# An attack on Fibonacci numbers...



## markrmau (4 May 2006)

Just out of interest, I'm wondering what aspects of T/A people think are rubbish?

Topping the list for me is fibonacci numbers. Yes, I know NR who knows more about trading than I will EVER know in my entire lifetime believes in them. But to me it is rubbish. Fibonacci ratios are basically derived from adding the two previous numbers in a sequence. 1,1,2,3,5,8,... To think these really have any magical significance over future price increases/declines is absurd. 

It is like the 'more twins are born during a full moon' fallacy. When the midwife sees twins, s/he looks out the window and says 'ah yes, it is a blue moon' or otherwise, doesn't register the lack of a full moon. Only the blue moons are remembered, and so the belief is augmented.

Unfortunately for my rational argument, it doesn't really matter. If you can derive a positive expectancy from believing in fib ratios, who cares?


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## tech/a (4 May 2006)

Mark.
The way most people use technical analysis as a tool renders it pretty well useless.
Most analysis I see falls in the category of turning the most simple into the most complex.
People think technical analysis is predictive and simply its not.It can give possible forward areas or price of interest but nothing is set in concrete.

Trendlines are another phenomenon---time and again youll see a trendline honored.

What most dont understand is that indicators "INDICATE" they dont GUARANTEE.
Radge put it pretty well the best I have seen in his book.

He was speaking of Elliot Wave---but I think it could be said of all analysis technical or Fundamental.

He describes it as.

*Prove---Disprove
Prove---Disprove
Prove---Disprove*

And on it goes infinitum.

What people have to get their heads around in ALL Types of analysis is that its not how RIGHT your analysis is but how the combination of your Analysis/Trade Management/allocation of Capital,et al--finally profits or loses.

Your analysis can be wrong often but your Business or Trading Plan can be structured to still be profitable.

Its this structure DESPITE the analysis which will determine profitability.

There are many who do not profit regardless of correctness of analysis or type.
Those that do must be doing something different---and its not necessarily BETTER analysis.


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## wavepicker (4 May 2006)

tech/a said:
			
		

> Mark.
> The way most people use technical analysis as a tool renders it pretty well useless.
> Most analysis I see falls in the category of turning the most simple into the most complex.
> People think technical analysis is predictive and simply its not.It can give possible forward areas or price of interest but nothing is set in concrete.
> ...




tech/a

I agree. 

The market only presents us with probablilities, possiblities and no certainties. It is up to us using our methodology, to quantify these probablilites in conjunction with a game plan in the form of trade management and money management.
 But far more important than all of these aspects, is that of trading psychology and discipline to follow your plan through. This is what seperates winners from the other 95%.


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## Bobby (4 May 2006)

*Re: An attack on fibonaci numbers...*



			
				markrmau said:
			
		

> Just out of interest, I'm wondering what aspects of T/A people think are rubbish?
> 
> Topping the list for me is fibonaci numbers. Yes, I know NR who knows more about trading than I will EVER know in my entire lifetime believes in them. But to me it is rubbish. Fibonaci ratios are basically derived from adding the two previous numbers in a sequence. 1,1,2,3,5,8,... To think these really have any magical significance over future price increases/declines is absurd.
> 
> ...




Hello Markrmau,

Yep I do see your point, when any sort of indicator becomes to popular the dynamics of the market will change regarding its use to that stock.

Huge numbers of people use applied technical analysis to buy or sell these days.
Market evolution then happens (almost like nature) weird stuff  .
The indicators that you had so much faith in, seem  not to work for you, WHY? whats going on. :  

Time to use the third form!
I use it & so does Snake--- What is it?   I'll give a hint (Know how to see the fear or greed before it happens).

Have Fun Bob.


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## Nick Radge (4 May 2006)

The timing is impeccable!     

Anyone? 

Wayne?

