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Some highly recommended books
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Some highly recommended books

  #171 (permalink)
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omaha786 View Post
Jet, can the Fibonacci technique described in the book be applied to intraday charts, e.g. 5 min chart? What kind of math level is required to be able to understand this book? Thanks,

I have read four books on Fibonacci Analysis. The book by Constance Brown is the most difficult to understand. She has a peculiar way to draw her levels from mysterious starting points, which I really had a hard time to understand.

In my personal opinion, anyone should start with the book of Robert C.Miner (listed below). It is comprehensive., complete and I recommend it. the easiest to read is the book by Larry Pesavento, as it focuses on a couple of harmonic patterns.

Robert C. Miner: High Probability Trading Strategies - my personal favorite, well structured and complete
Larry Pesavento, Leslie Jouflas: Trade What You See - the easiest to read with many sexy charts
Carolyn Boroden: Fibonacci Trading: comparable with the book of Robert C.Miner, but not as good
Constance Brown: Fibonacci Analysis - worth reading, but difficult to understand

Fibonacci Analysis can be applied intraday. There is a number of free indicators available, you can try the anaCurrentDayOHL, which draws Fibonacci retracements from the current day's high and low (look for SessionPivots).

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  #172 (permalink)
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omaha786 View Post
Jet, can the Fibonacci technique described in the book be applied to intraday charts, e.g. 5 min chart? What kind of math level is required to be able to understand this book? Thanks,

No math necessary for Constance, other than the basic math we all learned in Elementary, really. Fibs are nothing more than derivations through addition, multiplication, subtraction and division. She stresses the need to understand the distinction between Proportion and Ratio, which some people do confuse often times. She also talks briefly about the need to know the different kinds of averages, with most of her emphasis on Mode, Mean, Geometric and Harmonic. But, your Fib Tool will do most of the work for you on the chart.

Fibs can be applied to just about any chart. Some people say that the accuracy goes up when used on larger time-frames. I believe the accuracy goes up when the trade learns to initiate the retracement range correctly, by knowing the six (6) different market behavioral patterns and why merely dropping the Fib Tool on a Swing High, or a Swing Low, might not always be the optimal location for the start of the range. Constance, covers all that pretty well.

Using what Constance explains, you could take a 1 minute chart and a Fib Tool, to pick-off 5-7 pips per trade on most days. On average, 10 trades should net you more than 50 pips a day. Its a grind doing it that way and it will take several hours to complete, but there are lots of people out there who make a lot less money working the same eight hours a day doing other things. Basically, you are using a 1 minute chart, but typically plotting Fib ranges across 15 minutes up to 1 hour. There is a lot of useful detail that takes place on the M1 chart that many people overlook. If you get good at observing them, you can see the contours and details of false Double-Bottom/Top moves, which helps in identifying larger time-frame Double-Bottom/Top moves that are genuine. You really get to know the character (attitude, disposition, personality, mode) of a currency pair by spending a lot of time with its M1 time-frame.

That's not how I trade, but I'm just giving an example of what can be done when you start using the correct starting point for the Fibo range.

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  #173 (permalink)
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Fat Tails View Post
I have read four books on Fibonacci Analysis. The book by Constance Brown is the most difficult to understand. She has a peculiar way to draw her levels from mysterious starting points, which I really had a hard time to understand.

She can be difficult at times, if you lose focus. She's a smart Woman with a lot of knowledge and she seems to want to take the reader on a journey of discovery, which brings into play her knowledge and understanding about the source and origins of the Golden Ratio. You get a pretty good understanding of why the Fibonacci Sequence and the Derived Ratios are important to history, not just to trading. You also get an understanding of some of the renowned mathematicians who used them long before there were markets to trade, as well as how Leonardo Fibonacci, was not the actual father of the Fibonacci Sequence, but was actually given credit for its discovery.

On of the most important aspects of her book, is early on when she walks you through an example of the sequence using the Nautilus Shell, under-imposed against "perfect" spiraling model with ever expanding squares that we've all seen. The comparison to those two images together, with the distinctions between an Expanding and Contracting market, is something that she makes you understand as being something critically important to learning how to properly use your Fib Tool. She makes it clear that for this reason, you cannot always use just the Swing High or the Swing Low, as the starting point for the Fibonacci range. She goes as far as to call this a critical error, for the average trader to make - who then wonders why Fibonacci Analysis in trading "does not work."

And, it makes all the sense in the world the way she explains it. If you are plotting a standard Fibo range into an Expanding or Contracting market, then taking the nearest Swing High or Swing Low, will yield incorrect retracement levels. So, you have to know where to begin the range for both the Expanding and the Contracting market phases, in order to derive the optimal confluence zones. This is one of the very first things she talks about and she goes a long way to explaining why this is so important to nail down.

We've probably all been guilty at one point or another, of plotting Fibonacci ranges incorrectly. Some of us, for a very long time. So, she also makes it clear that for some, there will be a need to re-learn what we learned incorrectly. Markets are not static - they are dynamic by nature. Always in a constant state of flux, either moving into Contraction from Expansion, or into Expansion from Contraction, with phases of Horizontal transitions to both. So, where you initialize the Fibo range, becomes of paramount importance. Most importantly, Constance, shows you how to determine whether the market you are following is in a Contraction phase, or an Expansion phase. If neither, then it must be a Horizontal transition - and that is the ONLY time you should use the absolute Swing High, or the absolute Swing Low. At all other times, you have to use a different technique for locating the optimal initialization level for the Fib range. Else, you will always see Fibonacci ratios as being hardly any better a technical tool than anything else.

