Fibonacci Pullback Strategies

[Soultrader]

Many of you may be familiar with the 61.8% fibonacci retracement trades. I used to use plenty of fibs in my trading but have recently drifted away from it. However, fibs can not be ignored as they are followed by many traders and can play a critical role in price movement.

The 61.8% fib retracement is a commonly used setup by day traders. In this post, I have added one filter to this setup: FORGET the small swings and apply fibs to the bigger swings. Let me explain:



In this example, I have applied the fib lines from the swing low to the swing high. Im basically using fibs lines for moves of over 50+ points on the YM. I find that they work more effectly on a bigger swing rather than trying to use fib retracement strategies on a small price movement.

This is an example of a 61.8% fib retracement failure using a 38 point swing.



This chart below uses a 54 point swing. Although price declined afterwards, the initial 61.8% retracement setup would of worked for 20+ points.




Of course there are many different techniques to use fibs in your trading. But for those who are familiar with some of my setups through the chat room, I will be looking to apply this one into my trading. I have used this technique in the past successfully but am now incorporating a stricter rule of 50 points. Why 50? Fib setups is just an extra in my trading since I am mainly a pivot and MP based trader. 61.8% fib retracements seem to work fairly well in a 50+ swing move so will be looking to take this setup whenever it happens. From the look of it, I'll be lucky if I get it once every 2 trading days.

Please leave me your feedbacks. Thanks

[MrPaul]

Thanks for the detailed post Soul. I have been taking a closer look at fib levels ever since I have been noticing them on the ER2. I see there are a couple new members who use fib studies, I'll be interested to see where this discussion may lead...

[torero]

Welcome back to fib fold, soul! I don't use fibs as religiously as others but 50% fib level cannot be ignored (it's the same level as Pivot point in Floor Trader Pivot calculation), this is automatically 2 cluster points in 1. Extremely reliable.

[Sniper]

Nice charts soultrader

It's good to hear that you're using fibs back.

I've been using fibs for 15 years and it's my weapon of choice for trading.

I would like to add some suggestions

first, I strongly suggest not to use fib retracements on tick charts. I have traded with fibs in all forms/shapes/gann's elliot waves etc available on this earth and tick charts don't give you an accurate pattern most of the time. I don't say they can't be used on tick charts but fibs are more related to actual time .

As for your swing filter, I prefer the ones who have minor corrections(pullbacks) built in.

Just a short explanation here. Fibs are a combination of price/pattern and time. That's one of the reason fibs are widely misunderstood.

Another suggestion is to have a target. Many fibs traders are counting cycles (waves). Well that's good, but has to be done under the light of time. Some others has a fixed price target. I personally use a combination of the two. Has been more efficient to me.

I used to manually count cycles. I recently switched to a broker who has a time cycle tool. It helps you to time how long you'll reach to your desired profit target( not to the T but they work really good most of the time). The minute I see a C correction, I begin to draw profit target lines and time cycles. I also use extensions but in that I am very discretionary.

When I started trading, after try all indicators, bells and whistles know to man, I decided that I will have a better understanding of the market, I will have to use a tool that's forward- approach to instead of past history

Andrew's pitchfork, pivot points, fibs, S/R Regresion channels and even trendlines have this particular forward approach to the market I was looking for. Because of that, a lot of discretion is applied and many times traders falls into a real discretionary nightmare. You have no idea how many nights I spent calculating and backtesting charts using ganns, elliot waves and fibs until one day I decided to get rid of plenty of stuff I had already built in and keep only fibs and time cycles.

My trading improved dramatically when I decided to keep what I choose to be my way for trading and not to incorporate anything else. The thing is , fibs or not fibs, many traders are in this constant quest looking to mix all kind of things and when something doesn't work, they keep moving on to the next brand-new indicator until they get frustrated and sadly out of the market for good and pocket empty.

Back to the fibs, My humble advice is to keep it simple as they are. They're just guides. Have an entry, exit and stop-loss points already in place and when you hit the signal, just go for it. Don't hesitate. Fibs are not always right, but they work enough times to give you a statistical edge

My charts are brand new. I am still getting familiar with the whole package, but as soon as I learn how to screen capture a chart, I will show you how I trade, with precise entry and exit points and how to deal with a broken fib(because you'll have broken fibs along the way for sure) .

Regards

[Soultrader]

Thank you for the comments Sniper. I would be very interested in hearing more about your fib setups. Regarding exit points, I find that a good initial target would be just shy of the previous swing high. Usually a good level to scale out.

