Fibonacci-Trader Discussion Board

[pkfryer]

I've always been interested in Fibs. There definitely are Fibonacci ratios at work in the natural world, crystal formations, plant structures, galaxies. I find pure number theory really interesting especially after reading the fantastic book (can't remember its title now).. (something) Last Theorem. But I dont know whether it can be applied to stock because I crowd has different dynamics to a physical structure, or population expansion. Does fibonacci ratios apply to a car, a house, or a group of grannies knitting? I would doubt it.

Also, there are so many ratios and percentages that it would be statistically probable that they would get hit, or 'nearly' hit.. quite numerous times. I believe its our need to feel secure in an unpredictable environment. The same reason we invented religion... something mysterious and unexplained that is guiding and influencing things so we can feel safe and secure.

Have there been any conclusive unbias research on Fibonacci ratios in the stock market?

 

[trendie]

Fermats Last Theorem ?

 

[pkfryer]

Yes trendie thats it! Slipped my mind before.. Fermats Last Theorem! Gripping read and incredible that such a simple sounding problem could cause such a fuss. But it did introduce me to the beauty of mathematics just for mathematics sake.. pure number theory. Some really interesting relations between numbers. Not sure if these weird pure number theories really have any real significants or are just meaningless, but odd quirks, in a human construct (counting and maths). Did mention stuff about Fibonacci numbers too. I believe he come up with the relationships by studying rabit populations or something?

Anyway, its worth considering the possibility that fibonacci relationships to the stock market are purely in our imagination. Bit like ink blots... its a meaningless blob of ink randomly produced but we'll try and force a structure and meaning on to it and suddenly it becomes a bird, a butterfly etc. There was also psychological tests where subjects observed a random movement of different shapes, they all percieved meaning and order in the movements because they were told to expect one.

 

[TheBramble]

There was also psychological tests where subjects observed a random movement of different shapes, they all percieved meaning and order in the movements because they were told to expect one.

{my emphasis}And this is exactly how the Palatino Series works. Even though they're far more precise and give specific time and price targets, far fewer people use them than Fibs. It's a Mystery.

 

[trendie]

Are you saying this thread is a great big Rohrshack test ??

I understand the idea that we see patterns when there may be none.

I have been through the process of using a myriad of lines and indicators.
There are so many lines, it is ineviatble that we see things that are not there.

Thats why I have come full circle, and mostly use simple MAs !

One of my problems is price-targets !
If we use Fibs, and think a price-target is approaching, we may take profits too early, only to see the market carry on beyond !!

Thats why I have plumped for trend-following as my method.

I am curious about Fibs.

I am also interested in the 5-day RSI, that Mr Cassandra writes about on this board.
( a simple, clear method, which I believe has positive-expectancy )

Have a good weekend.

PS: to all
I was surfing for Price and Time Analysis for Fibs, when I found a Price and Time forecast-method for Gann !!

It uses the Square of Nine - I am reading about it, and hopefully will be discussed at a Gann seminar soon.

 

[Mayfly]

If anyone whats to read a very good book about using Fibonacci numbers for trading consider buying "The New Fibonacci Trader: Tools and Strategies for Trading Success " by Robert Fischer (you even get some free software that draws all the Fib indicators for you).

That's good advice for those that are interested IMO, Jungle Jim.

Cheers

Mayfly

 

[MysticalTrader]

Palatino series Bramble? where can I read up on that?

MT

{my emphasis}And this is exactly how the Palatino Series works. Even though they're far more precise and give specific time and price targets, far fewer people use them than Fibs. It's a Mystery.

 

[a320]

SQ9 info.....

SQ9* is based on degrees of a circle... 1.0 = 180 degree change (half) 0 .5 = 90 degree (quarter) Change ect.... main ones are the cardinal points.(90,180.270 & 360)

Simply add or subtract these SQ9* Cardinal values to the ( square root) of a swing high/low price to find Resistance (add) / Support (subtract) like the examples show.