BTW, here are my open positions to show that, after Wayne confirms,  I have put my money where my mouth is:


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## markrmau (4 May 2006)

Nick Radge said:
			
		

> The timing is impeccable!



I know.

My post is more out of frustration at your analysis being correct against all rational argument


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## Bobby (4 May 2006)

Nick Radge said:
			
		

> The timing is impeccable!
> 
> Anyone?
> 
> ...




Now because its you Nick ! thats pertinent.
We will see tomorrow.

Bob.


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## bullmarket (4 May 2006)

Hi markrmau

re technical analysis, below is a copy and paste from what I routinely used to post over at commsec when similar issues were raised.



> ...there aren't any guarantees with charting. A chart is simply a picture of what has happened in the past re trends, support and resistance etc and so can only give an indication of where future trends, support,resistance might be. Obviously they cannot tell you the future with 100% certainty. Those who interpret correctly more often than not what the chart is suggesting should do ok in the long run. And if you can do some fundamental analysis as well then you have the best of both worlds imo..




Personally I try to stick to KISS and so mainly use trend, support and resistance lines along with the MACD and Stochastic indicators and volumes.

But one thing I always stress as well is to make sure you understand how the indicators work mathematically because not all indicators are suitable for all types of charts....eg...the MACD is much less useful in stocks that are moving sideways and so not really trending because the MA's used to calculate the MACD are most probably pretty flat.

Re Fibonacci ratios - to be honest I mainly use them solely to get a feel for potential support and resistance levels....but the theory of Fibonacci numbers is a very valid mathematical concept.  Where Fib's can let you down on price charts is when the emotion (fear and greed) driving prices up/down is unusually strong.  

Fib ratios occur in nature where there is no human emotion involved.  As you move up the fib number sequence dividing sequential numbers in the sequence you will get a closer and closer approximation to either 1.618 or 0.618 depending on which of the successive numbers is the denominator. 

1.618 is know as the 'golden ratio' or mathematically as phi. In nature, fib ratios are found in the occurence of petals in some flowers and the Greeks used Fib ratios in the building of the Parthenon.  So Fib's are a valid concept but as I said earlier can let you down when human emotion gets involved such as in share price movements.

cheers

bullmarket


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## Nick Radge (4 May 2006)

markrmau,


> My post is more out of frustration at your analysis being correct against all rational argument




Believe me. I get it wrong a helluva lot    In all seriousness, fibo numbers are simply a guide. I use gaps, classic charting patterns (lots of ascending wedges at present) and my main emphasis is volume. 

My one and only position may well be incorrect as well, but alas, that's what my stop is for! If I'm wrong, I'm out. If I'm right, I stay for the ride.

_go down you beast!!_


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## markrmau (4 May 2006)

tech/a said:
			
		

> Most analysis I see falls in the category of turning the most simple into the most complex.




That is exactly my point...

All that I say is that the market moves forwards, then moves back. The natural ebb and flow of the market.

To believe that one can predict the magnitude of these movements is absurd.

People who think that certain ratios can give an insight BEFORE the fact are quite simply wrong. They give themselves a 'get out of gaol free' card by saying the analysis wasn't confirmed. They forget about the times they are wrong and only remeber the times when they are correct.

Lets buy an argument 

[disclaimer, not saying that you cannot have positive expectancy by believing in fib...]


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## wayneL (4 May 2006)

Nick Radge said:
			
		

> The timing is impeccable!
> 
> Anyone?
> 
> ...




Nick sent me an email a few days ago calling a top at 5300.

His analysis showed, not just that 5300 was precisely at a fib level, but it was precisely at a confluense of fib levels measured from differing aspects, all involving phi. I also recall Nick called 5300 quite some time ago on his own forum.  

My view is that I like using them as part of what I do. I like it when a fib number shows up at a swing point(which is remarkably often). But when there is a confluense of fib numbers at a particular price, it is really time to sit up and take notice. I have observed it (initially from a sceptical standpoint) too often to be anything but a true believer.

