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tmbaru

Why Successful Traders Use Fibonacci Retracements

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There are three types of horizontal lines that one can draw on charts:

 

1) Lines based on price - eg traditional support and resistance levels or consolidation zones (try Auction Markets).

 

2) Lines based on mathematical derivations of price - eg fibonacci levels or "daily pivots" (try Red Team, Green Team).

 

3) Lines partially or wholly based on or derived from non price data - eg MP points of control or VWAPs (try Trading with Market Profile)

 

All three are also well covered in various other threads around the site.

 

Best wishes,

 

BlueHorseshoe

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That is a start but it is first base stuff (imo).You would expect a non trader to set about the task in the way you describe.And it is non traders whose papers are held up as "proof" that there is nothing to see here.Not suggesting anything regarding your trading ability Seeker,even your handle suggests an open mind.

 

I have sympathy with your 2nd paragraph,but ultimately it's a red herring in any case.Knowing how rabbits multiply isn't going to help me extract money from the market.

 

You mention higher timeframes which,as for other methods,tend to produce better results but what about context?

 

If a market is slowly grinding up with shallow pullbacks with an average daily range of 10 points then 0.618 isn't going to be touched;it is more likely 0.236.

A deeper pullback tomorrow may be seen as a result of change of context.So you don't need to trade fibs to make use of the information they can give..

 

DB places importance on reading the chart,that encompasses reading a market.Can a new trader investigating fibs read a chart/market? .Can most of the people writing papers and debunking fibs read a chart?

 

Retracements are only one part of fibonacci.What about extensions?

Analysis is one thing trading is another.Are you going to enter on a retracement (which you don't know for certain will be support) or exit,in which case you don't care if it holds there or not?

Do you place limit orders at fib levels or wait to see how a market reacts there before placing a trade?

 

We all know that what many are looking for is a method that will tell them exactly where to enter/exit and work 90% of the time,and if fibs don't give them that then fibs don't work as far as they are concerned.

 

Then there are those who say,well in hindsight i see a lot of fibonacci but hindsight isn't much use.Well,that's a problem for the trader,and is hardly "proof" that they don't work is it? In fact if they can be seen in hindsight....

 

I've never seen my car drive itself.I don't know about your car,but i suspect,like mine,it isn't much use unless you drive it yourself.

 

The level of debate here is akin to expecting the fibs to do the work for you.That is my real point,'cos obviously i'm not really concerned with some other guy's trading results.

 

Like many things,you reap what you sow,and as DB has made clear he requires someone else to do that work and prove it has merit otherwise fibonacci is "idiocy".Not exactly a scientific approach to drawing conclusions is it?

 

As Seeker suggests,do the work yourself,draw your own conclusions.It would just be useful (to some) and in keeping with the idea that a trading forum is there to give some pointers,if we didn't have to run the Groundhog Day paradigm every time someone writes an article as useless as this one.

 

It would also be nice if those who considered themselves experts in other areas didn't assume that automatically gives them the right to be taken seriously when they debunk something they know almost nothing about.

That way,maybe we could do something to stem the flow of quality posters leaving this place.Then maybe i wouldn't get pm's telling me people are"bored"

 

I agree with most of your post and I agree it is first base stuff, I disagree that it isn't the first thing a trader should do. If one does it, and suppose one finds (for example) that there is no edge in fibs themselves as an entry alone, then that will dispel all sorts of myths around them, and it will be clear that they don't work in isolation and then one can get down to the nitty gritty of context and trade management and whether they're useful in combination or as some sort of guide to these. Just my 2 cents

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Skimmed some earlier posts… and as a beginner, the first ‘thing’ I was ever really into in trading was fibonnaci !

lucas quickly followed… then modified gann angle clusters… then…

 

Actually, the really first active interest was fib time projections! Exciting, fun, and episodically successful. Working deeper and deeper into that ‘episodically’ is what made my trading career.

 

learning to “read charts” (like wak off, et al) occurred on a wholly asynchronous process, via different learning and work modalities

(… this is partly what mit is ‘seeing’ and commenting about re db’s ‘intrusions’… and it’s questionable that db understands this…his content doesn’t indicate he does…)

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A ‘real’ fibonnaci trader talks

[ame=http://www.youtube.com/watch?v=soynQs8qxCA]Mark Douglas - MIND OVER MARKET (Full Interview) - YouTube[/ame]

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Re Static or dynamic

 

1) Lines based on price - eg traditional support and resistance levels or consolidation zones (try Auction Markets). Static ie once formed, it doesn’t move up and down (much)

 

2) Lines based on mathematical derivations of price - eg fibonacci levels or "daily pivots" (try Red Team, Green Team). Static based on previously formed markets pivots

 

3) Lines partially or wholly based on or derived from non price data - eg MP points of control or VWAPs (try Trading with Market Profile) Static…

 

4) Time based support and resistance. The ‘horizontal’ line will be ‘dynamic’, the vertical ones not so much

 

The key to any straight or crooked 'line' on any chart - no matter what you name it or how you derive / program / calculate / project it – is how much it ‘matters’ when at the time it is approached… it could be as strong as the wall of china in the moment… or it’s there but it could have the strength of a frkn jet vapor trail

It's better to know it's there than not

that is

Why Successful Traders Use Fibonacci Retracements

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Let's see what Paul Tudor Jones and others think about fibonacci- Let's nor allow ourselves to be biased by the fact that he is worth billions and is a trader

 

(Tom) DeMark’s system for predicting where markets will move, divined from four decades of chart gazing, is based partly on the recondite mathematical relationships that devotees see in the design of the Parthenon in Athens and the Great Pyramid of Giza get DeMark’s followers talking, and their enthusiasm for his market calls is unbounded.