Square root of 1155 = 33.9853

33.9853 - 1 for the 180' = 32.9853
32.9853 * 32.9853 = 1088.03 (support)

To find the Resistance at 180 degree:

Square root of 1155 = 33.9853

33.9853 +1 for the 180' = 34.9853
34.9853 * 34.9853 = 1223.971 (Resistance)

+/- 0.25 = 45' of the circle.( 8ths)
I always keep an eye on 135' 225' & 255'
as these are close to 38.2 / 61.8/70.7 degrees of the circle..

Check out the last major corrective wave from the Swing low on the 20th of April to the swing high on the 27th of April on the ES which = 33 points.

low on the 20/4 = 1113.25
high on the 27/4 = 1146.25
Difference of 33 points.

Now take the low on the 12th of May which hit 1075.25 .
Project 33 points up from 1075.25 = 1108.25 & we get the 1:1 resistance point.
If the market exceeds this level ( Overbalance) the trend will most likely continue in a new degree.

For the Gann SQ9 point..
Root 1075.25 = 32.79
33.79 + 0.5 for the 180 degree = 33.29
33.29 * 33.29 = 1108.25

I just take one day at a time, I don't care which way the market goes from here.
I do care about the logical points of resistance & support the market will encounter on its merry way.These pressure points give either a conforming or non -conforming signal to act upon.

CJ

 

[pkfryer]

what I think is the power of fibonacci, gann and other indicators is that they have large followings. So even though I believe that a lot of technical analysis and various other more mystical techniques are possibly in our imagination we can benefit greatly by observing them.

Self fulfilling prophecies actually create that which people expect will happen. So the indicators work because people believe they will work and change their behaviour appropriately. If a number of people start buying or selling at exactly the same point the supply and demand is going to be effected. How else could certain ratios that were originally applied to the physical world effect a human construct, a crowd of people. What would cause it?

I am more interested in crowd psychology for practical application to trading, but I love number theory and I am fascinated that there are re-occuring patterns to things in the physical world. Has there been any significant scientific studies in fibonacci and the stock market? I'd love to read it.

Im wondering if there is any market theory surrounding PI. I remember reading in the Fermat last theorem book that PI springs up a lot. Can't remember exactly what the example was but I think it goes along the lines of: if you divide the length of a river by the distance from its source to the mouth the result is PI nearly always.

One thing that I found also very interesting. I read about this guy that created a trading system thats entry was randomly produced, i.e random number betwee 1 and 10, 2 and below being a buy, 9 and above being a sell (or something similar). The exit method was based on a bollinger band system exit. The system performed much better and much more consistently than most indicator based systems. Interesting.

In other words, even if something has actually no bearing on the underlying price movements and is essentially a random point in the chart, it will actually perform a lot better than most other things. It makes sense... what better method to use in a random environment... than a random method

 

[jimbo57]

what I think is the power of fibonacci, gann and other indicators is that they have large followings. So even though I believe that a lot of technical analysis and various other more mystical techniques are possibly in our imagination we can benefit greatly by observing them.

Self fulfilling prophecies actually create that which people expect will happen. So the indicators work because people believe they will work and change their behaviour appropriately. If a number of people start buying or selling at exactly the same point the supply and demand is going to be effected. How else could certain ratios that were originally applied to the physical world effect a human construct, a crowd of people. What would cause it?

I am more interested in crowd psychology for practical application to trading, but I love number theory and I am fascinated that there are re-occuring patterns to things in the physical world. Has there been any significant scientific studies in fibonacci and the stock market? I'd love to read it.

Im wondering if there is any market theory surrounding PI. I remember reading in the Fermat last theorem book that PI springs up a lot. Can't remember exactly what the example was but I think it goes along the lines of: if you divide the length of a river by the distance from its source to the mouth the result is PI nearly always.

