Fibonacci

[mirabo_andreea]

In this article we will discuss about a widespread, well-known key element of technical analysis. Why do you think technical analysis especially some elements work so well for financial markets? Why do you think Fibonacci levels are usually strictly followed? Because thousands and billions of traders and computer programs for trading use these elements. This way everybody acts the same at the same time…
This is why we decided to present in the category of technical analysis, the most used and well-known methods of predicting financial evolution. These methods are easy to understand and are very efficient.
We will discuss about Fibonacci levels. We will find out what Fibonacci levels are and how they are calculated. We will use them in our charts and we will see how they act. We will discover how useful Fibonacci levels are and, at the end, we will draw the conclusions. We will use Fibonacci levels daily in our analyzing and trading system.

1. What are Fibonacci levels?

The truth about Fibonacci levels is that they are useful (like all trading indicators). They do not work as a standalone system of trading and they are certainly not the “holy grail”, but can be a very effective component of your trading strategy.

But who is Fibonacci and how can he help you with your trading?

Leonardo Fibonacci was a great Italian mathematician who lived in the thirteenth century who first observed certain ratios of a number series that are regarded as describing the natural proportions of things in the universe, including price data. The ratios arise from the following number series: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144

This series of numbers is derived by starting with 1 followed by 2 and then adding 1 + 2 to get 3, the third number. Then, adding 2 + 3 to get 5, the fourth number, and so on.


2. How are Fibonacci levels calculated?

The ratios are derived by dividing any number in the series by the next higher number, after 3 the ratio is always 0.625. After 89, it is always 0.618. If you divide any Fibonacci number by the preceding number, after 2 the number is always 1.6 and after 144 the number is always 1.618. These ratios are referred to as the “golden mean.” Additional ratios were then derived to create ratio sets as follows:

The first set of ratios is used as price retracement levels and is used in trading as possible support and resistance levels. The reason we have this expectation is that traders all over the world are watching these levels and placing buy and sell orders at these levels which becomes a self-fulfilling expectation.

The second set is used as price extension levels and is used in trading as possible profit taking levels. Again, traders all over the world are watching these levels and placing buy and sell orders to take profits at these levels which becomes a self-fulfilling expectation.

Most good trading software packages include both Fibonacci Retracement Levels and Price Extension Levels. In order to apply Fibonacci levels to price charts, it is necessary to identify Swing Highs and Swing Lows. A Swing High is a short term high bar with at least two lower highs on both the left and right of the high bar. A Swing Low is a short term low bar with at least two higher lows on both the left and right of the low bar.

Fibonacci Retracement Levels

In an uptrend, the general idea is to go long the market on a retracement to a Fibonacci support level. The price retracement levels can be applied to the price bar chart of any market by clicking on a significant Swing Low and dragging the cursor to the most recent potential Swing High and clicking there. This will display each of the Retracement Levels showing both the ratio and corresponding price level. Let’s take a look at some examples of markets in an uptrend. The same points made by these examples are equally applicable to markets in a downtrend.

3. Chart examples for Dow and e-mini S&P 500.

1. In the first example we have an ascending trend and a Fibonacci retracement of 38%. After the price went down 38% of the entire going up value, it returned to an uptrend. The 38% retrace is the best moment to initiate long positions.

2. Here the image is reverse. We have a downtrend, a 38% pull back and then the price continued to go down.

3. The price had a 50% retrace during an ascending trend.

4. The ascending trend had a 61% pull back.

5. The last example shows a good moment to enter long after a 50% retrace

4. Conclusions

a. Correctly used and followed, Fibonacci levels along other technical analysis and astrological analysis methods can offer complex and correct information for profitable transactions.
b. Trading methods based on Fibonacci levels can be found and can work very well. These methods can be harmoniously correlated with other methods of financial analysis resulting in a complete and complex trading system approaching financial reality.
c. We often use Fibonacci levels amongst other various methods of analysis that we will describe later.

 

[Dick Lexic]

if a flower grows in a funny kinda fib way does that mean it is linked to a computer?

did fib levels work prior to computers?

not knocking your analysis ( a bit out of date ) just your reasoning.

 

[George A]

I have NO doubt in my mind and beliefe and after extensive research that,, FIBONACCI can be applied to trading forex as a stand alone strategy with atleast 90% success to be modestly speaking ... test it for urself and see what happens ,,, BUT one needs to learn the FULL capability of what it can deliver .
I really believe that Fibonacci has a MASTER FACTOR that applies to the chart ,, 15 mnts,, 4 hours ,, it does not matter the time frame ,, and thats the secret of this wonderful naturally occuring phenomenon in the forex market ,,,,
IF we want to call it a tool , then it is the ONLY tool out of the hundreds of tools used that is NOT a MAN MADE ,,,, thats a very deep statement with alot of depth in its words
think about it and test it,,, u will be amzed
Cheers,
George.
P.S.
this is MY humble opinion ,, so i would appreciate a hold back from any smart comments ,, as i respect evryone's opinion ,, and most welcome to comment .