The only qualifier I would add is that the particular market needs enough participants to be valid. i.e. The larger stocks, indexes, liquid futures etc.

Why does it work?

As Bullmarket points out, phi occurs every where in nature. Maybe we instinctively recognise this relationship in the price patterns on a chart.


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## Milk Man (5 May 2006)

I like the idea of using fib retracements for trade management more-so than any statistical significance they may or may not possess. Kind of like the way Nick explains the percentage retrace idea in 'A.A'.


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## bullmarket (5 May 2006)

Hi markrmau 

re



			
				markrmau said:
			
		

> ..............People who think that certain ratios can give an insight BEFORE the fact are quite simply wrong.............




if you mean insight with 100% certainty then yes I obviously agree but I doubt many if anybody genuinely believe there is 100% certainty in what charts and/or their indicators show.

*But if you mean that Fib's or any other indicators cannot give an idea of what might happen in the future then I disagree.*

As I posted earlier, charts give a picture of what has happened historically re support, resistance, trends etc and so *can give an indication * of, for example, where resistance/support *might occur again in the future * but obviously there are no guarantees.

For me personally, basically if I see that a Fib support/resistance level correlates well with an actual historical support/resistance level then I have more confidence in that level holding again if retested in the future but then again as I said earlier there are no certainties given the affect fear and greed can have on share price movements.

_Imo those that can develop their charting skills to the point where they can interpret correctly more often than not what might happen in the future greatly enhance their chances of being profitable in the long run everything else being equal._  Obviously risk and loss management etc plays an important role as well.

cheers

bullmarket


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## markrmau (5 May 2006)

Interesting points of view everyone. Admitedly last night I cracked open a good bottle of cab sav because of the chx/aoe merger and was just trying to stir people up.

Of course I know that for an indication to be profitible, it doesn't need to be correct even 50% of the time. Just as long as it makes you more money when it is correct.


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## rub92me (5 May 2006)

For me the common fallacy in technical analysis is the assumptions that are made. A common one is that you can actually define what an uptrend is. It normally starts out with an arbitrary decision on what an uptrend is and then basing all that follows on that assumption and also stating that it doesn't really matter what exact criteria you use to define an uptrend. Surely, the result of your analysis depends on the quality of the assumption (i.e. if you input garbage in a model you'll get garbage at the end).


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## Nick Radge (5 May 2006)

doh! Markets up.

"If you're sore, sell some more!"


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## GreatPig (5 May 2006)

Nick Radge said:
			
		

> doh! Markets up.



One man's doh is another man's dough 

GP


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## It's Snake Pliskin (5 May 2006)

*Re: An attack on fibonaci numbers...*



			
				Bobby said:
			
		

> Yep I do see your point, when any sort of indicator becomes to popular the dynamics of the market will change regarding its use to that stock.
> 
> Huge numbers of people use applied technical analysis to buy or sell these days.
> Market evolution then happens (almost like nature) weird stuff  .
> ...




Fib numbers are ok for swing points and setting targets - I see them acting like a self fulfilled prophesy, which is why so many percieve them to work.

Bob, here's a paradox: the third form isn't the third form.  :aliena: 

Snake


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## rub92me (5 May 2006)

Nick Radge said:
			
		

> doh! Markets up.



Sorry Nick but I have no idea what that means. What markets? Up over what period?


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## RichKid (5 May 2006)

rub92me said:
			
		

> Sorry Nick but I have no idea what that means. What markets? Up over what period?




My guess is that his XJO short (see Nick's earlier post) is not looking good, but early days yet, not sure what today's volume was like either, could just be a minor pullback, I have no idea which fib levels are important here.


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## RichKid (5 May 2006)

GreatPig said:
			
		

> One man's doh is another man's dough
> 
> GP




Nice one GP!


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## Nick Radge (5 May 2006)

With a come back like that he's good enough to be on some trading floor!   