One thing that I found also very interesting. I read about this guy that created a trading system thats entry was randomly produced, i.e random number betwee 1 and 10, 2 and below being a buy, 9 and above being a sell (or something similar). The exit method was based on a bollinger band system exit. The system performed much better and much more consistently than most indicator based systems. Interesting.

In other words, even if something has actually no bearing on the underlying price movements and is essentially a random point in the chart, it will actually perform a lot better than most other things. It makes sense... what better method to use in a random environment... than a random method

I think there are many things you say here that I agree with, hence the interest in the no indicators thread, price/volume analysis. (Just two more indicators ). I am a pure mathematician by training, and sspecialised in number thery many years ago.

Indeed, I spent many years applying number theory to markets, only to realise the fallacy of this method. In applying the pure number theory, one is already I suspect undermining the purity of the analysis as it stands, and thus debasing its right to be.

I think IMHO the trick is to find what indicators the rest of the crowd are looking at, and go with them. These vary from market to market, and from time to time within a given market as the make-up of the volume players changes.

There is much analysis omn random walk theory, and most of it is probably mathematically sound, but it won't get you inand out of any market safely unless you are prepared to wear a big potential drawdown, which most self directed traders cannot and indeed should not.

Rather like the universe observed at the macro level displays almost complete randomness (and the more we know about it, the more random, mathematically, it appears), within this randomness we can observe prdictable patterns, such as orbits (planetary, comet and solar sysytem) that have predictive powers. So a market, which is probably somewhat less random to begin with than the universe as at least the numbers are finite, displays what appear to be, at least in the time frame we choose to consider, patterns.

That doesnt tell you how to make money, but it may act as a filter for where (ie which market) you should throw your money

 

[Trader333]

jimbo57,

I think IMHO the trick is to find what indicators the rest of the crowd are looking at, and go with them.

Can you clarify what you mean by this in terms of how it would apply to entering and exiting a trade ?


Paul

 

[jimbo57]

jimbo57,



Can you clarify what you mean by this in terms of how it would apply to entering and exiting a trade ?


Paul

Hi Paul,

The point is that different markets use different indicators, ie the make up of the players is fundamentally different in differnet markets. eg the stock indices use 100 and 200 dmas , the commodity markets use typically much shorter (Fibonacci! numbers).

This is a very simple example, taken to an absurdly simple level, but, the conclusion is that you cannot take a "trading sysytem" and apply it to different markets, or indeed expect the same system to apply in any given market for any significant period of time. The market is the summation of the players, as the players change, so does the behaviour of the market.

And markets do change except at all but the microscopic, fear/greed level, good for a few ticks on an intra day basis

 

[Trader333]

jimbo57,

I understand what you mean in the different markets but I am still not clear on what you mean by

..and go with them

Paul

 

[jimbo57]

jimbo57,

I understand what you mean in the different markets but I am still not clear on what you mean by



Paul

It's not very deep. At the end of the day, there is more money to be made by identifying the key teurning points in markets, tehrough TA, and fundamental analysis, than there is by trying to fight in the shallows as the tide goes out.

We are but fish, and the market is the sea, better to swim with the tide and swim, than fight against it and be beached.

In other words, better to spend time understanding the make up of the players in any given market and understand their triggers (which may be varied, but ultimately come down to return) for putting money in or taking money out, than apply some singing/dancing algorithm to the market.

 

[Trader333]

Jimbo57,

In my view, if you follow what the majority are doing you will end up like the majority and lose money.


Paul

 

[pkfryer]

Yeah, I think both views have strengths and weaknesses. If you swim with the tide you have to make sure that there is still strength in the trend that your jumping on. I think this is safe to a certain extent because if you have a whole crowd of people heading in one direction and you jump on then, it takes a while for the momentum to reverse. Temporarily the crowd will overpower the big guns... just like if you had enough people armed with wooden swords they would be able to over run a heavily dug in gun placement By sheer force of numbers.

