Proving that Fibonacci retracements have an edge...

[DionysusToast]

Haiku (or as close as possible in English)

Howard Cohodas
Speaking yet without saying
Toasted doubtlessly

 

[Prawnsandwich]

TBH getting a bit sick of all this baiting of Howard....mainly because it turns good threads to ****.....

OK he's a vendor - we all know that, and all the poor little noobs on here also know that....there has been a huge amount of anti vendor postings so noobs should be well aware of the risks at this stage....

....anyways there will always be suckers that fall for bs on the internet....not saying Howard is a bull****ter - I don't know as I don't bother reading his posts...

If you don't like what he has to say then why not just ignore him.....? No need to get so excited by it.....

I don't use Fibs myself, but am playing devils advocate a bit here - but I have seen them used effectively as part of a methodology....I don't think anyone advocates using them in isolation...

Someone posted here that they are nonsense, but can actually be used in trading, which to me is as contradictory as it gets..surely the whole point is whether they can be used in trading or not....

The argument is not whether they are some magical universal number, that for some mystical reason price recognises these ratios all of its own accord, independent of the actions of traders or market participants, but whether or not they can used in trading....

If a trader uses fibs and is consistently profitable then they work, however way he uses them.....

Are the anti - fibs posters saying that no profitable traders use fibs ? Are they saying that there is no importance in a 38 % or 50% retracement in a trend ?

Again we are back to "does TA work", self fulfilling prophesys etc etc

 

[DionysusToast]

Someone posted here that they are nonsense, but can actually be used in trading, which to me is as contradictory as it gets..surely the whole point is whether they can be used in trading or not....

That was me.

The statement appears contradictory but that is your problem, not a problem of the statement itself.

If you ever get chance to read De Bono's "I am wrong, you are right", then it will become clear.

 

[bedsit]

Take bedsit's chart for example. Fib extensions from the upswing from early march to early april. It looks nice. But there was an upswing from early feb to late feb, what about those extensions? And lots more upswings afterwards that we could draw extensions from. So how long do we keep just one fib extension, until the 261.8 has been hit or the 161.8?

And the other problem with retracements is that they are often drawn after the fact for analysis, when the top or bottom has established itself. Then you have a 38.2, and a 50 and 61.8. But in real time, you don't know where the top is, so you have to consider all the other retracements that maybe worked or maybe failed that were generated before that top or bottom. It's all very messy to do, but good luck if you can do it.

Hi Shakone.

Here is an idea about possible set ups from February. Mind you this is a daily chart (you can apply similar set ups on smaller time frames).

Using Fibonacci levels is more towards art than science and I use other indicators and smaller time frames for entering trades based on Fibonacci levels.

About the target - it depends. Personally I would exit part of the position once the first target is met and move the stop to b/e for the rest, or if happy with the profit - all of it. That's more to do with money management.

IMO You need to spend some time experimenting how to draw them (finding the important extremes is the most important thing). They are not 100% accurate, but nothing in trading is - so it's always good to be aware of a potential risk (risk/reward) and to use stops at the reasonable levels.

 

[Prawnsandwich]

Hi DT.

Sorry - I didn't put any explanation with the attachment.

I use Fibonacci levels on different time frames in different ways. I used this example to get an idea about the target - (the circles only show how the price behaved around different levels).

I prefer to pay more attention to the practical side, rather than to Fibonacci levels' discussions i.e. if one makes regular profit from them, why not.

This is the key - here we have a poster who uses Fibs, finds them profitable, but others then come on to try to disprove a fact by picking holes in the posters method, through applying pseudo scientific analysis' and looking for cookie cutter solutions / 100% proof etc to something which just cannot be analysed in this manner.....

 

[DionysusToast]

PS - here's the thing & I know you won't be able to wrap your head around this.

If a retracement goes beyond the 61.80%, I stop looking for a move back in the direction prior to the retracement.

I reckon any more past half way is too much.

I still think 61.8 is totally arbitrary and has no actual meaning, other than it's as good a yardstick as any other.

Now - I would gladly reset my fib tool to 65% and I would not worry at all that I was now looking at 65% instead of 61.8.

Like I say - 61.8 - 31.2 - total nonsense.

Of course - 30-ish, 60-ish - that's a rule of thumb, not some magic number...

 

[HowardCohodas]

This is the key - here we have a poster who uses Fibs, finds them profitable, but others then come on to try to disprove a fact by picking holes in the posters method, through applying pseudo scientific analysis' and looking for cookie cutter solutions / 100% proof etc to something which just cannot be analysed in this manner.....

Spot on.

BTW, I am not a vendor, but have aspirations in that direction and have so stated on many, many occasions.

 

[DionysusToast]

Howard - as you tend towards being pro-fibs - what is your experience with trading them ?

I have stated my own. I think it's fair you state yours.

 

[bedsit]

Of course - 30-ish, 60-ish - that's a rule of thumb, not some magic number...

Whatever works for you - you should stick to it.

 

[Shakone]

Bedsit,

You would agree that this fib you have drawn is in retrospect though wouldn't you?

