Fibonacci levels Do they work ?

[Grey1]

Fibonacci levels Do they work ?

Do these levels of any value ? do they work ? Is there any technical reasons for these levels to be meaningful ?



Grey2

 

[TheBramble]

Yes. On some instruments, some of the time.

If they've worked in the past, they are likely to work in the future (on any specific instrument).

There is a cyclic tendency for Fibs to 'work' on any instrument.

There is a technical basis for Fibs in that where sufficient 'intent' for Fibs to work is found, Fibs will work.

Basically: If you think it will, and it has worked reliably in the past - it will with higher probability than not, work now...

 

[Grey1]

Yes. On some instruments, some of the time.

If they've worked in the past, they are likely to work in the future (on any specific instrument). ...

We donot know they have worked in the past. Give me an example that you feel FIB levels have been an acceptable strategy for entry or exit.

There is a cyclic tendency for Fibs to 'work' on any instrument. ...

There is not . Pleas refer me to an example of any stock that cycle and Fib level have had any kind of dependency ..

ere is a technical basis for Fibs in that where sufficient 'intent' for Fibs to work is found, Fibs will work. ...

Well , There is no technical bases in TA but technicians like to think there is . WHY should a set of numbers work ? What if i tell you I have a levels called BIN LADEN LEVELS 15%, 34 % and 76 % and they work wonders? would you not ask me why should these numbers work ?



Grey1

 

[frugi]

Forgive me for butting in, as I'm sure Bramble will compose a better reply than my muddled thinking..

"Works on some instruments, some of the time". That rather sums up TA and the probabilistic nature of trading and is why we need stop losses to survive.

If a group of traders think the Bin Laden levels are important, for whatever reason, their trading decisions are likely to be influenced by them, which will be reflected in price action to some degree. The degree will depend on the volume that the group brings into the market at these levels (and the volume withheld at not-these-levels).

The 50% Fib retracement level, for instance, is so widely known that price will often pause and even reverse at it. This is observable day after day in any number of instruments as people's perception of value is influenced by what they may have observed in the past, read in books, backtested etc. not to mention the comfort they feel in being part of the crowd. I'm sure a profitable strategy could be built around 50% retracements (as indeed one can be built around oscillator levels) as long as the rest of its ingredients were sound.

The Fib level "works" not (I think ) due to some mystical cause, fundamental truth or universal mathematical law but simply because traders act on its presence, while perhaps forgoing transactions at say 45% or 55%. It may not work, of course, because equally it may be overwhelmed by the volume of traders who are completely uninterested in it, or indeed interested in taking advantage. In fact given that, like, 'everyone' knows about Fibs it surprises me how often they continue to provide decent R:R entries: I'd expect them to be far messier than they are, indeedhave all but disappeared, as each member of the crowd anticipates, tries to get in a little earlier than the next. But perhaps I forget how silly and compliant crowds can be.

So ... why do we use TA ? Not because we think there is any grand truth in it, as there might be in, say, the 2nd Law of Thermodynamics, but simply because others do and it is prudent to be aware of what others may be thinking. After all, trading is all about out-thinking and taking advantage of the crowd, capitalising on an observed tendency of human nature to make predictable decisions in a certain market environment, with all the second-guessing fun of Keynes' beauty contest thrown in to make the job harder.

TA and all its elements be they Fibs, flags or oscillators is simply [the analysis of ] information created by humans turning their perceptions into action. It provides, as well as clues to future direction, context that we can work with, to give us footholds in the abstraction, context which we can incorporate into a strategy. We need some form of order after all, even if it is arbitrary, as otherwise we may as well buy and sell on a whim. FA is another way of providing such order, though it is, for me at least, an unwelcome distance away from price.

As a side note, currently I believe it is fashionable for institutions to be frightfully excited by VWAP and so they are concocting all manner of clever speedy algorithms to incorporate it into their strategies, though I admit I am woefully ignorant of the details.

Yet remember this is merely the average price at which the majority (by volume) of a given period's trading in an instrument has taken place so far. It is the price at which the majority of stands have been taken by traders, if you like. Though there is nothing intrinsically special about this price (?), a lot of significance has become attached to it. Indeed if one observes tape behaviour as price returns to VWAP after a jaunt, all manner of hilarious battles can be seen between rival computers all trying to get their way. The NQ is great for this, as market order computers throw 100s at limit order computers both trying to work their edge and unsettle each other.

