Fibonacci

I do not use this predicative indicator but want to know more about it.
I understand the semantics but the confusion comes about in time periods
Which time period’s does one use?

Lets take today’s drop in cable.
High 19852
Low 19720
Drawing the fib lines we can see that a it should retract and has done up to 50%
On this occasion it has worked to the principles.
However it does not always work.
Is it because there is a more prominent fib level?
How do you find the prominent fib level?
Does the prominent fib level always dominate?
Are there other issues that have to be taken into account when calculating fib levels?

I am a complete novice on this subject so would appreciate all comments
Thanks

gamma said:

I do not use this predicative indicator but want to know more about it.
I understand the semantics but the confusion comes about in time periods
Which time period’s does one use?

Lets take today’s drop in cable.
High 19852
Low 19720
Drawing the fib lines we can see that a it should retract and has done up to 50%
On this occasion it has worked to the principles.
However it does not always work.
Is it because there is a more prominent fib level?
How do you find the prominent fib level?
Does the prominent fib level always dominate?
Are there other issues that have to be taken into account when calculating fib levels?

I am a complete novice on this subject so would appreciate all comments
Thanks

Click to expand...

50% is not a Fibonacci number

Please elaborate!
I see figures for 23.60%,38.20%,50%,61% and 100%
So I do not understand please explain further will be
much appreciated!
thanks

gamma said:

Please elaborate!
I see figures for 23.60%,38.20%,50%,61% and 100%
So I do not understand please explain further will be
much appreciated!
thanks

Click to expand...

The Fibonacci sequence is:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, (obtain the next number by adding the previous)

ie/
2+3=5
5+3=8
8+13=21
21+13=34
etc

From this sequence the "Golden Ratio" is derived: 1·618 (dividing a number by the previous number)

ie
377/233= 1.618

therfore:

3x(Golden Ratio)= (approx)5
5x(Golden Ratio)= (approx)8
8x(Golden Ratio)= (approx)13

etc.

Some "clever" programmer thought it might be useful in trading,

100% /1.618(Golden Ratio)= 61.8%
61.8%/1.618(Golden Ratio)= 38.2%
38.2%/1.618(Golden Ratio)= 23.6%

50% doesn't fit in anywhere! It was added because it appears to be a common retrace level. In fact, 50% appears more often than Fibonacci, it's just that they are very close, people attribute them to Fibonacci.

100/2= 50%
(100+50)/2=75% (Close to 61.8%)
(100-50)/2=25% (Close to 23.6%)

etc

Thanks new Trader,
I see that the 61.80 and 50 % retracement levels are very close
Disregarding the fundamentals today on cable I see it retracted all the way up to the 61.80 level

gamma said:

Thanks new Trader,
I see that the 61.80 and 50 % retracement levels are very close
Disregarding the fundamentals today on cable I see it retracted all the way up to the 61.80 level

Click to expand...

.....which raises a "fear" I have about these things.

If 61.8 is near to 50, then we're accepting a + / - 12% band for each target. Given that there are 3 of them (and with 50%, 4), you've covered just about the whole range of the high V low. Throw in some variability in the high V low calc (is it intra day or closes etc), and you can't fail

Any retracement will thus coincide with a fib number, adding weight to the theory. In practice, it was just a random retracement.

What am I missing?

UTB

Very valid point blades, (bearing in mind I am in no position to judge)
Say a long term fib and a daily or weekly coincide and they also happen to be at a major support or resistance level Does this give the set-up more impetus or is it just random retracement like Blades says.
I have read the other threads on Fibs but do not see it being explored more fully So if there are any Fib masters about please share your thoughts and views.

gamma said:

Very valid point blades, (bearing in mind I am in no position to judge)
Say a long term fib and a daily or weekly coincide and they also happen to be at a major support or resistance level Does this give the set-up more impetus or is it just random retracement like Blades says.
I have read the other threads on Fibs but do not see it being explored more fully So if there are any Fib masters about please share your thoughts and views.

Click to expand...

It can add weight to an existing view for sure. Theres no magic in it though! Best thing about fibs and probably the only valid point in them is they inspire action on a retracement!

darktone said:

It can add weight to an existing view for sure. Theres no magic in it though! Best thing about fibs and probably the only valid point in them is they inspire action on a retracement!

Click to expand...

Darktone,

Do you mean they work (ish) because people follow them and pile in at these levels - a self fulfilling prophecy?

I suspect any success comes from the discipline of buying on dips and selling on short term rallies (that maybe nothing more than noise), but the mechanical (or discipled)approach is profitable.

Cheers,
UTB

Do you mean they work (ish) because people follow them and pile in at these levels - a self fulfilling prophecy?

Click to expand...

Yeah, thats bout how i see it.

How about if I "muddy the waters" a little and let you do some research and decide for yourself.

The 50% level retracement comes to us by early commodity traders that noticed a correlation in the price retracements but never bothered to accurately define its % to my knowledge. Elliott in his writings also noted that several % levels were a repeating pattern.

I was using single Fib retracements like most then I attended a webinar by Bernie Mitchell. He showed how he used them to find "areas of confluence" from multiple highs or lows within the same wave. I purchased his Quattro Pro software and find that the calculations are a little different from manual calculations and are a little more accurate.

Then I learned more about Fib retacements & time projections from Dave @ stock commodity trading. His software helps with time projection but does not add anything to Bernie Mitchell's.

Then another webinar by Carolyn Boroden @ fibonacci queen and I learned about Fib symmetry and how she uses confluence. Her uses of symmetry help define S&R as Fib levels & projections. M J Braun learned from Carolyn, but is better @ explaining & demonstrating symmetry.

A post in another forum about esoteric tools pointed to the "Daniel Code". A series of price projections and retracements based upon the Book of Daniel in the Bible. The gent that discovered them has kept the numbers secret but offers a monthly service. The DC numbers are considerably more accurate than Fib numbers, But only on Daily and higher timeframes.

Why are they not exact S&R areas? That has to do with the makeup of market participants at any one point in time and their thinking about their positions (fear & greed). So the levels will NEVER be exact, but should be used as areas of alert for a possible direction change.

I use all of the above in trading...confluence areas, time, projection, symmetry and DC #s. I have also made an observation about the % levels & their accuracy when using high & low prices vs closing only prices.

Hope This Helps!

The 50% is a GANN retracement level

the blades said:

.....which raises a "fear" I have about these things.

If 61.8 is near to 50, then we're accepting a + / - 12% band for each target. Given that there are 3 of them (and with 50%, 4), you've covered just about the whole range of the high V low. Throw in some variability in the high V low calc (is it intra day or closes etc), and you can't fail

Any retracement will thus coincide with a fib number, adding weight to the theory. In practice, it was just a random retracement.

What am I missing?

UTB

Click to expand...

This is pretty much the conclusion I came to. Even if you use the "confluence" idea, an awful lot of these "zones" simply fail to be significant (as the fib expert Carolyn Boroden admits herself). Someone should do a statistical analysis using concrete limits to the zones and see if they really do coincide with turns at anything above chance level. I suspect not.
The people who use them successfully are probably (conciously or unconciously) considering alot of other indicators and utilising alot of experience at the same time... and I dare say they'd be just as successful without fib as with it.