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An attack on Fibonacci numbers...

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markrmau

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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?
 
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.
 
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.

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.
Click to expand...

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%.
 
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.

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?
Click to expand...

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 :cool: .
The indicators that you had so much faith in, seem not to work for you, WHY? whats going on. :p:

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.
 
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:

radge5vc.gif
 
Nick Radge said:
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:

radge5vc.gif
Click to expand...

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

Bob.
 
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..
Click to expand...

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 :)
 
markrmau,
My post is more out of frustration at your analysis being correct against all rational argument
Click to expand...

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!! :cool:
 
tech/a said:
Most analysis I see falls in the category of turning the most simple into the most complex.
Click to expand...

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...]
 
Nick Radge said:
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:

radge5vc.gif
Click to expand...

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.
 
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'.
 
Hi markrmau :)

re

markrmau said:
..............People who think that certain ratios can give an insight BEFORE the fact are quite simply wrong.............
Click to expand...

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 :)
 
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.
 
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).
 
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 :cool: .
The indicators that you had so much faith in, seem not to work for you, WHY? whats going on. :p:

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.
Click to expand...

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
 
rub92me said:
Sorry Nick but I have no idea what that means. What markets? Up over what period?
Click to expand...

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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