Here is/was my analysis, but this was part of 3-days of various time analysis and my actions were based on the confluence of all parts of those, including patterns and volume. In other words its not just fib numbers. Volume is still bearish and what we're seeing here is a lesson (regardless of whether my trade works or not) and that is that during down moves the bullish spikes can be devestating for short positions. Its a real test for the mind, but watching the volume rather than the price can help you along.

MONTHLY XAO ANALYSIS


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## Nick Radge (5 May 2006)

Here is tonights chart of CSM that shows exactly how I think and what I look for. It contains fibo retracements, but as you'll see it combines a lot more. 

This video runs for 5-mins so it will take a minute or so to load. If the commentary starts before the chart, just select stop, then play to start again. 

CSM - EXAMPLE

We'll see how it plays out over the coming week.



_This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Past performance is not a reliable indication of future performance. This material has been prepared based on information believed to be accurate at the time of publication. Subsequent changes in circumstances may occur at any time and may impact the accuracy of the information._


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## chemist (5 May 2006)

markrmau said:
			
		

> Just out of interest, I'm wondering what aspects of T/A people think are rubbish?




All of the published forms of TA are rubbish. 

cheers,
chemist


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## wayneL (5 May 2006)

chemist said:
			
		

> All of the published forms of TA are rubbish.
> 
> cheers,
> chemist




T/a is a set of tools.. a hammer, a chisel and a saw etc (if you will)

I have seen some truly crappy work with the above implements, yet with those same tools, I have seen people create truly brilliant work.

No, published forms of t/a are not rubbish. There are merely poor practitioners of such.


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## Porper (6 May 2006)

Nick Radge said:
			
		

> Here is tonights chart of CSM that shows exactly how I think and what I look for. It contains fibo retracements, but as you'll see it combines a lot more.
> 
> This video runs for 5-mins so it will take a minute or so to load. If the commentary starts before the chart, just select stop, then play to start again.
> 
> ...




Excellent video Nick, very easy to follow, like your book.

I know you can't give us too much free stuff on here when you have paying clients, but your insights are invaluable to us newbies, and I suspect even the more experienced get something out of it as well.

I find that when you find a stock that has truly stuck to the fib rules it more often than not carry's on doing so.Definately opened my eyes to what I felt previously was a load of old cobblers.


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## tech/a (6 May 2006)

*No, published forms of t/a are not rubbish. There are merely poor practitioners of such.*

Totally agree.

Unsuccessful/poor traders blame their tools,others tools,the market,others perception of the market,thier analysis,your analysis,their timing,your timing,their wife,your wife,---you get the picture.


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## wavepicker (6 May 2006)

Nick Radge said:
			
		

> With a come back like that he's good enough to be on some trading floor!
> 
> Here is/was my analysis, but this was part of 3-days of various time analysis and my actions were based on the confluence of all parts of those, including patterns and volume. In other words its not just fib numbers. Volume is still bearish and what we're seeing here is a lesson (regardless of whether my trade works or not) and that is that during down moves the bullish spikes can be devestating for short positions. Its a real test for the mind, but watching the volume rather than the price can help you along.
> 
> MONTHLY XAO ANALYSIS




Hi Nick,

A very interesting example of ratio analysis of the XAO. At an initial glance the the 5 wave count that you have numbered seems the obvious one and is also what most elliotticians would numbered. Time and price are certainly coming hinting to a possible pivot at 5300.

Looking into the wave count a little further however, could it not be a possibility that 5300 maybe marking the end of (3) instead? The reason I ask this because the momentum between 1988-2002 was rather sluggish in comparison to 2003-present. Certainly not what you would expect of a third wave. Either way I guess it does not matter because both wave counts imply the same thing, a possible decline.