 

[Joules MM1]

I have NO doubt in my mind and beliefe and after extensive research that,, FIBONACCI can be applied to trading forex as a stand alone strategy with atleast 90% success to be modestly speaking ... test it for urself and see what happens ,,, BUT one needs to learn the FULL capability of what it can deliver .
I really believe that Fibonacci has a MASTER FACTOR that applies to the chart ,, 15 mnts,, 4 hours ,, it does not matter the time frame ,, and thats the secret of this wonderful naturally occuring phenomenon in the forex market ,,,,
IF we want to call it a tool , then it is the ONLY tool out of the hundreds of tools used that is NOT a MAN MADE ,,,, thats a very deep statement with alot of depth in its words
think about it and test it,,, u will be amzed
Cheers,
George.
P.S.
this is MY humble opinion ,, so i would appreciate a hold back from any smart comments ,, as i respect evryone's opinion ,, and most welcome to comment .

George, have you seen the measures applied in real time ? to the right hand side of the chart, live? ......that's the key if you want to go down this road otherwise all the glorious presentations are curve fitted to history

as long as you understand where to enter/exit and all the disciplines required inside the measure you'll be okay, as long as you've designed a set of rules (almost auto-bot-like) to act on when you think the measure or extent has been reached then you'll at least create a reasonable defensive strategy......

one important point that many fib proponents do is to be selective on the exact measure of fibs, in other words, a piercing of a fib level carries a strong message even if it's only a point/pip and you are being told by that action to be open to messages that need you interpretation as it is often a continuation signal and a price reaching a fib level and pulling back does not imply a reversal, of course, that depends on your time frame which defines your idea of reversal at that time......the point here is that fibs are not showing the underlying action or the participation, they are a meeting point, for sure, which also means they are a trigger point and trigger points are very handy for the person in the opposite side of your trade and a fib can;t tell you that.....as long as you accept the linear application (aside for the modular activity of intersections etc) as long as you place ideas of auction participation first and fibs as a "likelyhood" what-if, then, you'll be okay

i think this regime is the one you were referring to the other day in the other thread.....i question everything and if you told me throwing a coin 16 times would get me a winning trade with the right discipline, i'd agree it's possible, the thing is, i think, fibvs need to come (if at all) at the very end of your understanding of how an auction functions (the when, where, what price of people) then you can start the mechanising if that feels right to you.......

-----------------------------
edit: there's a freebie seminar by carolyn (calls herself queen or sum such) tradethemarkets.com/public/FREE-WEBINAR-Carolyn-Boroden.cfm (cut and paste that into your browser) this is her regime although i think she might also use some oscillators......

you want to see any regime in real time....videos and pretty charts are great..hmmm...real time, mate!

 

[Joules MM1]

I have NO doubt in my mind and belief........and most welcome to comment .

my reply is an "in-your-best-interest" thought process

I've traded a lot of fibs and seen a lot of traders mess up big time on them and these days i look at fibs as a view to what other traders are seeing which is specifically different to using them as a trigger

the challenge for many traders is that fibs call for exact levels and what i found was to stand back and see where those the levels are created and by whom rather than just reacting with them, a little circumspect if you like, this is hard to put in a few words, again, requiring real time conversation as price unfurls......if you find someone who can do that in a live trading room, you might find yourself a strong strategy to follow

best of luck to you, George

 

[George A]

George, have you seen the measures applied in real time ? to the right hand side of the chart, live? ......that's the key if you want to go down this road otherwise all the glorious presentations are curve fitted to history

as long as you understand where to enter/exit and all the disciplines required inside the measure you'll be okay, as long as you've designed a set of rules (almost auto-bot-like) to act on when you think the measure or extent has been reached then you'll at least create a reasonable defensive strategy......

one important point that many fib proponents do is to be selective on the exact measure of fibs, in other words, a piercing of a fib level carries a strong message even if it's only a point/pip and you are being told by that action to be open to messages that need you interpretation as it is often a continuation signal and a price reaching a fib level and pulling back does not imply a reversal, of course, that depends on your time frame which defines your idea of reversal at that time......the point here is that fibs are not showing the underlying action or the participation, they are a meeting point, for sure, which also means they are a trigger point and trigger points are very handy for the person in the opposite side of your trade and a fib can;t tell you that.....as long as you accept the linear application (aside for the modular activity of intersections etc) as long as you place ideas of auction participation first and fibs as a "likelyhood" what-if, then, you'll be okay

i think this regime is the one you were referring to the other day in the other thread.....i question everything and if you told me throwing a coin 16 times would get me a winning trade with the right discipline, i'd agree it's possible, the thing is, i think, fibvs need to come (if at all) at the very end of your understanding of how an auction functions (the when, where, what price of people) then you can start the mechanising if that feels right to you.......

