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Are Fibonacci retracements and projections useful?
Exactly, @srgtroy! You look at the most profitable traders; soros, buffet, ptj, Icahn, et al. Their methods are not quantifiable, they are discretionary. But their results sure are quantifiable.
Btw: both @Big Mike and I have posted 100's if not 1000's of trades over the years a priori or as we were iniating them, and followed them throughout their execution, and have demonstrated a high degree of profitability.
I agree with you on the quantifiable results, actually. The proof is in the pudding. It would have been better to ask for that, at least. But the whole quantify your method and provide proof is a canard.
They're only important and useful to the fib user. The goal of the fib is to take entries on retracements, hence fib retracement. Fib users buy the dip, sell the rip. You see a wave of buying, then a retracement caused by weak hands getting stopped out. Why not enter long when the sell off is exhausted. Then sell when it breaks prior highs when all the shorts get stopped out.
Fibonacci is not present in markets because of so-called 'self-fulfilling prophecies', it is a fundamental part of the structure of a wave based fractal scaled endogenous process based on mass mood, i.e. the optimism and pessimism of millions or billions of humans. If this is outside your 'rational' bounds of acceptance (and it is for most people) then I would definitely say avoid using Fibs, there are plenty of other tools and approaches to use instead.
The fundamental mechanical reason is simply that financial assets do not obey the same buy-sell demand laws as normal economics would have you believe. The 'rational' man buys more normal goods when price falls and less when price rises. The same man buys more stocks when price rises and sells more when price falls - the complete inverse. That's all you need to know to understand why continuous exhaustion and capitulation occur in the charts you see, not some bogus 'fair value' concept. There is no 'fair value' - the market is always trying to move price to maximise transaction volume, that's all it exists for.
Also 'Framing' is not a good way to either view or use Fibs, it is in fact one of the reasons naive users fail to see their presence. You need an idea of the current context and wave structure before it makes sense to use Fibs. In fact it is the same with all TA, critics and detractors will tell you it doesn't work because it doesn't tell you what the market is going to do, or as they put it 'lines fail'. Correct, it can't tell you what the market is going to do, nothing can in a field based on uncertainty, but it sure can give you a better idea of what the market is trying to do from within a current context and where and when it is likely to have succeeded, given up or failed.
edit: Maybe a worthwhile clarification - Fibonacci lines (or any other TA line) don't make the market or traders do anything, they are just a set of tools we can use to help gauge and measure traders' behaviour, nothing more and nothing less.
Horses for courses, it will ever be so, don't use what you don't like.
I've watched this thread with fascination. Initially, I planned to vote, give my reason for my choice, and move on. But the interest in the issue and the emotionally charged responses caught me by surprise. I had no idea that Fibonacci Analysis was so hotly debated.
I really like ratfink's response because it neatly sums up my feelings about this tool - or all currently available tools, for that matter. Fibs cannot be used (successfully) in a vacuum, without regard to context. They are not "magic numbers" which represent price levels that the market is bound to respect. IMHO, they are just another set of tools that, when used correctly, can help the trader identify S/R. That's all - end of story. To try to make them more or less than that is unrealistic.
Having said that, I have learned some things in this thread because it has made me rethink my use of fibs. At the end of the day, if you cannot explain how and why you use a methodology, you probably don't really understand it yourself. As one who is always trying to get better, this has been a good exercise. And it has also reminded me that most traders are looking for some magic silver bullet that will work, without fail, a very high percentage of the time. I, for one, do not think that holy grail exists - or ever will.
I edited your post a little in quoting it, not because the other parts are not good, but to highlight:
1. There is a theory here. It may or may not appeal to you (or me), but there is a point of view.
2. It takes effort to apply it, and understanding. It is not intended to be automatic. This is not a good thing or a bad thing, it'just s a thing. Like everything else, it has to stand or fall based on its merit (by which I mean, usefulness), for the individual trader -- not on whether it passes some other person's tests.
3. If you don't like it, just move along.
I sort of like it, because I like weird ideas, mainly (sorry about that), but I can't use it well enough, or consistently enough, for the effort to be profitable for me. So I do just move along. I make no big judgments, pro or con, beyond that. And beyond that, why would anyone care, anyway?
You have to select things. There are a lot of techniques out there, but if anyone put all of them on a chart, it would be so junky that you couldn't see the price bars any more. (Sort of like some of the novice charts we see here sometimes....) Some might have some value, many, frankly, will not. You have to make a choice, and it's your choice, not The Truth, no matter what you may think about it.
So use what works for you and don't use what doesn't, and don't make a Federal case or a holy war out of opposition to what you don't use.
Ahem. End of rant. Glad I got it out of my system.
At the end of the day does it really matter if you can scientifically prove the underlying cause of something being observed if it helps you produce consistent results in your trading ? Use what works for you, that's what I do.
Perhaps an even more elementary question one could ask (or answer) here is: Exactly how does Fibonacci help you maintain consistent profitability trading ? Rather than trying to prove or explain why it works in a theoretical sense, show how it works for you in a practical sense.
(sorry about that), but I can't use it well enough, or consistently enough, for the effort to be profitable for me. So I do just move along. I make no big judgments, pro or con, beyond that. And beyond that, why would anyone care, anyway?