Cheers


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## Nick Radge (6 May 2006)

Wavepicker,
Spot on. We're in a minor degree wave-3 higher still. We're yet to get, (or was that it?) the wave-4 then the last wave-5. The example was where alignment occurs, but fib's (or any part of trading) is not an exact science. My recent comments to clients was that I was looking for a move back to 5158 as a measured move out of an ascending wedge and not the end of the world. That pattern would complete the minor degree wave-4 then we'd commence the last ascent higher. And this is why I'm short...and appear to be wrong. All I do is allow the market to validate or invalidate my analysis and trade around that. 

Porper,
These little things are everywhere and admitedly I tend to rush more often than not and miss the gems. I'll post another example a little later.

Nick


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## Nick Radge (21 May 2006)

The chart at the start of this thread was the XAO on a larger timeframe. Here is the XJO, on a weekly time frame. Different wave degree altogether yet we still get the fib numbers working. More importantly the volume was suggesting that things were not actually that healthy. Weakness shows as prices are rising. Gold, OXR and LHG all showed the same thinigs. Prices can't rise if professional money is distributing!


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## TheAnalyst (21 May 2006)

Or simply just not buying


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## Nick Radge (8 June 2006)

Anyone else still short from 4th May?


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## professor_frink (8 June 2006)

not from the 4th(nowhere near as big a kahunas as you sir!), but I'd be lying if I said I didn't hold a few in the money puts presently. Turned out to be a very nice call on your part!


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## BentRod (9 June 2006)

Nick Radge said:
			
		

> Anyone else still short from 4th May?




Yeah but I'm a member of The Chartist so I cheated  :


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## wayneL (9 June 2006)

Nick Radge said:
			
		

> Anyone else still short from 4th May?




Kudos Nick.

Great call!


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## wavepicker (9 June 2006)

Nick Radge said:
			
		

> Anyone else still short from 4th May?




went short 19/04/06, however closed out 25/05/06


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## tech/a (9 June 2006)

Well they got 5300 top and its now down in the 4800s

If it turns from these lows,well==========I'M a BELIEVER!

Frank--Deelite is pretty damned good as well.
http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=1;t=001526;p=3


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## Wysiwyg (23 December 2008)

*Re:Fibonacci numbers...*

Well I`m not really into fibonacci but for observation sake i`m putting this chart in to see how we go over the next 5 months with the high and low on a chart of the Aus 200.

I suppose it`s just to see if % lines become support (if uptrend to be confirmed) or resistance but I may need a bigger time frame.   Should be a good fibonacci ratios test anyway.

As can be seen on the chart presently (horizontal lines) the sideways movement is nearing a trend breakout one way or the other.

Remembering last January the 200 shed about 1000 points in about 20 days.
It won`t be the same this January. 

Oh, if anyone uses fibonacci please have a type.


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## weird (24 December 2008)

Gregory L. Morris, in The Complete Guide to Market Breadth Indicators, has a very interesting comment about  Fibonacci numbers.  

It is the ratio, or better know as the golden ratio, that is more interesting, not the numbers of any series in themselves - it is not unique to the Fibonacci series. 

Any 2 numbers expanded in a similar fashion will produce a similar ratio.


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## tech/a (24 December 2008)

> It is the ratio, or better know as the golden ratio,




1.618


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## motorway (24 December 2008)

Fibonacci Flim-Flam 

http://www.lhup.edu/~dsimanek/pseudo/fibonacc.htm





> The "golden spiral" is a fascinating curve. But it is just one member of a larger family of curves/spirals collectively known as "logarithmic spirals", and there are still other spirals found in nature, such as the "Archimedian spiral." It's not difficult to find one of these curves that fits a particular pattern found in nature, even if that pattern is only in the eye of the beholder.
> 
> But the dirty little secret of all of this is that when such a fit is found, it is seldom exact. The examples from nature that you find in books often have considerable variations from the "golden ideal". Sometimes curves claimed to fit the golden spiral actually are better fit by some other spiral. The fact that a curve "fits" physical data gives no clue to the underlying physical processes that produce such a curve in nature. We must dig deeper to find those processes.