The converse to this is waiting for the turn in tide and then you'll be banking on the power of the big guns and the surge of fear from the crowd who realise their on the wrong side of the fence and start ditching their positions. The only problem with going against the trend is you've got to be sure that its going to change soon which is difficult to do, unless you know what your doing or have some means of gauging the early signals of a change of tide. I think that taking a contrary position is very similar to trying to hit the tops and bottoms, only a few can do it and if you get it wrong you're in trouble.

 

[Trader333]

There are a number of misunderstandings in what people think I have said here. For trading in stocks the issue is not one of the crowd temporarily overcoming the big guns and I didnt say anything about going against the trend.

It is an issue of accumulation and distribution which is completely controlled by a few and who manipulate the process to cause certain events to suit their profit aims. The result is that a few will make good profits at the cost of the majority who will lose. The skill in stock trading, (especially intra-day) is in identfying when accumulation is taking place and when this is then switched to distribution. If you are able to do this then making money becomes somewhat easier.


Paul

 

[trendie]

I think there is a distinction between being "of" the majority and "with" the majority.

I am with the majority, as my main methodology is trend-following.
But I am sufficiently separate from the majority to see what it is doing from a detached point of view.

At the risk of emulating Socrates, may I use an analogy:

The majority are the herd going about their business.
If you are part of the herd, you cannot see clearly as your vision is restricted by the other members of the herd. You cannot see the landscape.

We are leopards, on a slight ridge. We can see the landscape. We can see the topography.
We can judge, generally, but not always, where the herd will move to, based on seeing the herd from a slight distance.
If we are smart, we can position ourselves so that we can intercept the herd, and take chunks out of it.

We can then return to our elevated position awaiting the next intercept.

Following the herd, the majority, DOES make you money.

However, it requires us to be slightly separate from it.

Over the past few weeks, the majority has pulled the Dow down from 10,500 to below 10,000.
I stared following the herd DOWN from around 10,370.
I have bitten chunks out of it so far.

I am with the majority.

However, I have an eye to point at which I consider the majority have changed direction, and I know when I will get out.

Following the majority works !!

 

[Trader333]

trendie,

This is not what I meant and I am interested to know what you do when there is no trend or the market whipsaws ? I dont trade Indices so your view may be specific to that but if you follow the herd in stock trading you will lose there is no doubt about it.

A better analogy for what I am talking about is more like the Pied Piper walking along with the herd then joining in and followng him but some distance behind. Except that what he then does is to appear to go over a cliff and the rest follow running and jumping after him only to find that they fall into the pit with the Pied Piper sat just below the top. Everyone assumed that he had jumped over to something better when in fact he just took one step below the top which was out of view of the others who when they realised this were powerless to stop themselves going over by the sheer momentum of their crowd action.

So in stock trading follow the majority and you will end up slaughtered and it has to be this way or we are going to get back to the discussion on can everyone who trades be profitable which the answer is clearly no. Also the majority (up to 95% lose) so how can following them work ?


Paul

 

[trendie]

Hi Trader,

I suppose our differences my be due to the instruments we trade.
I dont trade stocks cos they can swayed by company-specific news.
And I feel you have to keep up with the company-news to maintain your edge.

Indices, I feel, can be traded with more general economic knowledge, and therefore, for me, are easier.

Also, I feel more comfortable with indices. I suspect, you have an interest in, and have comfort in trading stocks.

As to 95% being losers - the more I think about it - the less it makes sense.
Statistics show that 2/3 to 3/4 of fund-managers underperform wahtever is the appropriate index.

There is a difference between losing and making less than the average.
I am not the greatest trader in the world - certainly not in the top 5% - but I am not a loser.

As to following the majority - I can only guess its knowing when to jump in and when to jump off !!

Non-trending markets: I use Adaptive averages. When the adaptive average flat-lines, there is no trend.
Thus, trend-following gives way to oscillator / scalping methods.

I only trend-follow, when there is a trend to follow.