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Applying Fibonacci Cluster and Confluence Zones
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Applying Fibonacci Cluster and Confluence Zones

  #11 (permalink)
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bukkan View Post
my exp suggest fib extensions works much better than fib retracements. fib confluence/clusters are definitely tradeable and its better to short the resistance rather than buying the support (catching the falling knife).

https://futures.io/free_downloads/ninjatrader/indicators/368-download.html?action=jump

Hey Bukkan,

I've downloaded this file but get no output. It didn't export properly due to being v7(I'm on v6.5.1000.15) so I copy/pasted to a new file. The only problem compiling then was
line 74 so I've commented it out to test.
 
Code

//base.AllowRemovalOfDrawObjects = true;
I didn't see the other v7 code I normally change to get it back to a v6.5 compatibility.
Not sure yet what else to try. Got any ideas?

Thanks,
Kirk

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  #12 (permalink)
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Lesson learned: How To Avoid Countertrades

The most dangerous habit of traders is probably loss aversion. If paired with the habit of averaging down, it will quickly blow any account.

Another bad habit is triggered by our brain that completes patterns in a counterproductive way to lure us into countertrades.

By the way, NT 7 has a different AutoScaling feature, which does not allow you to choose an upper and lower margin. This will reinforce the bad habit to countertrade, if you are relying on visual patterns. If anybody would support the thread on the NinjaTrader forum to convince Ray that charts should not be printed from one boundary of the chart to the other, I would greatly appreciate this! Professional traders know that price action requires some space around to allow for trend continuation.....

Here is a simple way to keep you out of countertrades:

In the chart above the auction process is dsiaplyed as an alternate sequence of auction bars that conquer a new section of the value area and trading ranges that follow the auction bars. The auction bars can be identified by the filled candles, the hollow candles are those that close within the trading range.

Tip
I will only initiate a countertrade, once an auction bar has been generated against the prevailing trend. The auction bar should have an above average range, if possible a shaved bottom and top and should provide a clear signal that the final trading range of the prior trend is no longer considered as a fair value area for price.



Below is attached a 30 min chart of ES. Starting from Friday's high there were five auction bars down. Notice that there were 17 up bars during this downtrend and not one of them was strong enough to expand a trading range northward!

Today, after the market open, there were 3 auction bars up. So the trend is up. Auction bars also help you to define a place for the stop loss. The stop loss should be at a reasonable distance below the trading range. The trading ranges can be traded in the direction of the trend.

The indicator still needs some further work, before it will correctly display all Auction Bars.

Attached Thumbnails
Applying Fibonacci Cluster and Confluence Zones-es-06-10-30-min-22_03_2010.jpg  
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zeller4 View Post
Hey Bukkan,

I've downloaded this file but get no output. It didn't export properly due to being v7(I'm on v6.5.1000.15) so I copy/pasted to a new file. The only problem compiling then was
line 74 so I've commented it out to test.
 
Code

//base.AllowRemovalOfDrawObjects = true;
I didn't see the other v7 code I normally change to get it back to a v6.5 compatibility.
Not sure yet what else to try. Got any ideas?

Thanks,
Kirk

havent tested it on 6.5 but most probably nt6.5 cant draw lines on the right side of the bar (-endbarago).

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  #14 (permalink)
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zeller4 View Post
Hey Bukkan,

I've downloaded this file but get no output. It didn't export properly due to being v7(I'm on v6.5.1000.15) so I copy/pasted to a new file. The only problem compiling then was
line 74 so I've commented it out to test.
 
Code

//base.AllowRemovalOfDrawObjects = true;
I didn't see the other v7 code I normally change to get it back to a v6.5 compatibility.
Not sure yet what else to try. Got any ideas?

Thanks,
Kirk


bonjour a tous
Zeller hello if you ever solved the problem, I am interested in the version for NT 6.5
thank you

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bukkan View Post
havent tested it on 6.5 but most probably nt6.5 cant draw lines on the right side of the bar (-endbarago).

Trying to get it to draw lines (at least) for the previous few bars using index 5. No luck yet but I'll keep trying.

Kirk

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Fat Tails,

Thank you for the helpful trade information surrounding Fib Clusters and the auction bar concept. I am not the mystical type and believe that Fib trading has more to do with the herd instinct than with anything else. It provides the trader with a "head's up" in probability trading. And if one is already in positive territory best to take your winnings while you can.