The astute private trader observes and thinks logically about this phenomenon, chews through a ream of data, then builds a strategy around it to take advantage. Grey yours stands proud among them. Even I've enjoyed [less impressive] success using bands on the YM as part of a new strategy.

But is this any different from taking a similar approach with a 50% Fib level around which one has observed a high volume of trades taking place, concentrating one's attention in some way on an arbitrary area to which others have attached undue significance?

I wouldn't like to answer that as I feel that there is something "different" about VWAP that I can't quite put my finger on. Somehow "arbitrary" doesn't feel right here. I remember being struck by one of Trader333's posts in which he said something like "The VWAP strategy will always work because what you are doing by definition is buying or selling away from the crowd", essentially helping yourself to good value in the unpopular thinly-traded areas where the crowd doesn't feel comfortable taking a position. This left a lasting impression as I felt for some reason it didn't apply to other indicators, perhaps due to the inclusion of volume, arguable the most important factor after price. Thanks T333, by the way.

Yet on a day like today when perceptions of value were continually revised upwards what looked like good value (i.e a sell in the green circle at the upper MPD) became poor value, so now I'm really not sure what I feel. Incidentally I know the strat doesn't suggest selling in a strong trend (I used the bands mostly for long exits), but that's not my point. I am wondering whether there is anything intrinsically less arbitrary about Vwap or Vwap areas than any other indicator or price area like a Fib. I want to understand why big houses are so interested in this humble level. But that's another off-topic topic for another morning... only 38% of the night left for sleep now ... and sorry if I've derailed the thread Grey. Fibonacci has a lot to answer for. :cheesy:

 

[moreagr]

well i really dont use fibs at the moment.. i think that they have some use because many retail traders follow them.. what i have been using the last 2 years with average success is floor trader pivot levels both classic and woodies. i also find that cammarilla works at times as well. i think the most successful traders should have all info to their disposal even if they dont work as well because you have many others educated or not looking at them.

I use these in addition to iraj's vwap bands which i believe is the most important out of all of these. based on the last few weeks trading them. thank you Iraj!!!

piovts points (day week and month)
cammerilla equation
market profiles
woodies pivots
pivot range
volatility bands
bollinger bands


http://www.piptrader.com/forex_education/forex_technical_analysis/pivot_point.asp

http://www.tradingmarkets.com/.site/daytrading/commentary/traders/01042000-3274.cfm?yahoo=1

good trading to all!!

 

[TheBramble]

Frugi has done a sterling job so I'll not labour my response. But to address quickly those points you raise:-

We donot know they have worked in the past. Give me an example that you feel FIB levels have been an acceptable strategy for entry or exit.

We do know they have worked in the past. Pull up any set of charts for yourself on any randomly selected set of of instruments and just check out how many retracements are approx. 0.618 of the major move. You'll find more retracements and targets that fit that fractional move than any other fraction. Where an instrument shows strong current adherence to Fib levels, it makes sense to consider that in your trade planning and execution. You never throw anything useful away.

There is not . Pleas refer me to an example of any stock that cycle and Fib level have had any kind of dependency ..

There is a cyclic tendency for stocks to exhibit cohesion to Fib levels. Again, you'll need to dig up your own examples. You'll find there will be 'clusters' of price action where successive waves of tops and bottoms will reflect quite uncanny Fib adherence. And they will do so for a period of time. And then stop. Another somewhat fixed (Fib time?) period of time later they start adhering again. For a while (more Fib time?).

Bear in mind Iraj, Fib adherence only occurs, as I originally stated, because traders make it so. Just like any other TA. Including vwap...

Well , There is no technical bases in TA but technicians like to think there is .

Which exactly reiterates my point. If enough people think there is - it is. Self fulfilling prophecy.

WHY should a set of numbers work ? What if i tell you I have a levels called BIN LADEN LEVELS 15%, 34 % and 76 % and they work wonders? would you not ask me why should these numbers work ?

If enough traders traded them, of course they would work. Why, are these numbers gooduns....?????

Compare this discussion and substitute VWAP for Fib. vwap 'works' because sufficient numbers of traders are trading it. When vwap becomes less fashionable and it overtaken by the next professional and institutional benchmark, that new dog will have its day. And we need to be aware of it.

There is an awful lot of bolleaux talked about Fibs and just how 'in everything' they are. They simply aren't. But where they do occur in trading, use them.

