Trading Fibonacci numbers

[James Austin]

Some people swear by the validity and robustness of Fibonacci numbers as a support & resistance trading tool.

Below is an example using a FTSE futures 10min chart, from yesterday 20/2/09.

The yellow circle is the starting point (zero; green line 3947 on chart 1.) for setting the fib retracements for the start of the trading day.

At each “significant” lower pivot (see coloured circles) the green “zero” line from the start of the day on chart 1., has been moved to that pivot point deemed significant. Ie., green line moved to green circle (chart 2), then to red circle (chart 3), and so on. All the retracements (S&R) move in synch when the green zero line is moved.

(** what is and isn’t a significant pivot only becomes obvious in real time after some time has elapsed, or the next S or R has been broken, . . . . other ways to calculate???).

The charts, from a basic visual inspection, show the fibs to have some validity.
How to filter out the breaks and translate the fibs into a trade plan, . . . . I’m not sure yet.

In sum, I’ve only just started exploring fibs, so I’m not advocating for or against.

What do you think about fib numbers as a trading tool??

 

[tech/a]

Re: Trading Fibs

In discretionary trading I use them as a point of reference.

One comment.
Your first chart and first Fib starting point should be from a significant high or low.
Dosent seem to be the case?
You can also get a read on the strength of moves by the retracement depths withi the primary move.
You can see it in your charts.

 

[MRC & Co]

Re: Trading Fibs

50% retracement level a definate significant level IMO. Though, don't think it's part of his sequence? Not sure why it's always added then, perhaps I'm wrong........

As for the rest of the numbers, I'm still not convinced.

 

[James Austin]

Re: Trading Fibs

In discretionary trading I use them as a point of reference.

One comment.
Your first chart and first Fib starting point should be from a significant high or low.
Dosent seem to be the case?
You can also get a read on the strength of moves by the retracement depths withi the primary move.
You can see it in your charts.

thks tech,

the fib starting point you can see is the zero (the low of previous session), the 100% is off the chart (the high of the previous session).

fibs seem to offer "something", no doubt they cant be used mechanically, hence the skill requirement.

 

[James Austin]

Re: Trading Fibs

50% retracement level a definate significant level IMO. Though, don't think it's part of his sequence? Not sure why it's always added then, perhaps I'm wrong........

As for the rest of the numbers, I'm still not convinced.

MRC

looking at the set-up for friday mornings spi (just gone), the 50% fib price was 3410 (refer chart)

price got to 3409 on the open, then retreated 60ish points.
so 50% was a strong level in this instance anyway.

monday (22/2), price is just above the new 50% at 3358, so an open above may equal support around 3358. we'll see!

 

[James Austin]

SPI fibs
worthy of further investigation I think.

note: i've only shown trade open points, not where trade closed.

 

[James Austin]

playing around with fibs on the SPI this am
worthy of some attention i think

spi opens 3325, just above fib 3324 = support
moves up to the next fib 3349 = resistance
then down to fib 3307 = supprt

not complicated!

 

[James Austin]

testing 2 very simple tools on the SPI at present,

fibs and the red & yellow indicator -- which calculates/estimates supply-demand levels in relation to a given price

the yellow circle shows price intersecting a significant fib @ 3350, the question is, will it break or bounce at this price?

the supply-demand indicator is clearly headed down, signalling demand is diminishing at this fib level = possible short trade

****************

all looks nice and uncomplicated.

but . . . . more testing and translating into a real time trading plan . . .

 

[James Austin]

last nights ftse made a high at 3934 shortly after opening.

6 or so hours later, after retracement down to the 50% fib line, price extended back towards the high of the day 3934.

a question most traders ask is, "will price break the high or bounce away from it?"

the supply-demand indicator shows a double top formation then a retreat a couple of minutes prior to the sessions high being reached for the second time in the session; representing demand is exhausted we have run out of buyers at the price

enough evidence to take a short in real time at 3934???

 

[tech/a]

Over the years I've posed this question to myself often.

"What is it that sees price resist/hold at levels,and why at specific levels often enough to catch traders eyes."

You are yet another who has seen this happen often enough to think it worth further discussion. Many thisnk it so worth while they develop or attempt to develop ways to see it occuring.

Personally I have come to the conclusion that its all about the herd---that group of traders who are involved in that snap shot in time.

If you take any group I hazzard a guess that a small majority will be quick to make decisions. (Small pull backs (.382 or/initial volume selling or buying at tops and bottoms)
The majority will take a while to react (50% retracements)
And yet another group will find pain at about .618 retracements.

On the filp side
Like numbers see value at .38/.50/.618/1 retracements.

As such these areas are only lines in the sand (To me) not concrete walls.
They are points to watch for concurring analysis--and to me this must be seen in crowd behaviour reflected in the participation in price.
I find this to be the range of bars and the volume traded.

Most would be looking for INCREASES in volume.
I however look specifically for the exact opposite this in itself is often a leading indicator.