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Hi COTrader,

thanks for your clear answer.

Herd Instincts and Self-Fulfilling Prophecy

Herd instinct is certainly one of the drivers of the fib concept. Finally the fibcluster uses

- classical support and resistance (prior highs and lows)
- measured moves and projections
- retracements and extensions

and then looks for high probability areas. If each of the methods above is used by a bunch of traders, a cluster area just increases the odds for creating support and resistance, and volume tells us whether the herd participates in the game or not.

This creates an element of self-fulfilling prophecy supporting the concept.


Mystical, because it was already used by the Greek sculptor Phi-dias around 450 B.C ?

The "mystical part" is not mystical at all. Although the concept of the golden ratio was already known by the Egyptians and the Greeks, there is a bit of mathematics behind it: A system of Fibonacci ratios is self-sustaining or self-reinforcing. There is one reason for this. The golden ratio produces swings that obey the fractal concept of self- similarity. If you build larger swings out of smaller Fibonacci swings, you will get larger Fibonacci swings. This is not the case, if you take other ratios. Other ratios will not show self-similarity, which is contradiction with the idea of scale invariance of fractals. Scale-invariance is based on the assumption that feedback mechanisms generated by herd behavior work on all time scales in a similar way.

Now why does the golden ratio produce swings that add up to larger swings that mirror smaller swings? This comes down to a simple property of the golden section phi:

If you divide a section c into two subsections in way that the ratio of the smaller subsection a to the larger subsection b is identical with the ration of the larger subsection b to the original section c, you get the golden section. If I write this down:

a/b = b/c = b/(a+b) => (a/b)*(a/b) + (a/b) =1 and solve this for (a/b), the result is phi = a/b = 1/2 * (SQRT(5)-1) = 0.61803... which is the golden section.

Now, as a special case for c=1, you will get the formula phi = 1/(1+phi), so this is explains why an extension of 1.61803 (on a smaller scale) and a retracement of 0.61803 (on a larger scale) may cluster around the same line.

Herd behavior composed from various psychological and statistical feedback mechanisms works on all timeframes. If you postulate self-similarity between the different scales, Fibonacci ratios are - by their mathematical properties - a logical consequence. This is not mystical.

COTtrader View Post
Fat Tails,

Thank you for the helpful trade information surrounding Fib Clusters and the auction bar concept. I am not the mystical type and believe that Fib trading has more to do with the herd instinct than with anything else. It provides the trader with a "head's up" in probability trading. And if one is already in positive territory best to take your winnings while you can.


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Fibonacci lines contain price action on narrow range days

Looks like a boring day today, no exciting news that drive the market.

Price action is rangebound, and you can trade off Fibonacci lines. The 30 min charts of CL and ES below show, how Fibonacci cluster lines contain price action, when volatiliy stays low.

Attached Thumbnails
Applying Fibonacci Cluster and Confluence Zones-cl-05-10-30-min-23_03_2010.jpg   Applying Fibonacci Cluster and Confluence Zones-es-06-10-30-min-23_03_2010.jpg  
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Support and Resistance

There is a number of competing methods to establish support and resistance, so I will take a look at ES during the last week.


Chart 1: Friday, March 19 / Monday, March 22

Friday, March 19 had seen a retest of the highs - one tick above the Fibonacci line at 1164.75 and at the tick at R1 1165.00 - with two smaller auction bars up. Then the market fell 13 points within 90 minutes. The fall was stopped at the tick by a multiple Fib line. The floor pivot S2 was just 4 ticks above the Fib line.

Learned: A combined Fibonacci / Pivot level is a high probability exit and/or entry. This is particularly true for Wave 2 (retest of high or low) and Wave 3 (large directional moves) situation. I have often seen that the 5th wave overshoots the Fibonacci Line, which also happened here.

The last of the three downward auction bars defined a trading range that could be traded from both sides. The best trade after the directional move was the Friday evening short squeeze, as the shorts rushed to cover before the week-end.

Learned: The well known reversal time at 3:30 PM EST does no longer apply during the week, as markets can be traded round the clock: But if Friday was a trending day, many traders will exit their positions during the last 30 minutes of the cash session.