 

[kako]

Hi

i believe fibo retracements as well as all other TA tools(like trendline bounces/breaks) work to some extents, and the only reason is ppl believing in them work. likewise, any other "thing" could work, Bin laden, or even bosh levels, would work if ppl believe in it. trading is more a mind game, rather than a mathematical, scientific area of knowledge.
of course probability of each TA tool(and the way of using it which is more important imho) differs from each other, and is different in same TA tool during the time.
after more than 2.5 years of trading, i believe looking into an Edge because of the TOOL u'r using is always useless. i found iraj's approach more interesting, which emphasizes Risk Management, rather than looking for a >50% edge in a TA tool(crystal ball). risk management makes trading flexible, and reduces the chances of ruin, which is always high in case of basing trading strat only on a TA tool's winning edge.

Regards
.................................
Yaser

 

[Grey1]

Forgive me for butting in, as I'm sure Bramble will compose a better reply than my muddled thinking..

"Works on some instruments, some of the time". That rather sums up TA and the probabilistic nature of trading and is why we need stop losses to survive.

If a group of traders think the Bin Laden levels are important, for whatever reason, their trading decisions are likely to be influenced by them, which will be reflected in price action to some degree. The degree will depend on the volume that the group brings into the market at these levels (and the volume withheld at not-these-levels).

The 50% Fib retracement level, for instance, is so widely known that price will often pause and even reverse at it. This is observable day after day in any number of instruments as people's perception of value is influenced by what they may have observed in the past, read in books, backtested etc. not to mention the comfort they feel in being part of the crowd. I'm sure a profitable strategy could be built around 50% retracements (as indeed one can be built around oscillator levels) as long as the rest of its ingredients were sound.

The Fib level "works" not (I think ) due to some mystical cause, fundamental truth or universal mathematical law but simply because traders act on its presence, while perhaps forgoing transactions at say 45% or 55%. It may not work, of course, because equally it may be overwhelmed by the volume of traders who are completely uninterested in it, or indeed interested in taking advantage. In fact given that, like, 'everyone' knows about Fibs it surprises me how often they continue to provide decent R:R entries: I'd expect them to be far messier than they are, indeedhave all but disappeared, as each member of the crowd anticipates, tries to get in a little earlier than the next. But perhaps I forget how silly and compliant crowds can be.

So ... why do we use TA ? Not because we think there is any grand truth in it, as there might be in, say, the 2nd Law of Thermodynamics, but simply because others do and it is prudent to be aware of what others may be thinking. After all, trading is all about out-thinking and taking advantage of the crowd, capitalising on an observed tendency of human nature to make predictable decisions in a certain market environment, with all the second-guessing fun of Keynes' beauty contest thrown in to make the job harder.

TA and all its elements be they Fibs, flags or oscillators is simply [the analysis of ] information created by humans turning their perceptions into action. It provides, as well as clues to future direction, context that we can work with, to give us footholds in the abstraction, context which we can incorporate into a strategy. We need some form of order after all, even if it is arbitrary, as otherwise we may as well buy and sell on a whim. FA is another way of providing such order, though it is, for me at least, an unwelcome distance away from price.

As a side note, currently I believe it is fashionable for institutions to be frightfully excited by VWAP and so they are concocting all manner of clever speedy algorithms to incorporate it into their strategies, though I admit I am woefully ignorant of the details.

Yet remember this is merely the average price at which the majority (by volume) of a given period's trading in an instrument has taken place so far. It is the price at which the majority of stands have been taken by traders, if you like. Though there is nothing intrinsically special about this price (?), a lot of significance has become attached to it. Indeed if one observes tape behaviour as price returns to VWAP after a jaunt, all manner of hilarious battles can be seen between rival computers all trying to get their way. The NQ is great for this, as market order computers throw 100s at limit order computers both trying to work their edge and unsettle each other.

The astute private trader observes and thinks logically about this phenomenon, chews through a ream of data, then builds a strategy around it to take advantage. Grey yours stands proud among them. Even I've enjoyed [less impressive] success using bands on the YM as part of a new strategy.

But is this any different from taking a similar approach with a 50% Fib level around which one has observed a high volume of trades taking place, concentrating one's attention in some way on an arbitrary area to which others have attached undue significance?

I wouldn't like to answer that as I feel that there is something "different" about VWAP that I can't quite put my finger on. Somehow "arbitrary" doesn't feel right here. I remember being struck by one of Trader333's posts in which he said something like "The VWAP strategy will always work because what you are doing by definition is buying or selling away from the crowd", essentially helping yourself to good value in the unpopular thinly-traded areas where the crowd doesn't feel comfortable taking a position. This left a lasting impression as I felt for some reason it didn't apply to other indicators. Thanks T333, by the way.

