Proving that Fibonacci retracements have an edge...

[HowardCohodas]

IMO, this is a lazy investors method of selecting a level and blaming Fibs when it does not work.

There are those far more successful than I and managing huge sums that claim they use these methods. How do you account for that?

 

[Splitlink]

There are those far more successful than I and managing huge sums that claim they use these methods. How do you account for that?

I take no notice of claims by anonymous fund managers, Howard.

This is a subject that has been done to death on these boards. There's a platform, somewhere.

There are lots of followers, I know. You are just another one. I'm sure that you do very well and I congratulate you.

The OP was looking for a link to prove that the claims do have foundation. I'm sorry that I have deviated the thread.

 

[DionysusToast]

There are those far more successful than I and managing huge sums that claim they use these methods. How do you account for that?

It's a regular strawman brought up by people who have faith in something but have not actually done any research.

No-one is saying you can't be succesful trading them. This does not mean that they are not nonsense.

Like I say - pick 5 random percentages between 0-100 and you'll do just as well or badly.

 

[HowardCohodas]

It's a regular strawman brought up by people who have faith in something but have not actually done any research.

Fair point. However, one of my clients has significant funds under management and is a believer and is successful. You can choose to believe me or not.

There is ample research available to anyone with search engine competence that supports the thesis. You can choose to believe it or not.

It isn't what we don't know that gives us trouble, it's what we know that ain't so.

 

[HowardCohodas]

I take no notice of claims by anonymous fund managers, Howard.

This is a subject that has been done to death on these boards. There's a platform, somewhere.

There are lots of followers, I know. You are just another one. I'm sure that you do very well and I congratulate you.

The OP was looking for a link to prove that the claims do have foundation. I'm sorry that I have deviated the thread.

I never claimed to be a follower or to use it. I simply claim to understand the reasoning of those who do and the basis for it. And I claim to consult for a client who believes in it because of my math and trading background.

"Done to death" by posters in this environment does not mean that truth has been distilled out of the dialog.

"Prove" is often an illusive goal. But in the interest of being fair and balanced, I feel compelled to respond to those who state with certainty things that I know to be inaccurate.

"Somewhere?" Scroll down the page a little and you find a sections titled "Similar Threads."

 

[Prawnsandwich]

You can see no reason to doubt it's a component; but do you know it. What research has actually been done to prove it.

Your probably not going to find an extensive scientific survey, which proves or disproves their efficacy 100%....

Trading is not like that - its more of an art than a science....there is no 100% right or wrong answer....except whether you are profitable or not at the end of the month, notwithstanding whatever methodology, whether it be by surveying the position of the moon and the stars or by using simple price action...

However, many profitable traders incorporate Fibs into successful trading methodologies.....and as bbmac alluded to, it is preferable to use them in conjunction with other factors...

 

[the hare]

There's quite a lot of studies done on fibs. This should get you started (and I might post a few more if I can be arsed)

http://www.aeconf.net/Articles/May2006/aef070110.pdf

The main problem is generally the people doing the study are as dim as a 5 watt bulb and they dont really understand what tradings all about. They tend to ask the wrong questions, and get ridiculous answers.

 

[intradaybill]

There is no edge in TA - any longer (meaning after it was widely known).

FIb levels work occasionally as support levels only. One problem is that you never know on which level price will be supported or if it will go to next level.

Pretty much worthless for serious trading. Good stuff for recreational traders doing micro-lots and stuff like that.

 

[the hare]

There is no edge in TA - any longer (meaning after it was widely known).

There's enough of an edge in TA to make it simple enough to find.

 

[Charlton]

Fibs (and additional lines on 50% or other round numbers) are ideal target practice for the beginner.

There are so many.

Point the blunderbus, fire - you're bound to hit one of them (or get near enough to claim you've hit it).

Feels good but does it help you get closer to the bullseye

 

[barjon]

mmm, I played around with ambush trades some time ago which might be worth a look - although I can't dig up the stats. http://www.tradethemarkets.com/public/3342.cfm

I think there's another couple of related videos (free) on the site if you search for them.

jon

 

[Trdr]

So it's best to throw money at something . . .

exactly
it's called a demo account

 

[GammaJammer]

No TA will ever trump fundamentals or context / positioning. All it is really is a peg to hang your timing / risk management hat on. So as long as you remember that, and ignore all timeframes sub 1h unless you have a thing about trading noise and calling it something else then you'll be fine.

Of course, most people ignore that and engage in T.A. that is;

i) Lazy in it's application
ii) Far too short term in it's outlook and
iii) Far too high a weighting in their decision making process.

Hence the reason why these boards are full of people chasing their tails trying to develop a 'system'. Don't get me wrong - I can understand why people want to go down this route - it's easier to do the easy thing, and relative to learning about the fundamentals, or aquiring the essentially inside information to trade off what I call the 'third pillar' (i.e. positioning / context / structural factors), it's fairly easy. But doesn't mean it's the right thing to do.

Just my $0.02

GJ

p.s. I personally do use fibos on occasion, but only on long term charts. Daily and above most likely. Weekly for preference.

