Trading Fibonacci numbers

[Boggo]

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.

Depends a bit on the time in Forex I find, the longer the time period then the more stable the pattern seems to be.
I tend to find the bigger picture then look within that for the smaller levels

Below is the daily of the AUD/USD which has played out a 5 wave sequence and is now around the 50% retracement area.
The two areas of significance in the correction are the 50% to 61.8% area and also the length of W.4 x 1.272 projected down from the high of W.5 (aqua blue box on chart) as an approximate cross check of the 61.8% retracement for pattern consistency and a more likely area of target retracement.

The AUD/USD is showing signs of reversing around the 50% area but for now corn:

Just my Forex/Fibonacci

(click to expand)

 

[pixel]

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?

Fibonacci levels, while not the be-all and end-all, give me valuable "hints" where to look for support and resistance. If such a level coincides with an earlier turning point, the odds for a significant hold-up are increasing even more.
For more details, visit http://rettmer.com.au/TrinityHome/index.htm and click on the "Musings" tab.
http://rettmer.com.au/TrinityHome/Trinity/Musings.htm

Check out the 4th and 5th "On ..." from the bottom of the list of titles. That's what I use in all my templates, interpolation as well as extrapolation. (You may also be interested in some of the other articles on that blog.)

 

[beachlife]

the 62.5% level gave a big hint on the xjo monthly, and the 50% level on the range projection gave a nice confirmation on the daily xjo. No surpises if 50% on the monthly becomes support again.

Discloure - I am short the spi, have been for a while now.

 

[Porper]

the 62.5% level gave a big hint on the xjo monthly,

What's the relevance of 62.5%?

 

[Garpal Gumnut]

What's the relevance of 62.5%?

A good site for fib.

http://www.trading-point.com/fibonacci

gg

 

[pixel]

What's the relevance of 62.5%?

In the context of Fibonacci numbers: none.
The chart that showed 62.5% didn't use Fibonacci ratios, but steps of 1/8th.
The percentages for that scale are -
12.5%, 25%, 37.5%, 50%, 62.5%, 75%, 87.5%, and 100%

Adding 1/3rd and 2/3rds into the mix reminds me of the old adage: The beauty about ratios is that there are so many that you can always find one to prove your point.

 

[Trembling Hand]

In the context of Fibonacci numbers: none.
The chart that showed 62.5% didn't use Fibonacci ratios, but steps of 1/8th.
The percentages for that scale are -
12.5%, 25%, 37.5%, 50%, 62.5%, 75%, 87.5%, and 100%

Adding 1/3rd and 2/3rds into the mix reminds me of the old adage: The beauty about ratios is that there are so many that you can always find one to prove your point.

LOL so now we have 12.5%, 23.6%, 25%, 33%, 37.5%, 38.2%, 50%, 61.8%, 62.5, 66%, 75% and 100%. That really would work every time.

 

[beachlife]

What's the relevance of 62.5%?

It's me pressing the wrong button in my retracement tool setup. I place the most importance on 50% and then like to see the Fibb numbers either side once 50% has been breached. I also like to keep an eye on the 1/4's as well. 5/8 and 0.618 are so close its not significant. 5/8 is also the first in the Fibb division sequence that converges to 0.618.

 

[beachlife]

yep its all a load of rubbish, doesnt work on currencies either.

 

[Porper]

LOL so now we have 12.5%, 23.6%, 25%, 33%, 37.5%, 38.2%, 50%, 61.8%, 62.5, 66%, 75% and 100%. That really would work every time.

My post was misunderstood. I wasn't asking what the relevance of 62.5% was I was highlighting the fact that it has no relevance whatsoever.

Agree as above, draw enough lines on a chart and you can pat yourself on the back every time and say you were correct. Of no help in trading whatsoever. I am not saying Fibonacci ratios are insignificant as I use them often but you need to know how to use them and when. Ideally in conjunction with other T.A. in my opinion.

 

[Porper]

yep its all a load of rubbish, doesnt work on currencies either.

View attachment 55712

View attachment 55713

Beachlife, in your charts how have you made your projections?

It looks to me that you've measured from the prior high to the major low and then in hindsight noticed that pivot highs and lows have been made "around" the ratios. Even if you made the projection at the low point how do you know which ratios are going to be important reversal points?

Not being picky but maybe you can describe how you trade what you've shown in your charts. I am genuinely interested.

 

[tech/a]

Often pivots occur at fib ratio junctures and often not.
Fib should be used as another " indicator " indicating that at
The more important levels and in conjunction with other analysis
Something may occur.

Why it does happen is anyone's guess ---- but there is no denying it
Can and does happen. Just as the mathematics of a spiral occurs
Repeatedly in nature.---- don't know why---other than it fits---but it does.

The hard part is forward trading it.
Actually applying it to a setup and constructing a trading methodology
That is profitable ---- like GANN which has more possible setups than
A side show.

On it's own it has little to no value in my opinion.
In a method it can be a helpful inclusion.

 

[Trembling Hand]

yep its all a load of rubbish, doesnt work on currencies either.

Yes a beautiful "proof" of concept and application to show it "working".


You guys are all stark raving mad! Markets don't move in straight lines and then flat line. They don't perfectly adhere to ratios either. Yes they trend then back fill a bit or a lot. They sometimes move back to old areas after the trends slow. Maybe 1/3 or a half or two thirds but to say they conform to Fibonacci ratios is stretching the available data. In a way only humans can see patterns in randomness.