Anyway, hope this helps.

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  #174 (permalink)
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@JetTrader

As I said, I have read a number of books and I do not share your opinion on the book by Constance Brown. I think that different views on a subject are legitimate and that the disagreement can even be further exploited to release further energy (and increase entropy).

The Fibonacci Series is a growth series, the golden ratio describes the ratio of two consecutive generations (of rabbits, pineapple seeds, calcium deposits in a nautilus shell, etc.). So the concept can be used to describe a two-dimensional expansion, which relies on internal feedback.

Adapting these ratios to expansion would mean that you no longer describe expansion, but an expansion within an expansion, as the scale that you relate to is now changed. This is not in line with the origin of the Fibonacci ratio, but really is contradiction, as Fibonacci ratios describe growth and not the growth of the growth. Also I do not share the opinion of Constance Brown that Fibonacci ratios do not work when applied to the absolute highs and lows. I think that her definitions are fuzzy, as you select the appropriate starting point for retracements and expansions with hindsight. Everything she writes is influenced by a religious belief that there must be a hidden order, where there is none. in my opinion, the book is a blend of practical knowledge on how to use Fibonacci ratios with some pseudo-scientific verbiage added.

For me, a statement like "Harmonic Unity Within Market Price and Time" is simply nonsense. But again, I respect different views on this subject. Maybe we can continue to discuss it further in one of the harmonic trading or Fibonacci threads, as it does not belong here.

Attachment: Fibonacci zones, counted from the top and bottom.

Attached Thumbnails
Some highly recommended books-counted-tops.jpg  

Last edited by Fat Tails; April 8th, 2011 at 07:14 AM.
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Big Mike View Post
Here is a short list of books I've read and recommend. I am not a big reader of books in print, I tend to prefer on-line methods... but nonetheless, these are great reads and contain a lot of information that helped me.

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My favorite to read, and the one where I tended to relate the most, was Martin Schwartz's "Pit Bull". The other books are on every trader's "must have" list, so if you haven't read them already, then do yourself a favor and pick them up. The last one is a compilation of chart patterns and how to trade them by Suri Duddella, it is a fantastic reference to understand what is going on behind your favorite indicators.

Mike

100% agree with you BM ... Trade Chart Patterns Like the Pros book is a must for a trader ..

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  #176 (permalink)
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Ok guys, here you have it. The book that started it all for me, the way to profitability. I never looked back since:

Empirical Market Microstructure: The Instituions, Economics, and Econometrics of Securities Trading by Joel Hasbrouck.

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And also :

Market Microstructure Theory by O'Hara
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  #177 (permalink)
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MetalTrade View Post
Ok guys, here you have it. The book that started it all for me, the way to profitability. I never looked back since:

Empirical Market Microstructure: The Instituions, Economics, and Econometrics of Securities Trading by Joel Hasbrouck.

I also like the book by Joel Hasbrouck.

As per post # 105 of this thread, I also recommend the book by Barry Johnson on Algorithmic Trading and DMA.

Amazon.com: Algorithmic Trading and DMA: An introduction to direct access trading strategies (9780956399205): Barry Johnson: Books

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Jesse Livermore - How To Trade In Stocks.

Be sure you get the original from 1940 (there are pdfs floating around), not the edition ruined by Smitten. It's short, but contains profound trading wisdom.

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  #179 (permalink)
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MetalTrade View Post
Ok guys, here you have it. The book that started it all for me, the way to profitability. I never looked back since:

Empirical Market Microstructure: The Instituions, Economics, and Econometrics of Securities Trading by Joel Hasbrouck.

And also :

Market Microstructure Theory by O'Hara

Can your elaborate a little on what you learned from these books, they look too academically theoretical.
Thx.

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  #180 (permalink)
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Fat Tails View Post
@JetTrader

As I said, I have read a number of books and I do not share your opinion on the book by Constance Brown. I think that different views on a subject are legitimate and that the disagreement can even be further exploited to release further energy (and increase entropy).

The Fibonacci Series is a growth series, the golden ratio describes the ratio of two consecutive generations (of rabbits, pineapple seeds, calcium deposits in a nautilus shell, etc.). So the concept can be used to describe a two-dimensional expansion, which relies on internal feedback.

Adapting these ratios to expansion would mean that you no longer describe expansion, but an expansion within an expansion, as the scale that you relate to is now changed. This is not in line with the origin of the Fibonacci ratio, but really is contradiction, as Fibonacci ratios describe growth and not the growth of the growth. Also I do not share the opinion of Constance Brown that Fibonacci ratios do not work when applied to the absolute highs and lows. I think that her definitions are fuzzy, as you select the appropriate starting point for retracements and expansions with hindsight. Everything she writes is influenced by a religious belief that there must be a hidden order, where there is none. in my opinion, the book is a blend of practical knowledge on how to use Fibonacci ratios with some pseudo-scientific verbiage added.

For me, a statement like "Harmonic Unity Within Market Price and Time" is simply nonsense. But again, I respect different views on this subject. Maybe we can continue to discuss it further in one of the harmonic trading or Fibonacci threads, as it does not belong here.

Attachment: Fibonacci zones, counted from the top and bottom.

I have placed my response to this in the Harmonic section of the forum, where it is better positioned.

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