Ive been implementing fibonacci into my trading strategy. Ive been told to draw from the Swing High/Low however I have found discrepancies (when it comes to my strategy at least).
As you can see when i draw fibonacci from the top, price doesn’t come back and re-test the “golden zone”:
Is this just one of the cases where price decided to do it’s own thing or should i start drawing fibonacci at the point where the move starts rather than the swing high (hope that makes sense).
No! Not correct use of Fibonacci sequence numbers.
There is absolutely nothing magical about Fibonacci sequence numbers when it comes to trading financial markets.
But if and when people try using Fibonacci retracement they go to a substantial swing high and a substantial swing low even to the extent of going to a higher timeframe chart.
Finally remember speculative trading any financial markets involves risk. And back testing something to find that it worked in the past doesn’t guarantee that it will work in the future. Never risk more than you can afford to lose.
Okay thank you for the advice. I’ve been implementing fibonacci in my strategy; using it when a potential head and shoulders is occurring so i know where price might retract to (as in lets say price breaks structure and makes a new low, ill draw the fib and then wait for price to enter the discounted range). Is this not correct use? As with a head and shoulders pattern (at least to my understanding) when price breaks the neckline it signifies a reversal of the trend so is fibonacci not an appropriate tool to find where price might retract to?
Price always does its own thing, it is only ever the result of the interaction if supply and demand. What you are suggesting is actually “curve-fitting”, adjusting the values/points until they fit the current price movements.
The Fibonacci sequence is purely a numerical sequence that is commonly found in nature, for example. It has no relationship specifically with financial markets and prices at all. But there is a reason why it sometimes “works”… like all TA methods, if enough speculative traders are observing the same thing then there will be a limited element of self-fulfilment as many entry/exit orders will be concentrated, as if to a magnet, in these points.
The generally principle is to use the extreme points of the move but, like with S/R and many other techniques, there are variations according to the trader’s views. TA is an art and not a science. It will not give you precise points. However, indicators do provide what they say - i.e. an indication of what might be happening.
Trading is a process based on probabilities - nothing is certain. And these types of analytical tools only function as an aid to help put the probabilities more in your favour - they do not provide barriers that price has to observe!
First of all, I never use fib level since I think it’s a bit mumbo jumbo and not a fan of it. But, the logical way to use fib is to identify if you’re trading in a trending market first (this is the no.1 key!!). Once you have identified it, you plot your fib at the latest swing that is able to break new high/low depending on which direction the trend is.
Fib is basically just inform you regarding the latest new high/low swing now has retrace how much percentage. That’s it. There is no magical in these percentages number (61.8%, 50%, 32.8%, whatever it is). If the larger player is interested in a certain price, once price reaches there, they will hit it hard, and you will see price starting to bounce from there.