Yet on a day like today when perceptions of value were continually revised upwards what looked like good value (i.e a sell in the green circle at the upper MPD) became poor value, so now I'm really not sure what I feel. Incidentally I know the strat doesn't suggest selling in a strong trend (I used the bands mostly for long exits), but that's not my point. I am wondering whether there is anything intrinsically less arbitrary about Vwap or Vwap areas than any other indicator or price area like a Fib. I want to understand why big houses are so interested in this humble level. But that's another off-topic topic for another morning... only 38% of the night left for sleep now ... and sorry if I've derailed the thread Grey. Fibonacci has a lot to answer for. :cheesy:

Fugi

YOU are correct and this is the point I am interested in . There is nothing mathematically , technically in support of these levels except that people think they are magic levels and if there is enough crowd out there using it hence it * might work ^, I have seen many program traders but none use any such as of levels simply because these levels unlike VWAP levels are NON TECHNICAL , OR MATHEMATICAL and more than any thing else NON CYCLE DEPENDENT.

Study of cycle is the foundation of TA . To have a consistent and profitable strategy one needs to study where he stands with cycle with in the cycle in various time frames and fib level donot help you out.

I am trying to move our traders from myst to reality . From GANN FAN to VWAP LINE. From FIB LEVEL to MPD LEVELS, From Fake to reality .

enclosed is the chart of a BIN LADEN line which has worked in the past. This is how it works.. Enter 10C below the whole number.. let it run
Add @ whole number

People use the BIN LADEN LINE but how many of them are profitable ?

grey1

 

[TheBramble]

The 50% Fib retracement level, for instance, is so widely known that price will often pause and even reverse at it. This is observable day after day in any number of instruments as people's perception of value is influenced by what they may have observed in the past

{my emphasis}

The significance of this statement bypassed me the first time I read it.

:-50% IS NOT A FIB LEVEL.

But as you (Frugi) and I are saying, it's a fraction that represents significance to enough traders for it to have significance.

As someone I admire a great deal once said "Looking for significance tends to lend significance to that which is otherwise unremarkable".

And while I'm in quote mode

"Markets influence events they anticipate". - George Soros (or "Dad")

As this is a technical thread/forum I'll delete that last quote upon mod's request, but it goes one stage further along the development of the discussion we are currently involved in, in relation to causation in the markets. Perhaps another thread...

 

[Grey1]

Fugi

YOU are correct and this is the point I am interested in . There is nothing mathematically , technically in support of these levels except that people think they are magic levels and if there is enough crowd out there using it hence it * might work ^, I have seen many program traders but none use any such as of levels simply because these levels unlike VWAP levels are NON TECHNICAL , OR MATHEMATICAL and more than any thing else NON CYCLE DEPENDENT.

Study of cycle is the foundation of TA . To have a consistent and profitable strategy one needs to study where he stands with cycle with in the cycle in various time frames and fib level donot help you out.

I am trying to move our traders from myst to reality . From GANN FAN to VWAP LINE. From FIB LEVEL to MPD LEVELS, From Fake to reality .

enclosed is the chart of a BIN LADEN line which has worked in the past. This is how it works.. Enter 10C below the whole number.. let it run
Add @ whole number

People use the BIN LADEN LINE but how many of them are profitable ?

grey1

Tony

You are a clever chap .. I asked you to show me , you asked me to go and find lol I have been looking for 10 years now in fact from 1985 during the university time and i found Fib number occurances in any thing including http://mathforum.org/library/drmath/view/52679.html but lets be pro as we are interested to have a business called trading business based on some solid tecyhnical or mathemactical reasons.

Why donot we ALL LOOK AT THE 1 min CHART OF JOYG TODAY AND PLOT THE FIB LEVELS TO SEE IF THEY WORK OR NOT ,, IN REAL TIME. NO HISTORY .


As far as VWAP level is concern, this level is based on Volume and price and has technical foundation . This is why MM use it. big business is done around VWAP and not FIB , GANN levels.

Grey1

 

[TheBramble]

Why donot we ALL LOOK AT THE 1 min CHART OF JOYG TODAY AND PLOT THE FIB LEVELS TO SEE IF THEY WORK OR NOT ,, IN REAL TIME. NO HISTORY .

I don't have the capability nor the time to do that I'm afraid, but why wait...

I have just taken the first instrument that comes up in my panel when I fire up (haven't cleaned out the FX stuff yet!) and it's the 1 minute Cable.

Really was just the first RT chart I looked at.