 

[James Austin]

As such these areas are only lines in the sand (To me) not concrete walls.
They are points to watch for concurring analysis--and to me this must be seen in crowd behaviour reflected in the participation in price.
I find this to be the range of bars and the volume traded.

yes tech, well founded S&R are an excellent tool made even better if we can get a grip on supply and demand at those points . . . the missing link!

confidence increases when you have an estimation of supply/demand at any particular SorR.

 

[tech/a]

Have you noticed we seem to be the only ones in the Fib support group.

Think I'll have a drink.

 

[James Austin]

Have you noticed we seem to be the only ones in the Fib support group.

Think I'll have a drink.

not sure why?

the charts above look pretty good!

 

[James Austin]

having fun with these charts, perhaps i should start a blog . . .

ftse meets fib 3854, SDI gives plenty of notice re diminishing demand . . . and down she goes

 

[Whiskers]

Have you noticed we seem to be the only ones in the Fib support group.

Think I'll have a drink.

Support group, is it! I've just had a drink, but... what the hell it's friday, I'll have another.

Some people swear by the validity and robustness of Fibonacci numbers as a support & resistance trading tool.


What do you think about fib numbers as a trading tool??

Yes, I used to do some swearing when the market didn't respect support and resistance where I put it ... but seriously though, Fib is maybe my 4th or 5th line of indicators. I find it handy, after I get a feel for momentum, in the context of the previous moves, in terms of how far it may move. Sorta like a good plant operator or driver 'just knows' by the feel of the seat of their pants how things are going.

Case in point the AUD/USD retraced 50 then came back to square before eventually retracing well over 61.8... looks close to 90... but I'm not thinking it's going to crash per se... looks like an expanded Flat correction, just the power and momentum of the swings throwing it around a bit.

For me I like to get really involved with my trade... get to know it like my own skin and when it moves like on a stroll it moves say 23.6 all's ok... when it starts getting a bit of grunt and momentum it should move much further... 50 or 61... if it don't i've started loosing touch. :

Anyways... gotta dash back to my AUD/USD... looks like it's coming back for another touch of bottom for me to get on... that's about 90% back on the precious major swing/wave... but it'll spring back with all that pent up thrust.

 

[pilbara]

Re: Trading Fibs

50% retracement level a definate significant level IMO. Though, don't think it's part of his sequence? Not sure why it's always added then, perhaps I'm wrong.........

I agree that the 50% level is the most significant. However it happens that the "golden ratio" (phi) in the fibonacci series is related to 50% by the fact that the first level 1/phi = 61.8%, and the second level 1/(phi*phi) = 38.2%, are equally spaced around the 50% level.

You can think of them as important psych levels related to the 50% level. We are talking about what proportions look good to the human eye, and what proportions can be easily recognised by the human eye.

A person can easily see that 50% retracement has happened. It's so obvious because the amount lost equals the amount gained, 1:1

It's also very easy to recognise when the amount gained is still a much larger proportion of the amount lost, like a 10% retracement is 9:1.

This visual recognition works until you get to 2:1, where you have gained twice as much as you have lost, 66% to 33%.

Once it drops below 2:1, it goes very quickly towards 1:1 (66 to 50), but there is a level in between these which still looks like you've got more than you've lost, that's golden ratio of proportion. This is the perfect ratio where a rectangle doesn't look unbalanced. Beyond this limit, the shape looks either too square or too rectangular.

So at 61.8% you are still convinced that you've gained more than you've lost, but once it goes in between the 61.8% and the 38.2%, it's effectively a 50:50 proposition.

 

[James Austin]

I've been testing what I call Fib Boxes (Fib = Fibonacci, . . . no surprises!!).

I dont know why they work, but check out the blue arrows on CHART 1. Notice how price rountinely finds support or resistance at the Fib Box.

Now they are not perfect nor are they designed to be used in isolation, but you might find them useful as "further evidence".

One way I've been testing and using them is to see if one of these boxes shows up where my chart is showing an area of key support or resistance, eg. significant high or low. But this is just one example, there are many ways Fib Boxes might be used.

I dont think many software packages have the ability to draw Fib Boxes, but they are actually quite easy to calculate and insert yourself.

If you are interested in testing the Fib Box for yourself, CHART 2, 3 and 4 will show you how to do it.

JA

 

[feltonw]

hi james your posts are most fascinating. Have you had time to play with fib fans? I dont know much about why they work other than apparently that they are the 'golden ratios' which always appear in nature.

Have you had the opportunity to test out fib on FX? Ive been playing with FXCM demo account and they have some limited fib tools. very good for practice as all fx data are live.

 

[Mr J]

All very nice in hindsight, but use them in real-time. In many of those charts, the seemed to be resistance at a certain fib level that may have lead to an expectation of a reversal in real-time, only to see it punch through soon after. How would you deal with those? Wait to long and you're taking a bad price, get in to quick and you'll be stopped out on noise. There are too many fib numbers there in my opinion anyway, we wouldn't want to be taking guesses every 10-15 points to whether or not that resistance is significant or a little noise.

 

[AverageJoe]

Thought I revived discussion in this thread after 4 years!

I do use fibs a lot more so recently and I have come to the conclusions that the generic 38/50/61 works well with stocks but not in the forex market. Anyone using other ratios and if so confluence points with indicators etc?