Practicality of Fibonacci Retracements

[rcanfiel]

Quote from riaamaan:

I like the way you speak with absolute conviction.

The reality is the only thing you know is that they don't work for you, because you don't know how to use them properly.

I know of several who rank in the small percentage of highly successful traders that use them as one of their primary means of entering and / or exiting positions.

Major studies have been done with Fib levels. They provided no value add when compared with random levels, such as 50% or 25%. I don't give a whoopee what anyone believes.

The reality is they don't work for anyone, your "knowing of several successful traders aside." Appealing to "several who did so" is called anecdotal, and has no statistical value. They could pick other near levels, and experience little change in their LONGterm success.

 

[rcanfiel]

Quote from dandxg:

I have been studying them for the last 6 months. I use them every day. The difficulty is they are subjective. They are good way to gauge the strength or weakness of a market.

The difficulty is because they don't work, that is one reason they are subjective.

 

[rcanfiel]

Quote from Bearbelly:

How close does a retracement have to come to a fib level to be valid? 2, 3, 5 %? Even using coming within 3% as valid, using 23.6. 38.2, 50, 61.8 and 76.4 levels I think you have well over half the possible retracements possible covered. It is almost impossible for a retracements to not come fairly close to one of the levels.

Now you are getting to the crux of the problem. Fib levels mean nothing. And so, people start bending the rules, with little effect on the underlying success.

 

[rcanfiel]

Quote from jessop:

2 years ago I was a Fib sceptic…..but I kept seeing tests of key R&S levels that I couldn’t fathom with my analysis tools. So over time I have seen their potential, back-tested the high reward zones/levels and have now added them to my trading plan as key reference points to be traded with/against. The ES is particularly structured in Fib terms. That is one of the reasons I have moved over from ER2 in the last two years.

Imho the decline from last Wednesday was signposted by these levels – especially the last three days.

Even the mini-4pm slide last night had a Fib Resistance level rationale in my mind on the ES.

Ciao

And i am willing to bet you didn't do a similar, exhaustive analysis to a large number of non Fib levels, using a skeptical mind. Fib levels are like mirages. People believe in then, but they dry up when depended on.

 

[gohstrader]

Quote from rcanfiel:

Now you are getting to the crux of the problem. Fib levels mean nothing. And so, people start bending the rules, with little effect on the underlying success.

Maybe you guys are right I don't know but I really struggled and lost money for a long time and I admit it. I alos admit I don't use just Fib levels but they do help me decide where the market is going --I have made some good money for this so maybe I'm just lucky, but it does'nt really matter does it?

Alot of traders who tried to help me over the last year had really good things to help me but the problem was although I do know it worked for them it did not work for me so I found this method I use so--not being a mathematician or anything like that I cant say if this system I am using will work for a week or a year--so what I do is control my risk in case it doesnt. So far --so good.

Thanks

 

[RL8093]

Quote from dandxg:

I have been studying them for the last 6 months. I use them every day. The difficulty is they are subjective. They are good way to gauge the strength or weakness of a market.

Are they any more subjective than T/L's? I do not believe they are subjective at all - but the conviction with which the market participants use them varies depending on the situation. (Using them to call a top in a momo stock is very different than gaging how far a news stock will retrace after the initial move...). Also, the primary Fibo #'s usually have more strength than the ones at the fringes.

As w/ most TA tools, they are not absolute but are a valid form of sup/res, which when used w/ appropriate price action, can provide an edge for entry/exit.

However, if you do not believe they are valid or they do not fit your trading style - do not use them. Simple.

R

 

[squall]

Quote from rcanfiel:

Now you are getting to the crux of the problem. Fib levels mean nothing. And so, people start bending the rules, with little effect on the underlying success.

I can definitely see your point on this. I mentioned earlier that I don't think it's anything magic. I think there are a couple reasons they have a tendency to work.

a) Since many people use them, there's a good chance there will be buying/selling at these levels aka self fulfilling prophecy.

b) The levels 38.2 50, etc are also close to nice round numbers like 33% 50%, which if you were in WalMart and saw things that much cheaper than normal it would get your attention. I think the same thing goes for the markets in general. The ones who want to "buy cheap" etc may find 38.2 (33%) and 50% a good enough "discount" without going all the way back down to the initial price, which may not be a good sign for a trend.

c) And also, like you said, I think that it is alot easier to say they work because there are so many levels that at any point in time you can find a fib retracement that price is touching/reversing on. But on the same note, that in and of itself shows they are valid in a way-although it's kinda like shooting something with a shotgun and saying you're a good shot. Lots of opportunities to hit the target.

d) I think that also, they give a good psychological reason for people to enter a trade. It can make one feel alot better to see the price touching a retracement line, than for it just to be floating out there in space above MA's or whatever. It makes one feel more secure in there choice. Basically it makes entries and exits a whole lot less esoteric. It gives you entries and exits to a degree.

I don't know about all the pyramids and scared math and all that stuff- The reality of what I see price doing at these levels and the reasons listed above are why I use them in my analysis. When I look back on charts there are plenty of times I see the price reverse at fib levels, which gives me a good probability that I can enter with a decent stop set and the trade will work out. If not, just like any other trade, I'm out if I'm wrong and I look for another trade. Fib levels are a good trigger to set up trades based on probabilities, in my opinion. Your mileage may vary.

 

[jem]

I find it interesting that some floor traders state the guys in the pits used fibs. And yet some people dismiss the statement by saying floor guys must have fallen for voodoo.

Any idea how well prepared for the trading day some floor traders were?

 

[phillyflipper]

ok you Fib watchers I am short the ES at 1519.50 which was executed via MB trading at 14:59:46 Chicago time. It just happens to be at a 2.618 extension of the last swing up on a 5 minute chart and the .382 retracement from the 6/15 high at 9am
cst to the 6/26 low at 3pm on a 60 minute chart...they just happened to coincide nicely along with a nice 60 minute pivot resistance area. There are no guarantees . we shall see

 

[phillyflipper]

Quote from phillyflipper:

ok you Fib watchers I am short the ES at 1519.50 which was executed via MB trading at 14:59:46 Chicago time. It just happens to be at a 2.618 extension of the last swing up on a 5 minute chart and the .382 retracement from the 6/15 high at 9am
cst to the 6/26 low at 3pm on a 60 minute chart...they just happened to coincide nicely along with a nice 60 minute pivot resistance area. There are no guarantees . we shall see

Some bad news out of China would be nice right about now