 

[Grey1]

I don't have the capability nor the time to do that I'm afraid, but why wait...

I have just taken the first instrument that comes up in my panel when I fire up (haven't cleaned out the FX stuff yet!) and it's the 1 minute Cable.

Really was just the first RT chart I looked at.

Can you kindly give me other fib levels on the same chart as i donot trade FX


grey1

 

[TheBramble]

I really do have to sign off and get going, but before I do...

It seems from this thread I am championing Fibs. I'm not.

You asked if they 'worked'. I have given a qualified 'Yes' and the reasons I believe they work and an almost RT example. Your experiment with JOYG this afto may or may not show the existence of Fib possibilities. And as a statistician, you'd understand better than most the (lack of) value in selecting from a test domain of just one! Come on TT bods - every chart you look at today, see if you can't find a few 0.618 moves among them! You never know, just looking for them might create them....

To summarise, I use Fibs as part of my set of tools in trading the markets. They need to be qualified and taken in the context of what price and volume are doing RIGHT NOW. Just like every other tool I choose to use.

And they need to be reviewed on a case-by-case basis to see if they 'fit' with current action in either a cyclic or a dynamic way - just the same as every other tool.

The idea that one tool will be a fit all for all instruments in all time frames at all times is a naivety I'm sure few of us suffer from.

Everything needs to be viewed in context, tested for current validity and either taken into consideration or discarded - for this trade at this time.

I know from your PMs you're a fan of Ehlers. He is an indicators man, complex ones (and on the very limit of my personal mathworld comprehension) would be the first to suggest that you need to hone your indicators to reflect current market/instrument action.

You don't use vwap whenever you choose on whatever instrument you choose - you wait for the market manner to be 'correct' for vwap strategy implementation (I'm talking V1 vwap here from a couple of years back) and for the pair to 'present themselves'. It's the same with Fibs, and everything else. There is a point where you feel an obvious edge will be provided by considering Fibs and you use them. Or there isn't - and you don't.

Same as everything else.

Hasta la Pasta

 

[TheBramble]

Can you kindly give me other fib levels on the same chart as i donot trade FX

No point. I isolated that specific piece of action to highlight what I was talking about.

 

[TheBramble]

Why donot we ALL LOOK AT THE 1 min CHART OF JOYG TODAY AND PLOT THE FIB LEVELS TO SEE IF THEY WORK OR NOT ,, IN REAL TIME. NO HISTORY .

5min chart will do...

Sorry mate...there is nothing new under the Sun. And our willingness to be open-minded to all there is takes a far higher priority (with me) than simply that which is merely empirical.

After all, mystical simply means that which is, which we acknowledge, without empirical support.

 

[frugi]

Sorry Tony I think your high is out by 70c. Some good Fibs on the weekly though, especially the 50% :cheesy:

 

[Grey1]

5min chart will do...

Sorry mate...there is nothing new under the Sun. And our willingness to be open-minded to all there is takes a far higher priority (with me) than simply that which is merely empirical.

After all, mystical simply means that which is, which we acknowledge, without empirical support.

Tony

ooppsssss , Told you it didnot work.. Your High is out by 70C and is not 40.75 . It is actually 41.45.

This is an excellent example of why you should not be using it and I mean that ..



Grey1

 

[TheBramble]

ooppsssss , Told you it didnot work.. Your High is out by 70C and is not 40.75 . It is actually 41.45.

This is an excellent example of why you should not be using it and I mean that ..

Nonsense. All this shows is sloppy analysis on my part for which there is no excuse (but it was a long, hot ride home and perhaps one too many apple juices on returning could be to blame... )

To claim something works/doesn't work on the basis of one example picked at random is what newbies do. We don't.

I appreciate that you may have started this thread with the intention of debunking anything that isn't empirically testable, totally technical, and statistically sound. And I'm sure with positive intent in helping others understand what and how you feel is the best way to trade.

But to close your mind the possibilities of things which do work, but for which we yet do not have fully derived scientific/technical explanation, is to close off avenues of research and possibility and the very basis of the process by which we have arrived at those techniques and derivations for which we do have an empirical basis today.

Your heart's in the right place mate, but to validly test any hypothesis, you need to be completely objective and not to entertain any bias or preference or your experiments will tend to confirm those initial suspicions you harbour.

I am sufficiently convinced (notwithstanding sloppy work on my part - slap, slap, slap) that Fibs do work at some times on some instruments and its operation is cyclic in nature and therefore contains the potential for providing high probability information for my trading activities.