 

 

Since he started in the investment business in 1971, DeMark has advised some of the biggest names on Wall Street, men such as Paul Tudor Jones and Leon Cooperman. He’s a consultant to Steven Cohen, founder of SAC Capital Advisors LP, which manages $14 billion, and John Burbank, founder of $3.4 billion Passport Capital LLC. SAC and Passport each own a piece of DeMark’s company, Market Studies LLC. DeMark has a phone on his desk that’s dedicated to Cohen, whose hedge fund has made money every year save one since 1993.

 

“When I use DeMark’s work, I feel like I’m wielding Thor’s hammer,” says David Goel, managing partner at hedge fund Matrix Capital Management Co. in Waltham, Massachusetts, which manages $2 billion.

 

 

“I only use his system,” says Gruebel, former chief executive of both Credit Suisse Group (CSGN) AG and UBS, Switzerland’s two largest banks. A trader by training, Gruebel manages his own portfolio using DeMark’s work.

 

“It tells you when everyone else has sold and you should be buying,” Gruebel says. “His system is the best I’ve seen in 50 years.”

 

 

No discussion on fibonacci would be complete without including a comment or two from "experts" who are not traders would it?

 

 

Technicians who, like DeMark, are believers in Fibonacci numbers and the golden mean are especially annoying to quants.

 

“There’s a golden ratio mania, and most of it isn’t based on any kind of fact,” says George Markowsky, a computer science professor at the University of Maine, who holds a Ph.D. in mathematics. Markowsky wrote a paper in 1992 rejecting most of the claims of the golden mean believers.

 

“It’s amazing to me that adults take this stuff seriously,” he says.

 

 

 

Investor Warren Buffett is also dubious of the notion that a stock or index’s direction can be predicted merely by studying historical price data.

 

“I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer,” the Berkshire Hathaway Inc. (B) chairman joked to an audience at Vanderbilt University in 2005. A spokesman says that Buffett stands by the statement.

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http://www.investopedia.com/terms/f/fibonacciretracement....which is an established on this field have this to say about 'Fibonacci Retracement'

 

Definition of 'Fibonacci Retracement'

A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going higher). The Fibonacci retracement is the potential retracement of a financial asset's original move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

.

.

Someone should correct me if this is not the position....

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More on 'Fibonacci Retracement'....

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. The notion of retracement is used in many indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more. After a significant price movement up or down, the new support and resistance levels are often at or near these lines.

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Lemme see how many Billionaire investors out there use Fibonacci? the answer to this question would most probably be "ZERO".

Genius.:doh: It pays to read closely.

 

Well except for a couple that were just mentioned in Mitsu's above post. Can't get any closer unless it was in your own post.:o

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Genius.:doh: It pays to read closely.

 

Well except for a couple that were just mentioned in Mitsu's above post. Can't get any closer unless it was in your own post.:o

 

Steve Cohen uses a special indicator called insider trading. It works well for those who have access to it.

 

Buffet, though probably not an inside trader, gets special deals, purchasing GS Preferred issue stock paying a 10% dividend, backed by the faith and credit of the USA. As Far as I know, we didn't have access to that purchase or access to the information that AIG would use its tarp money to pay off its bets with GS.

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Lemme see how many Billionaire investors out there use Fibonacci? the answer to this question would most probably be "ZERO".

:rofl:

 

Seriously though, we are talking in here about traders, not investors. Important distinction.

http://www.traderslaboratory.com/forums/forex/13692-characteristics-traders-versus-investors-forex-markets-2.html#post156184

etc

 

 

...and when you hear Buffet say: “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer,” it's obvious his proclivities and strengths are in playing the monetary system, etc. and it's a good thing for him he didn't try to become a 'trader'.

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Steve Cohen uses a special indicator called insider trading. It works well for those who have access to it....

True but that is like saying Barry Bonds was on steroids when he sets home run records.

 

He still would have been damn close without the "juice" though.

 

Break a rule or a law and there are consequences of course.

 

But SAC is an enormous trading firm that didn't get that way purely from insider info.

Edited by SunTrader

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True but that is like saying Barry Bonds was on steroids when he sets home run records.

 

He still would have been damn close without the "juice" though.

 

Break a rule or a law and there are consequences of course.

 

But SAC is an enormous trading firm that didn't get that way purely from insider info.

