Are Fibonacci retracements and projections useful?

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@tigertrader,
I like your quote. My contribution is only 338 measly posts and one very slightly modified indicator since 2009. Not much compared to what you provide most days. Anyone can search my name and view what I've posted. Hopefully, at least @Big Mike will recognize some value - or at the very least, see that the criticism is few, far between, and warranted. My comments, even when wrong, are meant to be helpful.

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take a look at the window measuring 2.6 cm compared to the top and bottom of the blue exterior measuring 7.9.

2.6 + 2.6 + 2.6 = 7.8 almost 7.9

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People work the same way nature does on a molecular level. At certain levels the sheer mass of input will find a common ground. This has nothing to do with any one specific singular trader, it has to do with how the aggregate behaves. If someone bets below the level it will be refreshed by another trader buying until the level is hit and then someone will jump in betting it'll go the opposite direction as the cycle happens all over again. It has to do with how people as a whole see symmetry and if something appears symmetrical they're more likely to take a trade with conviction.

Last edited by Itchymoku; November 20th, 2015 at 01:04 AM.

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It made me realize why some people react so furiously to the notion of fibs, fib ratios, and the golden mean having any effect on the market. I realize now that its because for some, it is interpreted as the proposition that a "higher power" or some kind of "supernatural force" is at work here, and whenever talk moves into that realm, people inevitably tend to get a little bent out of shape.

So for the record, I am not saying that there is any "higher power" at work, at all. Nothing supernatural here. Just nature. There is no need for "a 'higher power' to force nature to do anything," as you describe above. That's a little too convoluted for me, anyway.

Nature is simply nature. It has demonstrated a proclivity to express itself using the Golden Mean, and since, as @tturner86 was simply pointing out when you unfairly attacked him, Human Nature is a subset of Nature, it is not irrational to consider the possibility that the Golden Mean and its derivatives are also expressed in human nature. Not so much on an individual basis perhaps, but more on a collective one.

A car is designed by a small group of people working in concert with great deliberation and total control, so its hardly analogous to the market. Even so, that does not mean there are no unintentional fib ratios manifest in its design. The market, as you very aptly describe, is "made up of millions of participants who have their own agenda and who's individual action today and in the past no matter how small influences where the market is today". That's an excellent description. And all I'm saying is if given a critical mass of people, all driven ultimately by human nature, maybe nature's favorite ratios start to express themselves.

That's not such a far-fetched notion. I'm not saying its definitely true. I'm just saying its possible. Which is why i plotted the levels, in advance. Too see how well price conformed to them. It is up to each person, on their own, to put all the verbosity aside, and simply look at the chart, and make up their own minds how well it actually does.

Yes, you could argue that to the extent that they work, its because a lot of people use them. That seems like a more generic and weaker rationale, and has its own problems, but you may be right in the end.

Food for thought...

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The expression of a group of market participants, as reflected on a chart, could be occurring on a subconscious level. If this were the case, it might explain this 'higher power' concept. Discretionary trading has a high emotional quotient, bringing into question the emotional response to visually appealing chart ratios at a subconscious level.

The car design could be as a result of understanding ratios that are known to be visually pleasing to consumers. Again, the concept of using ratios that are appealing to and attracting the attention of a group of consumers at a subconscious level.

Be Patient and Trade Smart

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Thanks for this link! This is exactly the kind of phenomenon i'm talking about, in which on an individual basis, the results appear random, but collectively, its a different story!

Last edited by srgtroy; November 20th, 2015 at 06:06 PM.

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There is always a Fibonacci level close to any ration that you measure. This has absolutely no meaning.

Aesthetics does not follow Fibonacci Ratios or the Golden Section.

The Golden Section (section divina) was already known to Pythagoros and Euclid and there is a famous book by Luca Pacioli - a friend of Leonardo da Vinci - from the early 16th century. The Golden Section has always attracted many artists such as medieval master builders, architects (Le Corbusier), painters (including Peit Mondrian and Salvador Dali). But for painters the Golden Section also works as a self-fulfilling prophecy. You will find the golden section on those paintings where it has been deliberately used.

Here is a small study on a few paintings, that measured the average proportions of 595 paintings by some of the greatest painters.

Nature follows Fibonacci ratios when there is a specific reason

The mathematical properties of Fibonacci number make them appear in two-dimensional spiral growth processes. The appearance of Fibonacci numbers here is the result of an optimization of the growth process. Antione and David come up with an optimum angle of 137.5 degrees (0.382 * 360° = 137.52°) which is a Fibonacci fraction of the full cercle. This means that it is possible to build a mathematical model for the growth process of flower petals that results in an optimal angle, which is the golden ratio.

Other than in two-dimensional spiral growth processes, it is pretty difficult to observe Fibonacci numbers in nature. It seems that the Fibonacci spiral is just an optimum solution for a specific type of geometrical problem, which includes optimal resource allocation for plants or coquilles.

"People work the same way nature does on a molecular level." I do not want to be impolite. This sounds more like a religous belief than a scientific statement (which is the polite version for nonsense).

Markets do not follow any magic numbers, unless traders have those numbers in their heads (self-fulfilling prophecy)

I have read quite a few books by market physicists - the correct label is "econophysicists" - and there is no evidence at all that the golden ratio or any other Fibonacci numbers can be used to describe price action or market fractals. Markets are non-linear in a sense that they have a pretty complex behavior, which is governed by the laws of statistcs and not by the laws of geometry. This is why I do not like the teachings of W.D. Gann, which to a large extent are based on geometry and numerology. You can even smell the nonsense before you start reading.

However, Fibonacci numbers have one common property with market fractals, which is the property of self-similarity. For fractals - in a larger mathematical sense, but including market fractals - this has been described by Benoit Mandelbrot. For Fibonacci number is it the basic equation 1 + phi = 1 / phi = phi /(1 - phi). The meaning of this property is that:

Once Fibonacci trading has been established as a successful fad for 15-minute traders it will also start working on other timeframes, as the Fibonacci ratios created by the behaviour of traders for a set timeframe will propagate to other timeframes.

This means that Fibonacci trading is a fad somehow easier to establish than other fads. But it is not the only fad that complies with the condition of self similarity. Trendlines certainly do, and so would the use of highs and lows as support and resistance.

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