http://www.cass.city.ac.uk/media/stories/resources/Magic_Numbers_in_the_Dow.pdf




> Our conclusion must be that there is no significant difference between the frequencies with which price and time ratios occur in cycles in the Dow Jones Industrial Average, and frequencies which we would expect to occur at random in such a time series.
> 
> In our introduction, we noted that empirical evidence from academic studies suggests that not all of technical analysis can be dismissed prima facie. The evidence from this paper suggests that the idea that round fractions and Fibonacci ratios occur in the Dow
> can be dismissed.




motorway


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## MRC & Co (24 December 2008)

Interesting quotes motorway.  Thx.

Personally, I only ever use 50% retracements (which I believe, are not even part of the sequence).  Just my opinion. 

Cheers


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## Wysiwyg (24 December 2008)

Yes thanks for everyones contributions and agree about the non fibonacci 50%.Apparently a level that the majority agree on more often.

Every chart tells a story hey.


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## kam75 (29 December 2008)

markrmau said:


> Just out of interest, I'm wondering what aspects of T/A people think are rubbish?
> 
> Topping the list for me is fibonacci numbers. Yes, I know NR who knows more about trading than I will EVER know in my entire lifetime believes in them. But to me it is rubbish. Fibonacci ratios are basically derived from adding the two previous numbers in a sequence. 1,1,2,3,5,8,... To think these really have any magical significance over future price increases/declines is absurd.
> 
> ...




I don't think that's really important.  The question should be what works for you - ie, what aspects of T/A make you consistent returns.  For me its a combination of price, volume and OBV.  I don't use any other technical indicators because from years of experience I've learnt that they produce inconsistent signals.  But that does not mean they are total crap.  Just for me they don't work.


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## Glen48 (29 December 2008)

Watching a show on SBS tonight about 6th sense and and how peoples emotions direct their thinking, if one was handed a hot drink to hold they made a different decision to some one who was told to hold a cold drink.
4% of Pilots during the wars shot down 40% of the enemy because they seem to be able to predict what the enemies next move would be.
So I guess that is why some people have better trades than others we all know  a trade can go up, down or do nothing for awhile the ones who win are the ones who can be the most consistent.


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## Stormin_Norman (30 December 2008)

i used fib numbers to 'gap' my different values.

ie i want a larger number then 34. so ill experiment with 55.

i want a smaller number then 21 so ill try 13.

does it work? does it make any difference? who knows? is it rational? maybe not - but are markets?

i watched that show too glen. it was very similar in ideas to a book i read this year called "Mean Markets and Lizard Brains" (http://www.dymocks.com.au/ProductDetails/ProductDetail.aspx?R=9780471602453)


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## jersey10 (30 December 2008)

Glen48 said:


> Watching a show on SBS tonight about 6th sense and and how peoples emotions direct their thinking, if one was handed a hot drink to hold they made a different decision to some one who was told to hold a cold drink.
> 4% of Pilots during the wars shot down 40% of the enemy because they seem to be able to predict what the enemies next move would be.
> So I guess that is why some people have better trades than others we all know  a trade can go up, down or do nothing for awhile the ones who win are the ones who can be the most consistent.




do you have a link for this show?


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## Stormin_Norman (30 December 2008)

jersey10 said:


> do you have a link for this show?




fool proof equations for the perfect life:

http://au.youtube.com/watch?v=B7_Z-N91v6g  (part 1 of 5)


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## Boggo (30 December 2008)

Stormin_Norman said:


> fool proof equations for the perfect life:
> 
> http://au.youtube.com/watch?v=B7_Z-N91v6g  (part 1 of 5)




I think that video 2 of 5 is relevant for traders, two items in particular, the 20 quid vs the 50 quid gamble or take the money scenario, and also the New York taxi drivers work hours procedure.


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