 

I don't know how SAC got that way. You may be correct that it wasn't from insider trading. You also may not be correct. Those guys need to provide return at all costs. The easiest way to make money is with tomorrow's paper.

 

Homeruns in Baseball? Eye and hand coordination. You might or might not be shocked at how helpful growth hormones are. Hard to decide how much had to do with Juice in his case. It could be that he would have done just as well without the juice, but we will never know and he lives with his decisions and the stigma of doubt.

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I don't know how SAC got that way. You may be correct that it wasn't from insider trading. You also may not be correct.....

$14 billion dollar hedge fund with 800 employees which was started in 1992 takes an awful lot of insider info to get to that level and a long time before being discovered - if it was all an illusion and not some substance behind it.

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http://[www.investopedia.com/terms/f/fibonacciretracement...which is an established on this field have this to say about 'Fibonacci Retracement'

 

Definition of 'Fibonacci Retracement'

A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going higher). The Fibonacci retracement is the potential retracement of a financial asset's original move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

.

.

Someone should correct me if this is not the position....

 

For the 100th time...............................................................................:doh:

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$14 billion dollar hedge fund with 800 employees which was started in 1992 takes an awful lot of insider info to get to that level and a long time before being discovered - if it was all an illusion and not some substance behind it.

 

It certainly could have been a good run, getting away with murder. All I know about SAC is what I read in the headlines. I do know that the hedge-fund business is intensely competitive. I can certainly understand why these guys would want to press the envelope to remain a forerunner.

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Here is an SPX example, admitedly an ideal one, of fib time and price retracements coming together. Both down swings 43 days, 2nd swing 61.8% time retracement of previous up move of 72 days although it overshots bottom by a day. Good enough for govmint work.

 

Then there is 61.8% price retracement of up move. This "missed" hitting exact level by less than 3 points.

 

But was this the cause of the market bottoming - and ripping the bull market higher 300 points ?

 

I don't know but I also don't care.

 

I only care about having probablilites on my side.

 

And fibs are one, of many ways, to do this.

SPXfib.thumb.png.5d7c32654bf6402055c84524233aee7b.png

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For the 100th time...............................................................................:doh:

 

It's because many traders are unsure whether the relevant fib level is 61.8 or 38.2, so they add them together and divide by two to get an average retracement level of 50 . . .

 

:rofl:

 

BlueHorseshoe

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:rofl:

 

Seriously though, we are talking in here about traders, not investors. Important distinction.

http://www.traderslaboratory.com/forums/forex/13692-characteristics-traders-versus-investors-forex-markets-2.html#post156184

etc

 

 

...and when you hear Buffet say: “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer,” it's obvious his proclivities and strengths are in playing the monetary system, etc. and it's a good thing for him he didn't try to become a 'trader'.

 

Yes for traders it may do. I personally dont use any technicals for my charting cause the chart looking at the chart is enough to see whats happening with the price, my original perception was the large capital investment market where almost all technicals fail.

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Here is an SPX example, admitedly an ideal one, of fib time and price retracements coming together. Both down swings 43 days, 2nd swing 61.8% time retracement of previous up move of 72 days although it overshots bottom by a day. Good enough for govmint work.

 

Then there is 61.8% price retracement of up move. This "missed" hitting exact level by less than 3 points.

 

But was this the cause of the market bottoming - and ripping the bull market higher 300 points ?

 

I don't know but I also don't care.

 

I only care about having probablilites on my side.

 

And fibs are one, of many ways, to do this.

 

Interesting that you post that chart Suntrader.I posted a very similar one somewhere here but i'm damned if i can find it now.But i do have another variation of it and it is annotated just before price took off from 1346

That did make me think that it is probably a good idea to post a charts with predictions rather than always hindsight.

Unfortunately this tends to make one look like a wannabe guru and you get told that trading is not about predicting....well,that's a seperate debate.

It was with this idea in mind that i started the Quantification thread with the idea of a compromise between hindsight and prediction.The idea being that 1.618 is a constant and once identified the reader could monitor things going forward without the need to constantly post charts to demonstrate the theory in either hindsight or make predictions.

Result?- there is no interest in that thread.

However,the theory is still working pretty damn well measuring prev week low to following week high,or low to high within same week.

 

 

1536.0 + 3.618%= 1591.5 Actual= 1592.6

1548.1 + 4.618%= 1619.5 Actual= 1618.4

1581.2 + 3.618%= 1638.4 Actual= 1635.0

 

Btw,that last chart you post of the crash doesn't show it.

5aa711e440c9c_reversalYTDA.thumb.gif.227d2129ce0d021cd7606516863c12ad.gif

Edited by mitsubishi

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Well, I posted three weeks' worth of charts that illustrated a method which yielded a 79% win rate and 90% profit, and the resulting NQ trade is now 200pts in profit. That's after several years of profitable trading.

 

But I guess it depends on how one defines "useful".

 

DB,

 

I would really be interested in checking that out. Would you mind telling me where those posts are?

 

thanks a lot

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