Proving that Fibonacci retracements have an edge...

[scose-no-doubt]

Oh wait I thought it was a trade. It's already been hit. Meh.

 

[bedsit]

Don't get me wrong - I don't want to prove anything, just to show how I use Fibonacci levels.

PS BTW the target was not hit when I posted the first chart.

 

[wackypete2]

I applaud bedsit for actually adding something of value to his arguments.

Matters not whether fib lines work, or S/R lines work, or randomly drawn trendlines work any better than the other. The ONLY thing that matters is whatever you use works for you. How hard can that be to understand?

Well done, bedsit. Keep collecting your winnings while the naysayers think up something else.

Peter

 

[Trdr]

I think the idea of Day-to-Days trading is a good one, particularly for the working
person as well as anyone not wanting to spend hours staring at a monitor
one only has to spend a few minutes each day checking the price, and maybe ten
minutes on the weekend estimating the week ahead

I've nothing better to do with my time so I daytrade using a 10 second chart, and
spend x hours making 50 pips/ticks a day at $12.50 per = $625 an annual gross
profit of $162,500 - or trade 10 contracts for $1,625,000 and so on

since the same profit potential is equally available to both the daytrader and the
Day-to-Days trader, it's just a matter of choosing how one wants to spend one's time

 

[Shakone]

Bedsit, nice trade

What you do works for you, but it seems to me that the example shows that the fibs aren't really that key to what you do. You draw a fib up to 1.3656, which if taken (you didn't) at 23.6, 38.2, or 50% all look like losers. The 61.8 is not too healthy either, and the 76.4 would have had a bit of drawdown before coming good. You didn't take any of those fib retracements (perhaps waiting for it to break one way or to go with the trend?).

You took a break out of a range (price action), waited for a close, and then took the entry short. None of that needs fibs. The only fib thing you used was as a target, which probably resulted in you having a good R:R. If fibs give you better R:R on your trades, and belief that it will go far then they could be helping you. Add good R:R to good signals that indicate direction and it is no surprise to me that could be successful. As for it being a target and getting hit...was it the trend, the breakout and the big round number 13500 that price was likely to hit and drawn to or the 161 fib extension?

Perhaps the answer is both

 

[bedsit]

Bedsit, nice trade

What you do works for you, but it seems to me that the example shows that the fibs aren't really that key to what you do. You draw a fib up to 1.3656, which if taken (you didn't) at 23.6, 38.2, or 50% all look like losers. The 61.8 is not too healthy either, and the 76.4 would have had a bit of drawdown before coming good. You didn't take any of those fib retracements (perhaps waiting for it to break one way or to go with the trend?).

You took a break out of a range (price action), waited for a close, and then took the entry short. None of that needs fibs. The only fib thing you used was as a target, which probably resulted in you having a good R:R. If fibs give you better R:R on your trades, and belief that it will go far then they could be helping you. Add good R:R to good signals that indicate direction and it is no surprise to me that could be successful. As for it being a target and getting hit...was it the trend, the breakout and the big round number 13500 that price was likely to hit and drawn to or the 161 fib extension?

Perhaps the answer is both

It could be all sort of explanations - and you are right - different traders would use different ways to trade it with similar results. I use previous lows for potential targets, but this time I couldn't find them. So Fibonacci levels gave me the best idea as where the price may go.

In this trade I used Fibonacci levels to get an idea about a possible target. I've done it on hourly chart and distance between the extremes was not enough for me to play inside levels. Also I've drawn the levels at the previous extremes to get more precise partial exit.

IMO It's worth experimenting with different extremes - it gives certain levels to be aware of. From that I can see where the previous extremes target was and can exit 1/4 accordingly (instead of waiting for 261.80% level) and move the stop above an important level (trying not to give any profit back). Only after this I would leave 1/4 opened waiting to hit 261.80% level and being a day trader usually don't like to leave any positions open overnight unless considerably in profit.

 

[DionysusToast]

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

Nope - there is not much difference.

Which is why the concept of Fibonacci, with it's oh so precise 38.2% and 61.2% is nonsense.

Unless we have people that look for a 38.2% retracement * nothing else.

Like I say - draw lines between sing highs & lows, put an area of wiggle around them and fairly soon you have covered a large percentage of the chart.

Nothing wrong with that at all. The thought that 38.2% or any of the other numbers is somehow magical because it 'exists in nature' is nonsense.

 

[HowardCohodas]

Which is why the concept of Fibonacci, with it's oh so precise 38.2% and 61.2% is nonsense.

Oh, but the "imprecise" values of 40% and 60% make sense, do they?

 

[Prawnsandwich]

Nope - there is not much difference.

Which is why the concept of Fibonacci, with it's oh so precise 38.2% and 61.2% is nonsense.

Unless we have people that look for a 38.2% retracement * nothing else.

Like I say - draw lines between sing highs & lows, put an area of wiggle around them and fairly soon you have covered a large percentage of the chart.

Nothing wrong with that at all. The thought that 38.2% or any of the other numbers is somehow magical because it 'exists in nature' is nonsense.

Well, what more can I say....its all just nonsense....that extra 0.2% over the ratios that that you use, and said could be used in trading, and consider to be rules of thumbs for some reason (?), makes fib levels just nonsense.....just throw out all the profitable traders who use fibs effectively....and disregard all the studies which prove the ratios exist in almost every aspect of nature...DT is not satisfied, so they must be complete crap..nothing in them whatsoever....

 

[DionysusToast]

PS - it is fairly simple.