I find that a combination of the 61.8% retracement line with a pivot adds further strength to the support level. I'll find some setups this coming week and will post some charts on it.

Im not too familiar with cycles and how one can apply it to exits. Perhaps you can help clear this up for me? Thanks

[torero]

	Quote:	Sniper
	Andrew's pitchfork, pivot points, fibs, S/R Regresion channels and even trendlines have this particular forward approach to the market I was looking for. Because of that, a lot of discretion is applied and many times traders falls into a real discretionary nightmare. You have no idea how many nights I spent calculating and backtesting charts using ganns, elliot waves and fibs until one day I decided to get rid of plenty of stuff I had already built in and keep only fibs and time cycles. Regards

Hi Sniper and welcome to TL! I wanted to ask you about the time cycles. Is the cycle fib calculation as well? In Tradestation, there is a fib time calculation tool but I've never found any good reading material in applying it but am very curious to learn. If this is not it, would like to your how you use yours.

[momentom]

There's a program out there that you may want to look at:
Elliott Wave software for trading Stocks Commodities Futures and Forex

It is basically a fib pullback and projection software with position sizing. It uses ABC waves.

[Anonymous]

	Quote:	torero
	Welcome back to fib fold, soul! I don't use fibs as religiously as others but 50% fib level cannot be ignored (it's the same level as Pivot point in Floor Trader Pivot calculation), this is automatically 2 cluster points in 1. Extremely reliable.

Please explain. If pivot is (H+L+C)/3 and 50% fib level would be from significant high to significant low (H+L)/2, how is this the same number? Are you speaking of a particular case, or are you saying it is always the same?

[Anonymous]

I love the whole "universal numbers" that govern the heavens and the earth aspect of Fibs. I also like Murrey Math for the same reason. They are interesting concepts to think about and in some ways connect one to the greater whole. Trading, however, is a different story.

My main problem with Fibs was when to apply them. I will give a brief tale (example):

Price is in an up trend for last 10 periods. On period 11 price closes down. I ask myself, " Is this the start of the retrenchment? One down period does not a retrenchment make." The next period, price again closes lower. Now two periods down is obviously more than one, but are we in a pull back ? The 2 period pull back doesn't seem like much at this point. So right now, I will wait to see what happens. Now this is the kicker. On the next period, price trades down then closes on its high and higher than previous period. I read in a blog, or hear an analyst on CNBC say, that price in this market retraced 38% intra period and closed higher as all the people watching that key level entered. I thought I was one of them, but I never got to put the FIbs on. Looking back at the chart it becomes clear. I call my broker for a price fill some time in the past, and they hang up on me.

Maybe it's just me, but things like that are one reason why I don't use Fibs. When I did use indicators, you can believe they all had periods of some length like 3,5,8,13,21,34,55,89..... .......... or Music Math numbers like 8,16,32,64. Dynamic support/resistance levels like those of Market Profile came to my rescue.

[Soultrader]

	Quote:	PivotProfiler
	I love the whole "universal numbers" that govern the heavens and the earth aspect of Fibs. I also like Murrey Math for the same reason. They are interesting concepts to think about and in some ways connect one to the greater whole. Trading, however, is a different story. My main problem with Fibs was when to apply them. I will give a brief tale (example): Price is in an up trend for last 10 periods. On period 11 price closes down. I ask myself, " Is this the start of the retrenchment? One down period does not a retrenchment make." The next period, price again closes lower. Now two periods down is obviously more than one, but are we in a pull back ? The 2 period pull back doesn't seem like much at this point. So right now, I will wait to see what happens. Now this is the kicker. On the next period, price trades down then closes on its high and higher than previous period. I read in a blog, or hear an analyst on CNBC say, that price in this market retraced 38% intra period and closed higher as all the people watching that key level entered. I thought I was one of them, but I never got to put the FIbs on. Looking back at the chart it becomes clear. I call my broker for a price fill some time in the past, and they hang up on me. Maybe it's just me, but things like that are one reason why I don't use Fibs. When I did use indicators, you can believe they all had periods of some length like 3,5,8,13,21,34,55,89..... .......... or Music Math numbers like 8,16,32,64. Dynamic support/resistance levels like those of Market Profile came to my rescue.

Im not a HUGE fan of fibs either. But just build your own set of rules on when to apply fibs to your trading setup. Maybe they do not fit into your trading concept. I personally do not use a ton of fibs on the daily charts but with intraday swings I may apply them. I know several excellent fib based traders... fibs are accepted by many traders just like pivot points and market profile. Which is why they simply can not be ignored. Just my 2 cents.