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Are Fibonacci retracements and projections useful?
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Are Fibonacci retracements and projections useful?

  #131 (permalink)
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cogito View Post
Depending upon the context, I would say 65 or 71 is close enough to validate 68.1. The S/R levels are not hard 1 tick lines are represented on most charts, they are zones of few ticks wide, usually 4-6 ticks for ES, sometimes more. The width of the support/resistance zones depend upon where the stops are placed. Not everyone places their stops at exactly the same tick.

Which fib levels do you draw on a chart?

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  #132 (permalink)
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tturner86 View Post
I don't know, I can only go by what is shown in the video and that is you drawing the lines after the fact.

The biggest issue with Fibs is they don't tell you what to do. At least with a VWAP or MA you have some idea of what to do with it. In a bull trend if price pulls back to the VWAP you look to buy. Opposite in a bear trend. Heck even with an RSI it gives you an idea of what to do.

I have never seen anyone plot Fibs and the say when price gets to this Fib you should do x, y, or z. To me they are not actionable like other 'lines'.

Lots of Fib users will tell you... "in a bull trend if price pulls back to the 38, 50 or 62% you look to buy". It's similar to a PB to the VWAP. There is this guy at eminiaddict who has been around for quite some time who is an adept at using Fib levels maybe you could check one of his videos for getting an idea about how to use them. Here is the link Custom Fibonacci Retracements | Emini Addict

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  #133 (permalink)
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@Fat Tails

I think you did a tool similar to what NexGen uses to draw Fib levels that are in confluence on multiple timeframes. What is your opinion about these lines. Are they quantifiable or not? And compared to other techniques that plot lines such as VWAP or Pivot points are they as significant or less? Do you still consider they have a place in the current state of TA?

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  #134 (permalink)
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Big Mike View Post
Your charts are very difficult to see (very small) but I think over a 1-hour period you have 15 lines on the chart. Is that right?

You say there are other factors involved in making the decision, but that fibs help. My question to you is -- why is 68.1 more important than 65 or 71? Why is 38.2 more important than 35 or 45? If you drew 15 lines on a chart that were spaced every 5 ticks instead of by fibonnaci spacing, do you really think it would make any difference?

I think people are getting hung up here in what is "useful" and "why". It is useful to frame price by using some lines. By that doesn't mean that line is important, it is simply a frame of reference. Therefore, a line that is 68.1 is no more important than a line that is 65 or 75.

That's my opinion, and it has been well documented in the Random Line thread.

I'm also the only one on the site that I know of that has posted 6-months of real-time trades and multiple sources of proof to backup their accuracy. I posted 100k months along with 50k losing days, it's all there. The good performing days and bad performing days had absolutely nothing to do with any line on a chart.

It would be useful if someone trading fibonacci could do the same thing, and show why fibonacci is more important than just a random line. In real-time, consistently, every trade, every day, every week, for months. I am sure it would be very enlightening to everyone.

Mike

Since I "upgraded" to Windows 10, my screen captures, images and screen recordings have all been messed up. I've tried changing settings, etc but can't seem to fix it. Still working on it.

I've read much of both of those threads.

Regarding the random number thread, you showed it quite clearly - especially comments such as "price went there within 1 tick!". What I think you failed to mention though, and I have a couple of times, is that a hard line on a chart may or may not be representative of where support/resistance or supply/demand is. It is typically a zone around that area. We can clearly see that price is attracted around the VWAP, with many orders being filled in that area, but VWAP is not necessarily a hard line in the sand. The same can be said regarding fib lines.

Regarding your thread on performance - you must have chosen to enter or exit a trade for a reason. You don't do things randomly. I recall an older video you did (think it's still on youtube) and you talked about "looking to the left" in it. You were talking about S/R. That is a line. And price is attracted to that line (for whatever reason). Orders get filled around that area, or zone, or line. While of course I have no idea why you chose to enter and exit your trades, I can only guess that it was something to do with a "line" or and "area" of supply/demand or support/resistance.

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  #135 (permalink)
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trendisyourfriend View Post
@Fat Tails

I think you did a tool similar to what NexGen uses to draw Fib levels that are in confluence on multiple timeframes. What is your opinion about these lines. Are they quantifiable or not? And compared to other techniques that plot lines such as VWAP or Pivot points are they as significant or less? Do you still consider they have a place in the current state of TA?