People end up covering 30-40% of the space between 2 swing points with these fib 'zones'.

If you cover 30-40% of the space between 2 swing points with zones, then it is statistically quite likely that price will reverse in one of those zones.

This is what people are doing, even on the pictures on this thread.

There is nothing magical in the numbers 23.6, 38.2, 61.8 & 76.4, if there were - then people would be actually using those precise numbers and not extended zones around them.

The thing is - we are looking for confirmation in something here. People don't want to hear "how much of the space are you covering with that zone", "what's the probability that the zone will be significant', "how does it compare with randomly assigned zones". All people want to talk about is "Well I use it, so it works".

Therein lies the problem - this thread is titled "Proving that fibonacci retracements have an edge" and thus far no-one that uses fibs will even discuss probabilities of their zones being hit based on total coverage.

 

[Trdr]

the attached charts illustrate a couple of fibo based trades on the 6E and ES from
last year. program is NinjaTrader, 6E is 12 tick and ES 30

 

[Prawnsandwich]

PS - it is fairly simple.

People end up covering 30-40% of the space between 2 swing points with these fib 'zones'.

If you cover 30-40% of the space between 2 swing points with zones, then it is statistically quite likely that price will reverse in one of those zones.

This is what people are doing, even on the pictures on this thread.

There is nothing magical in the numbers 23.6, 38.2, 61.8 & 76.4, if there were - then people would be actually using those precise numbers and not extended zones around them.

The thing is - we are looking for confirmation in something here. People don't want to hear "how much of the space are you covering with that zone", "what's the probability that the zone will be significant', "how does it compare with randomly assigned zones". All people want to talk about is "Well I use it, so it works".

Therein lies the problem - this thread is titled "Proving that fibonacci retracements have an edge" and thus far no-one that uses fibs will even discuss probabilities of their zones being hit based on total coverage.

Trading is not computer programming....

Where are you getting "people end up covering 30-40% of the space" - this is just made up by you....one poster may allow some flexibility with some of the levels, and that is perfectly fine - he finds using them in this way to be effective and profitable for him...something you just can seem to get your head around...

Nobody ever said that there was anything magical about fibs....so you are disputing something that was never said in the first place....

Generally traders would play these levels fairly precisely....so the question of discussing the probabilities of their zones being hit based on total coverage is irrelevant....

You yourself said that you practically use the levels, give or take 0.2% or so of a variance, as a rule of thumb, yet you state in the same breath that they are nonsense...????

Not every set up is going to hit a fib, but when price precisely tags an important fib level during say a trend retracement, do you not agree that it might be considered an interesting occurrence, and may even warrant further consideration such as dropping a timeframe to look for price action, which may or may not lead to an entry ?

 

[Splitlink]

Nobody ever said that there was anything magical about fibs....so you are disputing something that was never said in the first place....

I think that that answers the original question about whether they have an edge.

They do not have an edge, do they?

They are a method of approximation, at best.

I'll change what I said earlier to

By all means use them if that is the only horizontal line you can think of. After all, you are going with the crowd--they must be right!

 

[Prawnsandwich]

I think that that answers the original question about whether they have an edge.

They do not have an edge, do they?

They are a method of approximation, at best.

I'll change what I said earlier to

By all means use them if that is the only horizontal line you can think of. After all, you are going with the crowd--they must be right!

As I said Split I don't use them myself, but I understand how they can be used...

Without looking at the detail of how he uses them, Bedsit seems to use them OK ...

Theres a bit of difference between whether they can provide an edge or not or whether they are something magical, in fairness....if "an edge" is only a greater than 50% probability of something happening....

Nothing wrong with going with the crowd, thats what trend following is all about

 

[HowardCohodas]

Food for thought. John Von Neumann

The sciences do not try to explain, they hardly even try to interpret, they mainly make models. By a model is meant a mathematical construct which, with the addition of certain verbal interpretations describes observed phenomena. The justification of such a mathematical construct is solely and precisely that it is expected to work.

 

[intradaybill]

Food for thought. John Von Neumann

That is a very limited view of science. Most, maybe 90% ,of scientists are realists about their theories. Otherwise, they would not be looking for particles and stuff like that. Mathematicians tried to get the upper hand during a time period in the past but science is much more than math models. It is about explaining the phenomena. Math is a tool only.

 

[Shakone]

Von Neumann -is- a realist.

Scientists look for particles because they have models which predict particles should exist. They rarely try to explain why particles and not muffins, why gravity and not levitation, or interpret God's/the universes creation plan. They pick a model that is constructed to describe phenomena, that's what the quote says. They search for particles, but really they're particle-waves (or something different), it's just easier to deal with them as particles, fits the model

 

[HowardCohodas]

That is a very limited view of science. Most, maybe 90% ,of scientists are realists about their theories. Otherwise, they would not be looking for particles and stuff like that. Mathematicians tried to get the upper hand during a time period in the past but science is much more than math models. It is about explaining the phenomena. Math is a tool only.

I suspect those in the UK may be more kind to him as he played a major role in saving the country.

 

[DionysusToast]

Without looking at the detail of how he uses them, Bedsit seems to use them OK ...

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.

If you aren't actually looking at what people post & you don't actually use this stuff yourself, then what's the actual argument you are trying to make here ?

Surely the details are important.

At Portugal they have a saying "you only pull the hair of the girl you want to ****". If you want to follow me around disagreeing with me, that's fine - but at least try to have a point.

 

[Dommo]

I suspect those in the UK may be more kind to him as he played a major role in saving the country.

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