Lets just look at it as if we were in real time. The pin bar that you have circled, it then goes down on the next bar. Do we draw a little fib there now? If we did, it retraced about 75% of that so a lot of fib retracements didn't work too well. But suppose we say it has to make a new low below the Dec 18th. Fine. But why not the November 26th low not on the chart, or way back at the start of 2009 which were even lower. What is significant about this swing?

You don't want to move it down on 15th Feb and give a reason about the closes and so on, but then you are really applying some price action to it. And others will adjust their fibs so will be different from yours.

So far, the rules of the fib are a little bit more art rather than science exactly as you say.

Then your trading suggestions. Well the first bounce to the 23.6 looks like a good rejection, and there is another clean rejection on 7th may, which then went higher in both cases before hitting 0% level. It goes straight through the 38%, and stops around the 50%. Then when it closes below the 0% you leave the fib there and aim for the 161% extension. But we were moving it down every time previously, and so we were moving down the extension, again why is this one so special?

You also mention you use indicators on smaller timeframes to enter.

Now if it works it work, then stick to it. But why is it working? You are using fibs, multiple timeframes, your judgement about trend, looking to jump on a retracement of the trend, price action for where the fibs belong and when to move them down and also whether a level is rejected, indicators, money management, a method for moving up stops on winners, and possibly getting large targets relative to losses.

And you're getting a positive result. Now looking at nthe list of the things you have above, how much are the fibs contributing to that result?

 

[HowardCohodas]

Howard - as you tend towards being pro-fibs - what is your experience with trading them ?

I have stated my own. I think it's fair you state yours.

Asked and answered.

 

[DionysusToast]

 

[Prawnsandwich]

PS - here's the thing & I know you won't be able to wrap your head around this.

If a retracement goes beyond the 61.80%, I stop looking for a move back in the direction prior to the retracement.

I reckon any more past half way is too much.

I still think 61.8 is totally arbitrary and has no actual meaning, other than it's as good a yardstick as any other.

Now - I would gladly reset my fib tool to 65% and I would not worry at all that I was now looking at 65% instead of 61.8.

Like I say - 61.8 - 31.2 - total nonsense.

Of course - 30-ish, 60-ish - that's a rule of thumb, not some magic number...

Why is it a rule of thumb.....what makes it a rule of thumb? So you do attach importance to these ratios ? What is your point? Do you even know ? Think about it.....

 

[bedsit]

.And you're getting a positive result. Now looking at nthe list of the things you have above, how much are the fibs contributing to that result?

Shakone,

Of course - hindsight trading is easy.

Being leading indicator the idea behind it is to draw them before the event so you can have an idea about certain levels and use it for your trading decisions. It helps me when looking at the right side of the chart (difficult side)

Fibonacci levels are only one set of the tools I'm using. I'm aware of the trend, overbought/oversold conditions etc.

You can use them as a confirmation of the certain patterns (h&s, double tops/bottoms, pin bars etc.)
Sometimes I draw Fibonacci levels on different time frames and looking for important levels (when F. levels from different tfs are close to each other (confluence), close to pivot points, trend lines etc.

Some traders use them purely as important levels and base their trading decisions on whether the candle (bar) closed above or below them. I guess it all depends on a trading style.

PS About drawing Fibs all over the place - best way is to experiment and see what's the most profitable way.

PPS If I didn't get a positive result, I wouldn't use them.

 

[DionysusToast]

Why is it a rule of thumb.....what makes it a rule of thumb? So you do attach importance to these ratios ? What is your point? Do you even know ? Think about it.....

I don't attach importance to them.

As I said, I could change them & they'd still do the same thing.

It's just nice to know where 'oooh, that looks a bit far' is on a retracement if I'd been considering getting in on it.

If it goes 'oooh, that looks a bit far', I'll go back to the Teletubbies until something more interesting occurs.

61.8% - nonsense.
A bit much innit - total sense.

 

[Prawnsandwich]

I don't attach importance to them.

As I said, I could change them & they'd still do the same thing.

It's just nice to know where 'oooh, that looks a bit far' is on a retracement if I'd been considering getting in on it.

If it goes 'oooh, that looks a bit far', I'll go back to the Teletubbies until something more interesting occurs.

61.8% - nonsense.
A bit much innit - total sense.

Lets get this straight...you just said that 30 ish and 60 ish are rules of thumb that you use but that 31.2 and 61.8 are complete nonsense....?

Do you really think that there is that much of a difference between the two sets of values ?

Actually you would probably be very surprised at how often retracements tag fib levels, mainly the 38.2 and 50 numbers, to a very precise level

 

[bedsit]

Shakone,

Of course - hindsight trading is easy.

Being leading indicator the idea behind it is to draw them before the event so you can have an idea about certain levels and use it for your trading decisions. It helps me when looking at the right side of the chart (difficult side)

..

Here is a 'no hindsight' example on EU (hourly chart). Short after it closed below 0% level. Target 161.80%

 

[bedsit]

Here is a 'no hindsight' example on EU (hourly chart). Short after it closed below 0% level. Target 161.80%

.

 

[scose-no-doubt]

ballsy

 

[HowardCohodas]

ballsy

No guts. No glory. Good on him.