Proving that Fibonacci retracements have an edge...

[HowardCohodas]

Are you saying John von Neumann played a major role in saving the UK? I realise he worked on the Manhattan project, but could you elaborate on what you mean?
Thanks

My bad. Mixed him up with Alan Truing. They both made significant contributions to digital computing. However, as far as I know, it was Turing and not von Neumann who made significant contributions to decoding German ciphers.

 

[bedsit]

And if you look at what he does you will see he allows leeway around the fib areas.

And if you extrapolate the leeway from his diagrams to the other fib levels, you will see he's covered a fair percentage of the retracement.
.

I'll try to be more specific this time (to avoid confusion).

This is one of the many ways to trade Fibonacci extensions (a target predicting tool). I've put different colours for different sets of Fibonacci levels.

PS Note EU has been in a down trend for some time (this example). I could find 3 set ups (relatively large distance between the extremes) and if risk/reward was set to 50/61.80 that would be 3 out of 3 since the 9th of November. - The idea behind it - once the price breaks out it shouldn't retrace more than 50% of the range. One can go for a 61.80/61.80 risk reward - but I prefer 50/61.80. Also it's possible to go for a tiny risk - stop just above the break level (if taking short), but success rate is not as good although risk/reward may be quite good.

Hope it helps.

IMO It's good to test it on a demo first before trading for real.

 

[Trdr]

'Measuring the Unmeasurable' is a simplified outline of how I trade using fibos

 

[Dommo]

Without getting into whether you can make Fibonacci levels work (good luck to you if you do), has anyone come across a rationale for using this golden ratio sequence? I thought these levels might follow from (say) recovery/unit profit under a martingale/fade strategy, but I haven't found anything on this nor constructed anything convincing.

That these GR levels are used without a clear basis makes me uncomfortable - it's as though they are given mystical significance in markets only because they are observed (for perfectly good physical reasons) in nature.

No criticism here, just curious - is there any "physical" basis for FIB levels?

 

[DionysusToast]

No Dommo. There is no reason.

But if you have a swing - draw 5 lines between the low & the high - they will be just as significant as fibs.

Most fib tools allow you to alter the percentages. Try increments of 15 or 20 percent and the significance will be the same.

 

[SanMiguel]

mystical significance in markets

Trading is a religion for some people

 

[DionysusToast]

Trading is a religion for some people

And that phenomenom can be observed here on a daily basis.

but, but, but... it just does....

nothing wrong with having a lucky rabbits foot if that's what you need, I guess

 

[barjon]

Without getting into whether you can make Fibonacci levels work (good luck to you if you do), has anyone come across a rationale for using this golden ratio sequence? I thought these levels might follow from (say) recovery/unit profit under a martingale/fade strategy, but I haven't found anything on this nor constructed anything convincing.

That these GR levels are used without a clear basis makes me uncomfortable - it's as though they are given mystical significance in markets only because they are observed (for perfectly good physical reasons) in nature.

No criticism here, just curious - is there any "physical" basis for FIB levels?

Dommo

There's a sort of rationale for 50%

Going from price A where everyone want to buy and nobody want to sell, to price B where nobody wants to buy and everyone wants to sell. A standard supply and demand graph has number of buyers = number of sellers at the half way point 'twixt A and B. In theory that's where price should rest until there are changed perceptions about the "value" at A and B.

But what's theory got to do with anything )

jon

 

[scose-no-doubt]

I agree with Barjon.
IMO its a ruler with better marketing.

 

[Dommo]

Dommo

There's a sort of rationale for 50%

Going from price A where everyone want to buy and nobody want to sell, to price B where nobody wants to buy and everyone wants to sell. A standard supply and demand graph has number of buyers = number of sellers at the half way point 'twixt A and B. In theory that's where price should rest until there are changed perceptions about the "value" at A and B.

But what's theory got to do with anything )

jon

Thanks - I agree that there is a rationale of sorts for 50%. If you are fading the market and continuously, uniformly adding to the position (or adding regularly enough), when it turns, 50% retracement is where your losing contrarian position breaks even.

I was looking for something analagous (ie an arithmetic basis) for the fib/GR levels. As far as know, 50% level has nothing whatsoever to do with GR/Fib.

Cheers

 

[HowardCohodas]

I was looking for something analagous (ie an arithmetic basis) for the fib/GR levels. As far as know, 50% level has nothing whatsoever to do with GR/Fib.

Cheers

What is the rational for nature following the GR?

 

[scose-no-doubt]

What is the rational for nature following the GR?

Irrelevant. Lets not get philosophical. Always happens and ruins threads.

 

[Shakone]

What is the rational for nature following the GR?

Where does nature follow the GR Howard?

 

[HowardCohodas]

Irrelevant. Lets not get philosophical. Always happens and ruins threads.

That is a bewildering response given the thread title and Dommo's question.

Do I need to elaborate?

 

[HowardCohodas]

Where does nature follow the GR Howard?

Two of my favorite references:

Fibonacci Numbers in Nature & the Golden Ratio

The Golden Ratio in Nature

 

[scose-no-doubt]

That is a bewildering response given the thread title and Dommo's question.

Do I need to elaborate?

The thread title is about fibs providing an edge in markets. The conversation is steering towards fibs in nature which is irrelevant to their application or non application in financial markets. Just trying to keep it on track because T2W has been down the fibs in nature road before and it's always a crock of sh1t.

GR discussions etc are for scientists or stoner hippies and I don't see any PhD's around here.

 

[Dommo]

What is the rational for nature following the GR?

I have little doubt you know something about these things.

But this misses my point - as you know the ratio/fibonacci sequences are clearly observed in natural processes and in pure maths and you can put forward a rationale (eg constraints of 3D space or population dynamics). That is why they are of interest and well known, without needing to get philosophical.

But fibonacci in markets? Why? Why would anyone put forward this idea? Sure, you can observe Fibonacci levels with some margin of error in markets sometimes, but as DT has basically said ad nauseum, pick any set of levels and you will observe their significance in some markets at some times.

I agree that GR/Fib in nature is an interesting thing to study, although it is not at all what I am getting at here.

 

[anley]

Fib levels work great but you have to know how to use them properly and how to use them IN CONJUNCTION with other indicators.

The other problem is to be able to use them effectively you've got to do a lot of work, I'd suggest a minimum of 1 year.

That right there is the main problem because everyone wants it nice and simple, ie study them over the weekend and then use them profitably the following week..............

Sorry everyone but that's not going to happen, just like you're not going to be a top lawyer after a few months at law school nor a competent Doctor after reading a few medical books.

 

[HowardCohodas]

But fibonacci in markets? Why? Why would anyone put forward this idea?

1. The markets are a "natural phenomena" driven by human psychology. I find no compelling reason to believe that human psychology is divorced from other observable natural phenomena in any way. Therefor, I have no compelling reason to reject the proposition that market responses can be modeled by the Fibonacci sequence.

2. One can put forward an idea that seems to work and is used by prominent and profitable traders. Just because some here cannot make it work is not pertinent. As I've stated before, a trading system succeeds or fails largely as a consequence to the effectiveness of it's primary component. The primary component is not the strategy, it is the trader.

 

[scose-no-doubt]

1. The markets are a "natural phenomena"

Sometimes you are an absolute tool, Howard.