[Soultrader]

I want to briefly explain a fibonacci trading strategy I use on a daily basis. I look at two key retracement lines: the 61.8% and 50% fib retracements. This I call this zone the "hot zone". I will pay close attention when prices retace or pullback to this zone.

Uptrend strategy: In an uptrend, I want prices to retrace below the 50% fibonacci retracement but close above the 61.8% retracement. If the hot zone acts as a key support zone, I will enter a long position with a 3-5 tick stop below the 61.8% retracement line. I will scale out +10 for the dow mini's and exit all or most of my position at the previous swing high.

Downtrend strategy: In a downtrend, I want price to retrace back to the 50% fibonacci retracement line but not close below the 61.8% retracement. I am looking for the hot zone to act as a key resistance level. I will enter a short position using a 3-5 tick stop above the 61.8% retracement. I will scale out +10 for the dow mini's and exit all or most of my position at the previous swing low.

Just remember this: 61.8% for an uptrend & 50% for a downtrend. These are the two main levels I will look at. I time my entries based on the tape. For those who are not tape readers, I highly recommend you put the time and effort into learning this valuable skill.

[bobcollett]

Originally Posted by Soultrader »

I want to briefly explain a fibonacci trading strategy I use on a daily basis. I look at two key retracement lines: the 61.8% and 50% fib retracements. This I call this zone the "hot zone". I will pay close attention when prices retace or pullback to this zone.

Uptrend strategy: In an uptrend, I want prices to retrace below the 50% fibonacci retracement but close above the 61.8% retracement. If the hot zone acts as a key support zone, I will enter a long position with a 3-5 tick stop below the 61.8% retracement line. I will scale out +10 for the dow mini's and exit all or most of my position at the previous swing high.

Downtrend strategy: In a downtrend, I want price to retrace back to the 50% fibonacci retracement line but not close below the 61.8% retracement. I am looking for the hot zone to act as a key resistance level. I will enter a short position using a 3-5 tick stop above the 61.8% retracement. I will scale out +10 for the dow mini's and exit all or most of my position at the previous swing low.

Just remember this: 61.8% for an uptrend & 50% for a downtrend. These are the two main levels I will look at. I time my entries based on the tape. For those who are not tape readers, I highly recommend you put the time and effort into learning this valuable skill.

Dear Soultrader
Do you still look at this "hot zone"?
Or has the market moved on.
Kind regards
bobc

[JMB]

Are there any traders out there that actually use the fibo ratios in their everyday live OTHER THAN TRADING???
The reason i ask this is the following. All these traders that use Fibonacci in their trading were sold the idea that fibonacci should work because this ancient Italian stumbled upon a so called Golden Ratio that you can find in all other things in life. I still don't see a valid reason why i should plot these ratios on my chart. I mean , if i get into my car to drive from point A to point B , should i make a 180 degree turn once i have driven 61.8% the way??? no, you would never do that, but traders seem to find it a valid reason to get into the market. I have yet to meet the trader that is consistently profitable with using the Fibonacci ratios. Wallstreet is literally laughing its way to the bank because of all retail traders using all these crazy looking indicators. All that is missing is one of these big institutional guy's coming out in public telling us that he found some weird mathmatical sequence hidden in some box in the desert beneath some piramid (which caused his trading succes) and there will be traders standing in line to pay for that sequence, as if they were in line waiting to get the new ipad4 at the apple store.

[SIUYA]

Originally Posted by JMB »

Are there any traders out there that actually use the fibo ratios in their everyday live OTHER THAN TRADING???
The reason i ask this is the following. All these traders that use Fibonacci in their trading were sold the idea that fibonacci should work because this ancient Italian stumbled upon a so called Golden Ratio that you can find in all other things in life. I still don't see a valid reason why i should plot these ratios on my chart. I mean , if i get into my car to drive from point A to point B , should i make a 180 degree turn once i have driven 61.8% the way??? no, you would never do that, but traders seem to find it a valid reason to get into the market. I have yet to meet the trader that is consistently profitable with using the Fibonacci ratios. Wallstreet is literally laughing its way to the bank because of all retail traders using all these crazy looking indicators. All that is missing is one of these big institutional guy's coming out in public telling us that he found some weird mathmatical sequence hidden in some box in the desert beneath some piramid (which caused his trading succes) and there will be traders standing in line to pay for that sequence, as if they were in line waiting to get the new ipad4 at the apple store.

Valid points except that using a fib example to talk about driving a car is like saying I plan to fly to the moon using nothing but mind power.....different tools, different applications.
I think fib numbers can offer help in providing possible take profit, or retracement levels.
By it self it might be limited, and there is a fair bit of subjectiveness in where to apply it.