Monday opened with a gap down after Friday had seen a directional move. A gap down after a directional move can easily revert and be closed. But this needs to be confirmed by price action. The auction bar down of the night session created a trading range. At 7:00 AM ET a yellow reversal bar formed on the lower end of the trading range. This also was a 2B pattern (see: Victor Sperandeo: Trader Vic) or Turtle Soup Setup (Linda Raschke: Street Smarts). Reversal bars do not always indicate a reversal. They simply can catch part of a trading range. To be valid, a reversal bar should

- occur as a retest of a prior high or low, eventually as part of a 2B pattern
- close in the direction of the intended trade
- show a significant volume pattern such as churning (trapping enough traders)

Learned: An upclosing reversal bar sitting on the edge of a trading range creating a 2B pattern is a high probability entry. My name for this is "The Sting".

The pre-market hours saw a light drift upwards, the first auction bar occured during the first half hour of the cash market and stopped at a logical target

- a Fibonacci line at 1154
- the upper end of the trading range generated by the auction bar at 1153.75
- the point of control of Friday's session at 1154

When prices retraced to this multiple line, there was a tradeable pullback. Same applied no the next area of support and resistance

- a Fib line at 1157.75
- Friday's mid point at 1157.75
- main pivot PP at 1157.25

Learned: If prices pullback to multiple support (top of prior auction bar, point of control, fib line, pivot line), this generates a high probability pullback trade in the direction of the trend. Using these areas for entering a counter trade after a strong auction bar occured, is a high probability method to deplete your account.

There is a third smaller auction bar occuring on Monday afternoon. The interesting observation here is:

You can actually watch how the auction bars shift the value area from one level to another. The beginning and the end of each of the bars defines a little point of control on the market profile for its own. So with three auction bars up during the cash session, the market profile shows 4 points of control. The empty zones can be found in the middle of the auction bars. So acution bars - and that is the reason I call them auction bar - represent the ongoing acution in a similar way that the market profile does.

One point for NinjaTrader 7 here: The chart uses two DataSeries. The DataSeries 1 is a 30 min chart for ES, the DataSeries 2 is a 5 min chart applied to panel 1 and set to transparent. The 5 minute chart is used to calculate the market profile in volume weighted time price opportunities (thank you, Dean ), so the market profile has the accuracy of a 5 min chart, which can be transferred to the 30 min chart.

Friday and Monday combined show a rejection of the lower value area. However down volume exceeded up volume. In a larger context this is a distribution pattern. Monday morning saw a smaller accumulation pattern within the larger distribution pattern.

Monday's price movement also shows one of the weak points of Elliot Wave Analysis. The second wave establishes a new low, which is contrary to the rules. As markets suffer from bipolar disorder, price action always needs to reassert itself by testing the boundaries of the range, before it can move in either direction. The second test may or may not exceed the level of the first test, there is no meaning to this.

Attached Thumbnails
Applying Fibonacci Cluster and Confluence Zones-chart-one.jpg  

Last edited by Fat Tails; March 28th, 2010 at 05:58 PM.
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Chart 2: Tuesday, March 23

Tuesday was a balancing day following the directional move of Monday. Bears had been tamed by their defeat on Monday, so prices remained in and above the highest of the four value areas established on Monday, just below a multiple Fib line. The weakness of the bears was shown by the fact that the 1158 area was not tested. 1158 was the logical area for support as this was the VWAP (volume weighted average price) of Monday, a fib line and the main pivot. Monday's point of control at 1158.75 was missed by one tick.

The upper fib line contained price action for some time, you can see a cup and handle pattern and an ascending triangle froming below that fib line. Once the fib lines was broken, price jumped right to the next fibline.

A note on Fibonacci lines here:

Fib lines is a collection of different support and resistance lines. Let us have a look in detail at the three lines that contained Tuesday's price action. The strongest line of each of the multiple lines is displayed.

Level 1169.50: Upward projection of trading range (grey), reinforced by 127.2 extension (green) and alternate (blue)

Level 1165.50: High of prior Week (red) reinforced by major extension line (yellow green)

Level 1157.75: A higher time frame extension line (yellow green) reinforced by two 61.8% retracement lines (both orange).

Attached Thumbnails
Applying Fibonacci Cluster and Confluence Zones-chart-two.jpg   Applying Fibonacci Cluster and Confluence Zones-chart-two-fib-lines.jpg  
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