 

[timsk]

My view is that Fibs are no different to any other chart tool, be it trendlines, S&R or head and shoulder patterns etc. Selecting any or all of these and trying to test their effectiveness without assessing the context in which they occur is a pointless exercise. Context is king! The perfect set up can appear, followed by the perfect entry trigger, but is the context perfect too? Suppose the instrument is well up on the day and has already moved 90% of its average daily range. Additionally, there’s known resistance immediately overhead, indicators are in overbought territory, news is bearish, there’s a major announcement due out in five minutes from the chairman of the Federal Reserve and the longer term trend is down. Do you still want to enter long? Do you, do you really? In this context, the fact that price has found support bang on a major Fib' retracement level counts for very little. Likely as not, someone going long here will lose and quickly conclude that Fibs 'don't work'.

Assessing the context of any proposed trade is a major advantage that discretionary traders have over mechanical traders. It also accounts for why Fib' and S&R levels and TA patterns fail. Context is king and being able to evaluate it quickly and effectively is often central to a discretionary trader’s edge and the difference between their account showing a profit instead of a loss. I expect that Howard's friend who's the successful fund manager has acquired this skill and so, for him, Fibs are a valuable tool that 'work' very well.
Tim.

 

[Davidee]

It's a regular strawman brought up by people who have faith in something but have not actually done any research.

No-one is saying you can't be succesful trading them. This does not mean that they are not nonsense.

Like I say - pick 5 random percentages between 0-100 and you'll do just as well or badly.

Well, in those test I did and posted the links to I did pick random levels (in the first experiment at least) and there was a big difference.

In the 2nd test I cost the two mid points between the 3 Fibbos and again there was a big difference.

Those were certainly not the results I expected to find, nevertheless they were the results.

 

[bedsit]

An example of EJ daily chart may help you decide whether Fibonacci levels are of any use. This is an example of Fibonacci extensions.

 

[DionysusToast]

very good example bedsit.

From what I can see - you are allowing some 'wiggle' in your interpretation of the fibs. You aren't waiting for a bounce off the exact level.

I can also see that the price made swings that were not off fib levels.

So - whilst I understand people will look at this & say it proves fib levels are significant, I will ask the following:

1 - How much leeway are you giving around the fibs ? You obviously have zones around the fibs, not just a direct hit.
2 - Given this leeway - how much 'coverage' do your fib levels have - what is the total area covered across all fib levels where a swing in that zone is considered a hit ?
3 - What is the ratio of covered to uncovered areas ?
4 - What is the actual probability of a price swing being in one of these area (uncovered vs covered) ?
5 - How many swing highs/lows are there in your chart ?
6 - How many swing highs/lows are in a fib zone?
7 - How do these proportions compart to actual coverage of fib zones ?

The eyeball fails us when we are expecting to see something. When I look at the picture, I do not see the significance others see. Probably because I am argumentative.

 

[Dommo]

An example of EJ daily chart may help you decide whether Fibonacci levels are of any use. This is an example of Fibonacci extensions.

Thanks - I've decided they aren't.

 

[MrGecko]

Frankly, this whole discussion will prove fruitless; the "pro-fib" group is very unlikely to produce evidence from historical data that they have some significant advantage (even if such data exists it takes skill to find it)... and this will always serve to enforce the "con-fib" view that fib levels are arbitrary and so a totally spurious inclusion in a trade decision.

Fact of the matter is that both arguments are equally flawed, yet both groups choose to "see what they believe" and endorse their own prejudice. If one thinks about what would be necessary to test the fib idea properly, it is not suprising that the arguments involved (on both sides, albeit the "con" view is in essence a siloutte of an incoherent "pro" position) are all subjective.

As an aside, my hunch (emphasis on hunch) is that alot of "con-fib" traders would endorse a run on stops below a fib level... fading fibs puts one squarely in the "pro-fib" camp, just with a different application.

 

[DionysusToast]

Some interesting points Mr G but I think you can prove that Fibonacci numbers are no more relevant than any other numbers yet could still be used in trading.

It is a shame that more people don't learn about the mental shortcuts that influence our acceptance/rejection of things that we perceive.

For instance - the attached picture was posted by bedsit & I've marked it up.

The boxes represent the tolerance bedsit allowed in his circling of reversals at Fib numbers. The box represents the amount of 'wiggle' room bedsit allowed between the fib and the reversal in the swings he circled red. I then put these boxes either side of each fib number, because each could 'trigger' a swing high/low.

As you can see we have now covered a large area of price action. It is statistically very likely for a swing to be at within one of those zones.

I have also circled swings that are not considered to be at fib levels by bedsit.

I recently sat in a seminar held by a very smart trader I know. In that seminar, he asked for people to call out random prices. He then drew horizonal lines at these points and when we looked at the charts, these price points appeared to be significant. One of them was a price point I called out. None of us that called out prices had given prices that we thought were significant, yet our prices were major swing points and had the appearance of significance.

This phenomena is a psychological quirk. You tend to see what you are expecting to see and what your eyes are drawn to see.