Using one tool in the tool bag would not make for a very good carpenter - or using your analogy - driving a car with just an accelerator and no brakes might be fun for a short period.
re wall st - they are laughing as they take a clip, and many of them do use similar measures such as creative accounting to laugh even harder at the poor institutional punters. Myth number 1 - The retail guys dont feed wall street.
and some Insto do use black boxes! Most of them are not the rational beings they are made out to be.

Plotting anything on a chart does not make it true. It just needs to fit in with your view of the markets, money management, strategy, psychology, etc; etc; etc; otherwise it probably is superfluous.

[JMB]

Hi SIUYA,

Thanks for your reply.
No pun intended to the fib traders in my last post.
I actually realy like what is writen on the bottom of your post "CONTEXT IS KING", you see that is something that does make sense

[SIUYA]

no probs....i think your point is valid. Years ago I read two books.
One was called "trading with the Gods", the other "The Trading Rule That Can Make You Rich* (Dohson)

Much the same result except one approached it from a mystical, magic secret sauce (IMHO crap) approach.
The other from a more practical standpoint. I went with soul traders original view. Keep it simple, keep it simple keep it simple.

As per real life I guess the maths whizs and engineers could tell you. I think in life there are definately cetain ratios that work and make sense - eg; stair raisers, building proportions, and the like. Additionally there are certainly aesthetically pleasing ratios - The Math Behind the Beauty

and maybe markets based on human traits have similar ratios.
I just need to remember Keep it simple, keep it simple keep it simple.

To a certain extent, computers are like the modern day sirens of the sea allowing us to do ever more complicated things (and there are those who maximise this and do it well - IMHO Wall street is not it. Wall st is there to redistribute money and take a clip not to trade), and thats great, but often its too distracting, tempting to want to perfect the maths.
There is that great joke i love - "Nasa spent millions researching and testing a pen that could write upside down in zero gravity for space missions but could not get one to work. When they asked the Russians what they used the answer was "a pencil""

[TheNegotiator]

Haha Siuya! That story about the Nasa pen is a funny one! But it does illustrate a good point.

How traders use ratios is a point that I'd like to underline. Fibonacci ratios are effective if used appropriately. The trouble is that many traders don't know what to use them for. It's usually they draw them automaticall from highs to lows. This isn't always going to yield results. Plus, even if you are applying them correctly it doesn't always mean you should be trading at a specific level.

Before I go any further I'd just like to point out that 50% is not a fibonacci ratio, yet it is very useful as many other use it (self-fulfilling prophesy yada, yada) and so I include it for my purposes.

Briefly how I use ratios goes:-

Close to open session gaps. This is the most useful reference within the first say 30mins or so after regular trading hours (RTH) open. Obviously this might not be as useful if you trade different products. I trade ES and so I do find it useful. I only really look at 50% and 38.2% as a measure of gap closing ability. I also use the extension ratios. I.e. (1)27.2%, (1)38.2%, (1)50%, (1)61.8% & (2)100% extensions. I'll make the point now but this applies to every ratio I use. I LOOK FOR CONFLUENCE BETWEEN THE RATIOS AND MY LEVELS. After I'm confident the initial balance (IB- the first 60mins of the RTH session) is in, I do the same on the IB. What is particularly important to me here is on breaking the IB high or low, if the market stops short of the 27.2%/38.2% extension, I am on alert if there's a subsequent break back into the IB. It suggests to me that the move wasn't strong and that there may be some work required in the opposite direction. After I have garnered any IB ratio information, I use the 50% on the day session. Not much more. Then on any strong move caused by some kind of announcement, I look at 38.2% of that move for continuation, 50% for a possible reversal of the move and 78.6% for a final reaction before a complete capitulation and break back the other side of where the move started from. I also monitor important longer term swings.

This is basically how I use fibs. Sometimes I lean on them for an entry if I have confluence and sometimes they are geometric activity markers only. I have to stress that whatever you do, make sure you use them with your own structural context. Hope this helps.

[mitsubishi]

Negotiator,
Can we negotiate a bit on the ratios because you are mixing up apples and oranges or is it pears...or even pairs?

As in pairs 0.236 + 0.764 = 1 and 0.382 + 0.618 =1

1,272 is the square root of the ratio 1.618
0.786 is the square root of the ratio 0.618

50% as you say,is not a ratio and is irrelevant,unless you decide otherwise.But thanks for reminding everyone it's not a ratio,because like a lot of the other confusion regarding Fibonacci it is often inferred that it is.