-----------------------------
edit: there's a freebie seminar by carolyn (calls herself queen or sum such) tradethemarkets.com/public/FREE-WEBINAR-Carolyn-Boroden.cfm (cut and paste that into your browser) this is her regime although i think she might also use some oscillators......

you want to see any regime in real time....videos and pretty charts are great..hmmm...real time, mate!

Firstly a very good morning to u Joules,
Thank u for ur comment and the points u have put on the table,, well,, thats exactly the feeling i have also , and that is at a level it sure does NOT mean a reversal,, BUT at a level we can expect a retracement OR atleast a small strugle for further move min 90% of the time ,,, and that can be to many ver helpful,, but also i am talking about the FULL run that can run 3 to 4 days after which most of the time we get a prelonged sideway move or a descent retracement .
Again it is very hard to express all in writing ,, well, atleast for me anyway ,,BUT as u said ,, when it comes to calling turning swing highs and lows with a very high accuracy ( and yes i say within 5 points and to end up closing or hold within that level is good enough ) ,,, that has been the case for me on the 15 mnt chart ,, as at this stage is my MAIN chart so to speak for entry and exit ,, BUT not for trend direction .
Again i have full satisfaction with regards to what i am saying,, and that does NOT have to be to the satisfaction of other people , and thats always the bottom line,,, one need to make it HIS way and to HIS satisfaction,,,, and as i always say,,, test it and play with it .
And with the high level of experience you have ,, i dont need to tell u that NOTHING out there is 100% clean cut guarantee,, and more importantly NO tool out there can call turning point numbers as accurate as Fib system does (in MY humble opinion ).
Again nice to hear from you Joules, wishing u and all a wonderful day.
Cheers,
George

 

[numbertea]

Just wondering before I explore coding fib levels into my program to discover for myself, has anyone compared say... 25, 50, 75 percent levels to fib levels to compare fib relavance? In my understanding fib levels are inherent to many natural phenomenon and therefore possibly relevant to human pyschology so might be a good thing to check out on the charts but are they really any better than arbitrary percentage levels... Has anyone checked this?

Just trying to save time, thanks.

 

[George A]

Just wondering before I explore coding fib levels into my program to discover for myself, has anyone compared say... 25, 50, 75 percent levels to fib levels to compare fib relavance? In my understanding fib levels are inherent to many natural phenomenon and therefore possibly relevant to human pyschology so might be a good thing to check out on the charts but are they really any better than arbitrary percentage levels... Has anyone checked this?

Just trying to save time, thanks.

Hello Numbertea,
A great obeservation on ur behalf ,, and i am wondering If u r a student of GANN's theory. as i studdied GANN when i first started , and i found it unbelievably great,, BUT never tried to use it on an intra day level ( 15 mnt chart) etc .
When i used it , it was on long term charting with a minimum of daily.
Reading what u suggested , and admittedly never thought of checking it previously ,, i just set my fib for a quick check and tested it on 1 X 15 mnt chart and 4 hour chart of the euro , and it seems to have some interesting results that are worth while continuing to study it deeper . which i will do so.
BUT on the other hand , i have been able to get some very high level of accuracy with FIB , to the level that it can NOT be ignored ,, and infact i am able to use it as a STAND ALONE strategy to pick tops and bottom on any timeframe chart and in 4 major currencies.
I hear alot of people talk about FIB , BUT form what i hear it seems like many people use it to a limited level, where the fact is that the market runs on the levels extremely accurate BUT the secret to getting a high level of reliance on it ,, one needs to know the MASTER FACTOR ,, the MAX that it can go to on any run and more importantly ,, which range to use as a base ,, as it is often NOT the eyes visible first major swing ,, and that is extremely highly so on the EURO daily analysis , where the first major swing low from the MAY top will NOT give u the accuracy compared to applying mathamatical calculated analysis which i will NOT go into detail now .
Many people may NOT want to agree OR accept what i am saying here ,, which i DO respect ,, BUT also would appreciate IF we can keep a positive mood here and hold back any smart uncalled for comments IF u do NOT wish to investigate what i am saying
I am still on my journey to perfecting FIB use ,, and i am almost there now , BUT like any high level of success in any field ,, we need to dig deep ,, and this is sure not a light subject ( from my humble own experience and observation ).
Thank u again for ur comment , and we shall talk soon.
Cheers,
George

 

[numbertea]

I can see that you feel strongly about the benefit of the fibs and I cannot disagree with your observations which you definitely have more experience with. My system uses candlestick entries and exits combined with short and longer trends, as well as MA involvement. I am currently workIng on the MA coding for automation, much more complex than I originally thought it would be, and will require about 1200 bytes of data to set up the conditional variables. Next I am interested in coding a S/R line requirement. The fib sequencing seem like the next logical choice for me after that. I have always been curious about the fibs and from what I see there is potential benefit from them.

