Why Fibonacci?

Beginner Questions
1

Hey guys,

I’m just wondering…why do we use Fibonacci at all? Where did the idea come from? I can’t find anything on the web about it.

I mean, sure, it helps and everyone’s using it and stuff. But to me the choice to take Fibonacci seems rather arbitrary, it could also be something else that divides a part of a trend into some sections where you could buy/sell. But there’s nothing more to it than a self-fullfilling prophecy…i.e. it only holds because everyone “believes” in it. Is that correct?

Regards,
bobbel

2

Because it is sounds cool :cool:!

Good question, I look forward to the answers. I dont use Fibonacci, I know the basiscs of it but it is still on my “to do” list to study and add to my tool box of indicators. I currently draw up my own Sup & Res lines which many times line up with some of the Fibo lines.

3

moleman you hit it spot on we use fibs because they sound so cool and I use them because I cant spell it so it has to work lol.

Really you would have to understand what the Fibonacci number sequence is to understand why it works in forex markets. Also yes because so many people use it that it tends to hold true. I wont go into great detail on what the ratio is as there is many many great articles on that if you google it.

Hint: If you ask google the right question it will tell you the right answer lol

4

It actually does work if you know what to look for, and no I don’t know or care to know the # sequence. Watch some of ICT’s videos on it.

5

That right there is why so many indicators fail. People do not take the time to understand what they are using. Just watch a video or 2 and your now a master of the art. Yes ICT does have a very good method using fibs (OTE comes to mind that I use alot). Bet you didnt even know his Traders trinity indicator is based off fibs alone. There are many many ways to use fibs other than drawing them from a high to a low. But people will not understand that because you dont understand what fibs actually are.

This link is not the best but I got tired of searching (Do your own homework). Fibs work but you must understand fibs to understand why they work. For starters look up fibonacci and its relation to phi. You will quickly find it is much much deeper than just the markets. Yes OTE works well (again my most used method). Yes 128 the figure works. But not because ICT said so but because he did his homework. Just because he is letting you copy off his homework does it mean you should just follow blindly. After all he is not Jesus. Instead do your on homework using clues picked up from him. Dont get me wrong I am in no way saying ICT dont know what he is doing. I have learned so much to improve my trading for that guy. I am just saying dont assume its etched in stone because ICT said it. What happen if he dissappears tomorrow then what? Your lost now with only what he thought you (witch is enough to get by). Markets change and you can not adapt because you did not truly learn what he taught. I guess in a way I am glad I learned to trade profitably myself before learning his stuff. This was I already have an understanding for most of what he teaches. He has just fine tuned it (along with some things that blew me away).

6

So, Whats your statistics using fibs? win/loss ratio? how big are the moves? or stops? Just wondering since your a big fan of fibs.

7

It does not work…

8

  1. Why does a price breakout?

  2. Why does the price always do crazy things around the 200SMA

  3. Why does the price stall when it hits a major psychological resistance or support level?

  4. Why does the price often do things around Fibonacci levels?

All all the above cases the answer is the same. [B]There are millions of traders around the world using them, and looking at them, so the price is going to do something important when it hits those levels,[/B] or crosses over.

Millions of eyes on there computer screens looking at the 130.000 because it’s a round number and just so happens to be the 61.8% level, so traders have orders there, having educated opinions on what is going to happen.

[B]Why does the price do more when many of the above 4 things are at the same price?[/B]

Because they are lines of confluence.

Dont think of the market like you are trading the EUR/USD or USD/JPY or ect ect ect. It’s easier to think of it like you are trading, psychology, methods, and data.

So if the 130.000 level is a major support and resistance level, or even support turned resistance, its touching the 200SMA, and is at the 38.8% fib level. Then many methods are over lapping at that level and the price is going to do something major.

Just like any other method, fibs don’t work well unless used in conjunction with other methods. You don’t go taking a trade on fibs alone.

The most obvious example is this. Head and shoulder patters are the most common trading formations in the world. So when one is formed, and is very obvious, so many traders around the world can see it. What happens when the price breaks out of the neck line? Its a major breakout because many traders have there eyes on it… Get it…They see it breaking out and the know what a head and shoulder pattern is so traders are all over it. But still you don’t go trading the h&s by itself, you overlay it with other methods you are familiar with to make sure it’s a valid breakout.

If you suck at fibs. You are probably drawing them in no mans land. Only draw them from points that are obvious and are likely that other traders are drawing them from those points too.

