I’m going through the babypips school. I’m currently reading and trying out fib retracement. While I do have the understanding that using trend lines, S/R, fibs etc is like trying to impose a subjective pattern to random events, I’d like to have some understanding of it in order to improve my understanding of reading price action. What I don’t understand with the teachings given in the babypips school is that it tells that other traders may place orders on certain fib levels, making it more likely that it will act as S/R. From my understanding, retail traders don’t have any impact on the market. I’m not even sure that hedge funds have any impact. So I’m wondering why this is relevant. I’m assuming that the market movers don’t use fibonacci to decide when to enter or exit a trade. Am I missing something?
That’s definitely correct.
That’s probably correct (I’m not going to say “definitely”, just for fear of starting a war).
It isn’t, but people who want it to be relevant will - as in so many other areas of life - find convoluted and fanciful “explanations” for why they think it is. Some are fooled by them.
Yes.
The educational and experiential influences on trading education and orientation include (at least) two main groups of stuff: the objective, factual, evidenced, scientific, verifiable, proven stuff and the alternative, opinion-only-based, unevidenced, alternative, complementary stuff, some of which is very widely believed in, in spite of there never having been anything more than subjective, cherry-picked, anecdotal “evidence” for it.
Fibonacci is firmly in the latter group.
Astrology is profoundly scientific, compared with the way some traders try to use what they perceive as “Fibonacci levels”.
In the trading context, it’s not worthy of your time.
It’s all “mystical mathematics”, according to Simanek. In fact, the “Fibonacci pages” of Professor Donald Simanek (Physics, Lock Haven University) are among the most interesting Fibonacci-orientated material on the web and repay careful reading …
Some people believe Fibs work, some don’t. I happen to believe in the merit of the Fib tool when used properly. Unfortunately proper use is often elusive due to subjective info, outright misinformation, and gatekeeping of valid info.
Fibs are not magical and shouldn’t be used in isolation. You shouldn’t automatically enter a trade just because price has retraced to 61.8%. Fibs need to be combined with other methods of analysis.
If you rely on the Fibonacci Retracement tool to be a self fulfilling prophecy without being combined with other analysis, your account will get wrecked.
I use Fibonacci Retracements:
- Combined with Supply & Demand
- For plotting out the market trading range
- For plotting areas of Premium pricing when selling and Discount pricing when buying.
Decide for yourself if there is a benefit to using the Fibonacci Retracement tool based on collected data relevant to your trading style.
For the sake of understanding. Since all the lines are subjective and most all are putting them differently on the charts, why wouldn’t it be easier to just use the fib retracement instead of personally identifying the S/R? From my very limited use of the tool, I see that it aligns pretty well to where I would have put my S/R lines.
Not for me.
Sorry, but I don’t understand why you think that.
Support is another way of saying “swing-low by the price” and resistance is another way of saying “swing-high by the price”. Surely all you need to do, to “personally identify” those, is to look at the chart? Why do you need a “tool,” to do that? You have to be able to identify those levels, to use the “tool” anyway, don’t you? So what does it add, apart from flim-flam?
‘Fibs’, like most retail tools, were created as a reason to add liquidity to the market at a time when there was a need for it.
This problem started millennia ago. A very large trader sells all rallies one day, creating a downtrend. When that trader would buy to close, there was no sell-side liquidity, and price would rise faster than it fell. To solve this problem, these large traders promoted retracement levels, Fibs, oscillators, anything to get more sellers below a high. This is why liquidity is worth more than price levels. Today, these places are online forums, sponsored by large retail brokers. Continuing to spread misinformation to help achieve their goals.
This strangely enough makes so much sense.
Highly agree. It further cements what I come to believe about this issue 
Bingo on your understanding!
Yet, there are some reasons why fib levels can still have some impact:
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Self-Fulfilling Prophecy: At times when there’s less of institutional prticipation, and more of retail participation, many retail traders do anticipate s/r from fib levels, and they trade acordingly, and end up cretaing those s/r levels themselves.
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Psychological Impact: Even if the fib levels don’t hold much cnceptual significance, their values mostly coincide with prices that carry psychological significance (prev highs/lows, round numbers, etc.), and thus impact the market movement.
Hope this helps!!
This is completely wrong, and based on entirely mistaken reasoning. Retail traders’ positions are not IN any real market and therefore cannot possibly, by definition, “create S/R levels” in any market!! 
“Thus”?! 
Again, they can’t, by definition, “impact” anything, because they’re not in any real market. If those “previous highs/lows and round numbers” appear to be having “psychological impact,” that can only be because they’re previous highs/lows and round numbers: it has nothing at all to do with the fact that some of them may also happen to coincide with “Fibonacci levels”!
This is all explained above, in the posts of several experienced members, and links.
Please read them, rather than continuing to propagate misinformation. 
that’s the same thing I’ve been asking.
From my reading of other materials, Fibonacci levels work in many mysterious ways (like this article describes). There should be other articles on this topic on the first page of Google if you search for related keywords. It’s relevant to trading because traders’ buying and selling actions are surprisingly also affected by Fibonacci numbers.
And yes, I’ve also learned that retail traders make barely any difference since our purchasing power is small. However, I think we don’t need to hang on to every word and ponder over who moves the candles on the chart. Instead, just look at the chart itself and decide its trend. What do you think?
I suppose the art of technical analysis in the attempt to determine good entry, stop and target levels is the idea of confluence and hence attempting to stack the odds in your favour.
At the end of the day there is no guarantee that any technical analysis tool will work. Especially when used by itself.
You’re right that retail traders don’t move the market, but when many of us watch the same Fibonacci levels, it can create price reactions. It’s more about market psychology than any magic in the levels themselves.
You’re right that institutional traders don’t use Fibonacci directly, but retail traders do, creating a self-fulfilling prophecy. Price often reacts at these levels because many traders place orders there. So, Fibonacci levels become important due to market psychology and the collective behavior of retail traders, not because of direct action from big players.
No - this is very wrong.
It doesn’t “create a self-fulfilling prophecy” at all.
That’s a pure myth, believed by some inexperienced retail “traders” who swallow what they see on Youtube and in forums, haven’t thought it through, and typically even imagine that currencies are actually changing hands when they “trade”.
The truth is that it can’t “create” anything because - as clearly explained above - those retail “trades” aren’t even in any market at all, so they couldn’t possibly affect any market.
No - this is also very wrong.
Retail “traders” are not actually traders at all: they’re simply betting against a counterparty on the price-movements of the counterparty’s own “products”, which are controlled only by the counterparty, not by any “market”.
You’re just re-stating the same misinformation which has already been corrected several times, in this thread, by experienced traders who actually knew what they were talking about.
Sometimes it really does help to read all the thread - especially when it’s as short as this - before replying.