Thanks for the information you have provided.

 

[Earthling]

Just wondering before I explore coding fib levels into my program to discover for myself, has anyone compared say... 25, 50, 75 percent levels to fib levels to compare fib relavance? In my understanding fib levels are inherent to many natural phenomenon and therefore possibly relevant to human pyschology so might be a good thing to check out on the charts but are they really any better than arbitrary percentage levels... Has anyone checked this?

Just trying to save time, thanks.

Hi all.
Numbertea – regarding 25 and 75 – I haven’t tried these, but the number of precise reactions I have observed at the nearby 23.6 and 76.4 would make me want to stick with them instead. I'm openminded to any other opinions.

 

[George A]

Next I am interested in coding a S/R line requirement. The fib sequencing seem like the next logical choice for me after that. I have always been curious about the fibs and from what I see there is potential benefit from them.

Thanks for the information you have provided.

Dear numbertea ,
Fib is much more deeper than many think ,, and it was ONLY last night that i was able to see a very deep part about it,, which made me reply again to what you have just said,,, and this is why .
I feel it is extremely hard to program it , but again depending on how programs work and i am sure far from smart in technology ,,
BUT one thing i will assure you,, as it may help you ,,, it is completely mathematical ,, and the mathematics are NOT a set way everytime BUT a set repeat and expansion . so let me explain more a little more.
I always uses the very first range , and this range can be any size (as little as 10 or 15 points sometimes) ,, then i look for an expansion of this first range ,, it is is NOT a set percentage and more importantly expands to a full number OR a 61.8 number ,BUT we look for it moving to a extended level ,, after which you will use the extended range to measure the whole move
Yes it may sound confusing,, BUT once u get to see it in real picture it is soo easy , and the best advise i can give u is PRACTICE it ,, play with charts 15 mnts , 4 hours,, daily ,, its just amazingly precise .
I hope it will help you and also , and please feel free to ask IF u need any help with your journey .
Cheers,
George

 

[Joules MM1]

Dear numbertea ,
Fib is much more deeper than many think ,, and it was ONLY last night that i was able to see a very deep part about it,, which made me reply again to what you have just said,,, and this is why .
I feel it is extremely hard to program it , but again depending on how programs work and i am sure far from smart in technology ,,
BUT one thing i will assure you,, as it may help you ,,, it is completely mathematical ,, and the mathematics are NOT a set way everytime BUT a set repeat and expansion . so let me explain more a little more.
I always uses the very first range , and this range can be any size (as little as 10 or 15 points sometimes) ,, then i look for an expansion of this first range ,, it is is NOT a set percentage and more importantly expands to a full number OR a 61.8 number ,BUT we look for it moving to a extended level ,, after which you will use the extended range to measure the whole move
Yes it may sound confusing,, BUT once u get to see it in real picture it is soo easy , and the best advise i can give u is PRACTICE it ,, play with charts 15 mnts , 4 hours,, daily ,, its just amazingly precise .
I hope it will help you and also , and please feel free to ask IF u need any help with your journey .
Cheers,
George

George, g'day.

...youve just opened a big door for yourself......in the view of sharing a conversation, what would best demonstrate your viewpoint is to display, in advance, your ideas.......you could use a chart for this as its the most common vehicle that others are using.....show where you're expecting your 'expansion' to start, the parameters, the levels that you'll decide are incorrect and the levels you'll decide are worth pyramiding.....

i appreciate this is a challenging task.....i also appreciate that any regime is worth counting into or discounting out of your trade plan......with that in mind trading the right hand side of your chart and pre-posting the extensions/expansions in real time goes a long way to confirming the ideas......

keen to see you do well

 

[George A]

George, g'day.

...youve just opened a big door for yourself......in the view of sharing a conversation, what would best demonstrate your viewpoint is to display, in advance, your ideas.......you could use a chart for this as its the most common vehicle that others are using.....show where you're expecting your 'expansion' to start, the parameters, the levels that you'll decide are incorrect and the levels you'll decide are worth pyramiding.....

i appreciate this is a challenging task.....i also appreciate that any regime is worth counting into or discounting out of your trade plan......with that in mind trading the right hand side of your chart and pre-posting the extensions/expansions in real time goes a long way to confirming the ideas......

keen to see you do well

Heey joules,, thank u
BUt to be honest i do NOT know how to include a chart ,,( u know what i mean ,, a camel rider hahahahahaha ) .
Cheers,
George