It's going to be interested to try this one. Trader need to be open mind.

I've noticed a lot of people in here have misjudging opinion about Fibo but still use it...
  • #255
  • Mar 4, 2016 2:16am Mar 4, 2016 2:16am
Not my favoured fib, but 'c' of 'B' is 150% of 'a';

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result;

Attached Image (click to enlarge)
Click to Enlarge Name: usdcad3m04-03-16.png Size: 118 KB
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  • #256
  • Apr 1, 2016 9:47pm Apr 1, 2016 9:47pm
If you have a large number of retail traders using fib ratios to trade from, then does that not open the door for "smart money" to take advantage of them to get them on the opposite side of the market??
I use order flow in my trading in combination with other 'patterns' as in a double top or prior supply/demand areas.
  • #257
  • Apr 9, 2016 12:37pm Apr 9, 2016 12:37pm
Attached Image (click to enlarge)
Click to Enlarge Name: cl07-04-16.png Size: 186 KB


Crude oil, wave B retraces 50% of wave A, then 123 for start of wave C;

Attached Image (click to enlarge)
Click to Enlarge Name: cl08-04-16.png Size: 132 KB
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  • #258
  • Apr 9, 2016 12:41pm Apr 9, 2016 12:41pm
Quoting tunera
There is no logic, and price don't "respond" to these levels, but people want to feel like they have some tool that somehow help them in their trading, so we have... fibonacci!
Amen!!
  • #259
  • Edited 2:56pm Apr 9, 2016 1:15pm | Edited 2:56pm
I find it amazing that people come on here saying 'fib's don't work, when i have shown time and time again, that they do... How can you argue?! That above trade resulted in a 200 point gain, with an initial 30 point risk, which was traded in real-time.

In fact, i've been around long enough to know that it is one of the best methods available combined with EW to consistently find favourable low risk/high reward trades.
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  • #260
  • Apr 9, 2016 1:52pm Apr 9, 2016 1:52pm
Quoting The Cableguy
I find it amazing that people come on here saying 'fib's don't work, when i have shown time and time again, that they do... How the hell can you argue?! That above trade resulted in a 200 point gain, with an initial 30 point risk, which was traded in real-time. In fact, i've been around long enough to know that it is one of the best methods available combined with EW to consistently find fantastic low risk/high reward trades.
I agree with you, BUT...

  1. Eventhough Fibonacci is a nice tool, is there something in trading working all the time?
  2. And, I guess it is a major problem when you have to use the Fibonacci tool and you dont know where to place it. I mean, usually there are several trends in just one graphic, right? So, where you place the Fibo tool? The main trend price maybe is going up meanwhile a mid term price trend is coming down, and the last short trend is going up too....So often times you have a conflict to place the Fibo tool because you donīt know if price is going up or down, you donīt know if it is follwing the last trend or it is a retraction of another bigger trend...that is the most difficult part (in my opinion).

If you can put some light on it Iīll appreciate it. Thanks.

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