[B]One more example. If everyone around the world had the same chart. Read exactly the same data. And only had on there chart something stupid, like a 176.9864 Simple Moving Average. What’s going to happen when the price gets near the 176.9864SMA? Something big! Because everyones looking at it. lol should of just said that from the beginning. Anywayz[/B]

9

If everyone you mean us retail traders and the big firms/banks then yes I’d understand you.

I was under the assumption us retail traders only make up 5-6% of the market volume, which would hardly be enough to move the underlying security.

10

I think like any trader that trades seriously, we all do a deeper level of homework than most. However, I’m also guilty of that analysis paralysis to where I factor too many things in, so for that reason, I care not to know the deeper intricacies (sp) of fibs for no other reason that it’s too much information.

When it comes down to live trading, those who simply copy will have a very rough go at it. I’ve taken ICT’s info and went onto figure where those spots are normally that work best with it, and I’m richer for it. But to dig deep and learn all the science and math behind it (which I was always terrible at anyway), I’m gonna pass.

I also use one indicator, never more than the one, and I agree, I had to really get good and understand how and why it does what it does through trial, error, and backtesting before it became effective.

I’m sure there are a lot of copy and paste guys out there, but chances are they’ve gotten frustrated and sought their fortunes elsewhere by now.

11

I posted my trade log on one of ICT threads last week. I have a 78% win ratio. But thats not because I understand fibs trust me. I didnt say I was such a big fan of fibs. I am a price action trader but I use fibs alot. What I was trying to say was to understand what you are using not just well this guy said do this. If thats how you trade the listen carefully when price hits the 62% fib and stochs is over sold all you have to do is go drop your money in the toilet less stress than watching it disappear anyway lol (just messing with you man). Its just like stochastic indicators just because it say price is oversold it does not mean anything. Now if you knew why it was saying price is oversold and you can use price action to confirm it. Would that not make it more valid?

14

Unless its related to Gann analysis I’m not interested in anybody else trading style. I put more emphasizes on statistics/numbers rather than people’s opinion. As you and I know, the markets could careless what we think only numbers/levels that matters.

15

What do you mean it doesn’t not work? It works just fine. An indicator is just that… an indicator.

16

Oh well then my bad I thought you said you follow ICT. I didnt know that was Gann analysis. Good luck with all that

17

Keep in mind that that 5 or 6 % is still a huge $ amount. A big firm or bank may want a piece of that 5 or 6% us little guys are easy targets. So even if our retail trader positions cant move the market directly we still move the market by being an easy target. The big banks are in this to make a buck with the least amount of risk. A few million retail stops placed around a fib level is a low risk target.

18

Fibonacci summation is 1, 1, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233… Etc

Each number is the sum of the two preceding numbers… So 1+1=2. 2+1=3. 3+2=5. Etc

You should also notice that if you do 55/34 you get 1.618 and if you do 34/55 you get .618.

The Fibonacci ratios are often found in nature. it’s pretty weird.

Early users of Fib Ratios noticed how the market would often swing when they hit certain levels… As Fibs became more mainstream, more people have been using them and they are a lot like self fulfilling prophecies…

You should check out the “30 pips a day keeps your money at bay” thread in forex town. It’s a thread about trading Gartly 222 patterns and Butterflies. Fibs are used to identify these patterns. If you find a true pattern they have a success rate of about 70%.

20

Just like Fibos, Gann analysis is very subjective since you have to choose the points to draw the lines

“it is important to realize that this form of analysis - like most forms of technical analysis - is not set in stone but constructed out of empirical methods.”

21

Gann’s philosophy and methods is considered the outlaw of technical analysis because of its complexity. He did not leave traders hard facts rules on how to trade but instead he left gems/diamonds of knowledge in all of his writings for us to decipher. Which I find brilliant because he gave us to two options, either to put the puzzles together and conquer any market or follow the herd and have meager returns. Gann’s range of accuracy/techniques has worked for more than a 100 years or so, why would I ever consider following anyones else mickey-mouse trading style? Sure, it works but does not have same higher degree of success. W.D. Gann has a “mystical trader” figure for a reason.

22

Dude you really need to learn history. Witch came first fibonacci and gann theory? I am not saying Gann theory does not work but Fibs have been around and worked for much much longer

23

Yes, I also said “it works but does not have same higher degree of success”. Fill me in with your 78% win ratio. How many pips do you pull in each trade? how big are you stops? Whats your range weekly/monthly/yearly pips? I didn’t really want to ask, but you like attacking.