I do not believe that the markets follow hidden rules such as the golden ratio and also I do not believe in the application of geometry to the markets.

However, all the tools you mentioned, VWAPs, Pivots and Fibonacci levels are useful for traders.


VWAP: The VWAP is a benchmark for the current trading day (or trading week, month). When standard deviation bands are added, you can use the indicator to find out how far prices have moved from value, where value is the current day's average price. The VWAP therefore allows for

- determining the current day's trend
- determining the 3-day trend (comparison to VWAPs of prior days)
- detecting overbought and oversold conditions (outside the 2nd standard deviation bands)
- detecting the value area, which is useful to enter with-trend trades

Also the VWAP itself can be used for entry timing under certain conditions. For example, if an instrument has traded above the VWAP for hours and retraces back to the VWAP, this is the first opportunity to buy the instrument at the daily average price (instead of overpaying it).


SessionPivots: The pivot is a precursor to the VWAP. Without computers a VWAP is extremely difficult to calculate, as you need to take into account price and volume of every single transaction. For calculating the pivot you just need to know high, low and close of the prior day. You get a midline and the pivot PP, which can be used as a reference for the current trading day. The pivot PP also is a proxy for value, and you can use pivots as a trend filter. Also you can use the width of the pivot range to have an idea whether the current day is likely to be a trending or a range bound day.

Furthermore, floor pivots are know by the majority of all traders. This means that they can be used as meeting points for entering or exiting positions. It is understood that this concept relies on self-fulfilling prophecy. Pivots only work because they are used, and they are used because they work.

By the way, simple trend lines also rely on self-fulfilling prophecy. They would not work, if nobody used them!


Fibonacci retracements: There are quite a few successful traders who use Fibonacci retracements. Those levels look magic, but they are not. In fact they are pretty close to ordinary eighths:

11.4% versus 12.5%
23.6% versus 25.0%
38.2% versus 37.5%
50.0% versus 50.0%
61.8% versus 62.5%
78.6% versus 75.0%
88.6% versus 87.5%

Again Fibonacci retracements and expansions can be regarded as meeting points where traders enter and exit positions. Therefore they entirely rely on self-fulfilling prophecy. The idea of confluence tries to catch those points that are triple or quadruple meeting points for different populations of Fibonacci traders.

And then you can simply use the retracements to measure how far a trend has retraced. In a strong uptrend, you might be looking to enter that trend after a retracement of 25% to 37.5%, in a weaker uptrend you might wait for a retracement of 50% - 62.5% before you look for an entry signal.


Last edited by Fat Tails; October 31st, 2015 at 06:13 PM.
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  #136 (permalink)
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Big Mike View Post
Which fib levels do you draw on a chart?

Mike

I am not a big user of fibs. Sometimes I use them to gauge the range of the next trend, which is usually around 100%.

Will draw up fibs for the last 2 weeks and will share if I find anything interesting.

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  #137 (permalink)
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@Silvester17 hit nail on the head "self-fulfilling prophecy"...hence this is why also FIBs...and also stuff like MACD/RSI etc works as so many people using it. Also it does not at times very critical as SM knows the rest using it and it runs contrary.

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If people are using tools for which self-fulfilling prophecy is a determinant of their success then does it mean they are an inferior category of traders?

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Fat Tails View Post
. Pivots only work becuase they are used, and they are used because they work.

..................

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  #140 (permalink)
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trendisyourfriend View Post
If people are using tools for which self-fulfilling prophecy is a determinant of their success then does it mean they are an inferior category of traders?

The answer is "NO". Trading is a game with changing rules. Market characteristics cannot be deducted from a set of universal laws, but they reflect the behavior of a huge number of market participants.

Any successful trader needs to take into account the behavior of other traders. The behavior of other traders changes over the years, as

- markets become faster
- algorithms replace human traders with genuine fear and greed
- new methods and techniques are being exploited

A successful trader needs to take into account the current fads and habits. Trading is a game where you compete with other traders, and whatever strategy works is good. No strategy works forever. After the turtles showed that trend following can be quite profitable, this attracted new traders to trend following. This created the opportunity to feed on trend followers, and set ups like the turtle soup setup were the consequence.

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