Fibonacci Retracements

Originally posted by darkhorse



Against my better judgment I will ask. Don't ALL percentages appear in nature and the markets? If I went on a tape measure hunt for occurrences of, say, 16% in every day life, I could come up with a hundred of them. Tomorrow.

Why would I be better off believing in fib than recognizing the plain jane truth of the below obvious generalizations, which seem to get the job done just as well with no fuss or muss:
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It really isn't just picking any number like 16%, it is the relationship of the numbers. For example, take any two numbers from one to infinity. I will pick two numbers out of the air, say 26 and 73. To see the beauty in a series of fib numbers observe the following:

1. 26 + 73 = 99
2. 73 + 99 = 172
3. 99 + 172 = 271
4. 172 + 271 = 443
5. 271 + 443 = 714
6. 443 + 714 = 1,157
7. 714 + 1,157 = 1,871
8. 1,157 + 1,871 = 3,028
9. 1,871 + 3,028 = 4,899
10. 3,028 + 4,899 = 7,927

When you divide the 9th calculated number (4,899) by the 10th calculated number (7,927), you get the number .618. As we move further down and continue to calculate new numbers, there will be virtually no change in the .618 ratio as we approach infinity. This is why WD Gann called the .618 the golden ratio.

To get the other fib numbers:

The square root of .618 is .786
The square of .618 is .382
The recipricol of .618 is 1.618
The recipricol of .786 is 1.272
The recipricol of .382 is 2.618

This is why we commonly see the fib series of .382, .618, .786, 1.272, 1.618 and 2.618 in trading magazines, articles, books, etc.

Other important numbers are .50, 1.00, and 2.00. Some people say these are fib numbers also, but they really aren't.

Fib numbers are found throughout nature. I believe in another post I stated it is found throughout nature, is ever onward and outward and is universal. I also said it can be found in the smallest of snail shells all the way out to the milky way.

Examples:

A nautilus shell has several chambers. As the shell grows, the size of the chambers also grows, but their shape remains unaltered. The size of a chamber divided by the size of the next chamber is .618.

Many different types of flowers have petals of 3, 5, 13, 55 and 89, all fib numbers.

The Great Egyptian Pyramids were built with fib numbers. If we set the base to a value of 2, the slope of the pyramid's walls were 1.618 with a height of .618.

Coincidence? I think not!

I point I am trying to make is these numbers are everywhere, including the markets, and are found in relationships throughout nature. You just can't pick any number like 16%.

Hope this helps to clarify. I going to bed!!!!!
 
IMO, you need to look for a cluster of fib numbers in a general area, calculated from a common high, or a common low. You just can't say, "hey, the market is moving up to a .618 retracement, I think I will sell."

For example, as I said in an earlier post in this thread, I used to look for .382 and .618 retracements within 1 point of each other on the S&Ps. You can make a fortune with just looking for these support and resistance levels, given you can manage your emotions and manage the trade itself.

A good example of this was seen on today's 5 minute S&P chart, calculated with a common low. To be honest, I saw this after the fact while typing this post, as I really don't look at fib numbers anymore......but maybe I should!
 

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Sarasota,

Do you mind saying why you no more use Fib in your trading? From your very positive & knowledgeable comments, one would think you would be a firm adherent

Since you use Dynamic Trader, I take it you are familiar with Robert Miner's work. Do you think Fib is as effective on the Time Axis?
 
sunnyskies

i guess thats why edwards and magee write books and probably do not trade

the answer is as simple as it hard, but since it is what the market does that interests you and not the theory - watch how the markets react around theses levels and you will be able to answer your own question, and then importantly as you answer it yourself, you will back what you discover with trades
 
Originally posted by SProbability
Sarasota,

Do you mind saying why you no more use Fib in your trading? From your very positive & knowledgeable comments, one would think you would be a firm adherent

Since you use Dynamic Trader, I take it you are familiar with Robert Miner's work. Do you think Fib is as effective on the Time Axis?
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I have Miner's software, which I am very high on, but don't use it intraday. However, he just came out with version 4 which is much closer to a real time program. In any event, it is very easy to do retracements and price projections using his software. Also, because it is so subjective, I do not look at Ellliot Wave like Miner and his students.

Why don't I look at retracements anymore? I found something even more accurate. In the post above, I attached a chart with a .382/.618 commonality. Price was in the general area, and then it continued down. With what I am doing now, the resistance area was actually where price turned, within one tick.

Retracements do work; I will start to pay greater attention to them.
 
Originally posted by SProbability
Sarasota,



Since you use Dynamic Trader, I take it you are familiar with Robert Miner's work. Do you think Fib is as effective on the Time Axis?
More...

To be honest, I am not real sure. I haven't done a whole lot of work with fib time projections, but I am guessing it also works. I am just not comfortable looking for these.
 
Using a common low (low of the day up to this point), there is a .382 and a .618 withing .01 points of each other. It doesn't get much better than this.

The .618 is from the last swing, and the .382 is the range of the day:
 

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In a previous post, I stated you will almost always see a bounce at a .382/.618 commonality, when the fib numbers are within 1 point of each other on the S&Ps. In this case, they were well within the 1 point window; the .382 was at 919.61, and the .618 was at 919.62.

As you can see from the two charts I posted, this was no exception as we are currently witnessing the bounce we were anticipating.

Also, unlike my post last night, these charts were posted while it was happening, so I put my "manhood" on the line for all to see. How far will it run? I don't know, but we are down 6 points thus far!

I think I should do a better job at looking for these.
 
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