 

[beachlife]

Beachlife, in your charts how have you made your projections?

It looks to me that you've measured from the prior high to the major low and then in hindsight noticed that pivot highs and lows have been made "around" the ratios. Even if you made the projection at the low point how do you know which ratios are going to be important reversal points?

Not being picky but maybe you can describe how you trade what you've shown in your charts. I am genuinely interested.

Sure it does look like hindsight now that its over, but I use it in real time. I use the retracement to see where a retracement might end. Once the direction has changed I use the projection to see where the next move might end. It is a projection of the previous range from the low and I use 100% as a target, and 50% as a possible resistance. 33% & 66% are for money management. The concept of repeating ranges is probably more Gann that Fib, but they work well together.

So here is how I am using both to manage my current spi short.

The retracement shows that 38.2 aligns with previous support and resistance so is an area of concern. The projection of the first down range gives a 100% point, where the market has now paused, and a 150% point that is a good match with the 38.2 of the range. It also shows that it powered straight through 50%, a sign of strength in the move. Normally I would take profits at 100% but for this trade I have moved stops to above 50% and set profit take at 150%.





I dont use them as entry points, I use them as setups for entry but wait for confirmation, and then use them for targets and stop placement.

 

[Porper]

Sure it does look like hindsight now that its over, but I use it in real time. I use the retracement to see where a retracement might end. Once the direction has changed I use the projection to see where the next move might end.

Yes I understand what you are saying but how do you know when a low is in? Great in hindsight. In real time you could project from any previous pivot lows that subsequently proved to be bounces only.

You wont (I.M.O.) be profitable longer term using that method alone unless in a raging Bull market...which we are not. Larger bear market counter trend move.

 

[pixel]

Often pivots occur at fib ratio junctures and often not.
Fib should be used as another " indicator " indicating that at
The more important levels and in conjunction with other analysis
Something may occur.

Why it does happen is anyone's guess ---- but there is no denying it
Can and does happen. Just as the mathematics of a spiral occurs
Repeatedly in nature.---- don't know why---other than it fits---but it does.

The hard part is forward trading it.
Actually applying it to a setup and constructing a trading methodology
That is profitable ---- like GANN which has more possible setups than
A side show.

On it's own it has little to no value in my opinion.
In a method it can be a helpful inclusion.

yeah - what tech/a said

 

[beachlife]

Yes I understand what you are saying but how do you know when a low is in? Great in hindsight. In real time you could project from any previous pivot lows that subsequently proved to be bounces only.

The low is confirmed when the counter trend move is over. Some people use trendlines, some use moving averages, I use a swing chart and moving average.

In early Nov, the Oct low was clear and I saw consolidation near the 50% level of the projection. I knew it would do one of two things. Go through it, which would have got me long, or bounce off it. So it was time to just wait for confirmation. I stopped scanning for new long trades, and tightened stops on open trades. The bar on the 11th was an early sign that it may bounce, but I still waited for confirmation. The bar on the 13th was a clear sign, but not an entry yet. I did however start scanning only for shorts, and now have 5 other open shorts, all in profit and all but one with stops at profit or break even.

For the spi short I am in now I entered on 28th, based on confirmation with a moving average and swing chart. Price had moved below the MA, and the swing chart was making lower tops and lower bottoms. By 2nd Dec the swing high on the 25th was clearly confirmed so the projection down could be used for trade management.

For me its not about picking tops and bottoms, its about waiting for confirmation, using these ratios as just one of my trading tools. If my entry trigger is not met, I will not take the trade. If I have an entry trigger but a 50% level is close, I will not take the trade. But when my trigger is in sync with the ratios then I'm in without hesitation.

 

[BlackSky]

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

Think I'll have a drink.

"Drink till it's gone"

 

[BlackSky]

Kindly explain a swing chart. Do they make these to use or is this something that one has to draw for themselves? [/B]

The low is confirmed when the counter trend move is over. Some people use trendlines, some use moving averages, I use a swing chart and moving average.

In early Nov, the Oct low was clear and I saw consolidation near the 50% level of the projection. I knew it would do one of two things. Go through it, which would have got me long, or bounce off it. So it was time to just wait for confirmation. I stopped scanning for new long trades, and tightened stops on open trades. The bar on the 11th was an early sign that it may bounce, but I still waited for confirmation. The bar on the 13th was a clear sign, but not an entry yet. I did however start scanning only for shorts, and now have 5 other open shorts, all in profit and all but one with stops at profit or break even.

For the spi short I am in now I entered on 28th, based on confirmation with a moving average and swing chart. Price had moved below the MA, and the swing chart was making lower tops and lower bottoms. By 2nd Dec the swing high on the 25th was clearly confirmed so the projection down could be used for trade management.

For me its not about picking tops and bottoms, its about waiting for confirmation, using these ratios as just one of my trading tools. If my entry trigger is not met, I will not take the trade. If I have an entry trigger but a 50% level is close, I will not take the trade. But when my trigger is in sync with the ratios then I'm in without hesitation.

 

[sails]

Kindly explain a swing chart. Do they make these to use or is this something that one has to draw for themselves? [/B]

Some software will draw swing charts for you. I have found that no individual indicator is a reliable stand alone and swing charts are no different.

Here is a small selection of links from a quick google search of "swing charts":

http://www.investopedia.com/articles/technical/04/080404.asp

http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:swing_charting

http://www.stock-trading-infocentre.com/swing-charts.html