50% retracements

Discussion in 'Technical Analysis' started by ang_99, Nov 29, 2008.

  1. Is there anything to them or is it just more hocus pocus?
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  3. =================
    QQQQ bounced @ that area, then went 80% down +, peak to valley:D
  4. Mav88


    It's just human mind games, we are meaning/pattern seeking creatures. People will assign anything in the 40-60% area as a 50% retracement, combine that with assigning things in the 62-72% and 32-42% area as a fib retracements you have covered most retracements by assigning them some sort of meaning.
  5. Sure, there's "something" to them. Check out the charts and you can find HUNDREDS of such retracements...

    Doesn't mean we'll get one this time.
  6. It's not just the 50% retracement that you should be "aware" of . . . but also the standard fibonacci retracements of 38.2% and 61.8% which come into play the majority of the time.

    Based in nature, these retracements can be found to occur with mind-blowing consistency in the markets.
  7. I guess the way to look at them is as a loose guide.

    Fundamentally, retracements in a down or up trend are a real explainable pattern (early profit taking and short covering).

    I guess the 50% marker can best be used as a simple guide that tells you to start looking for a more precise entry in the direction of the overall trend.
  8. nkhoi

    nkhoi Moderator

    it depends how you look at it, which statement is correct? buy when it crosses 888 or sell when it crosses 888
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  9. Mav88


    It's not just the 50% retracement that you should be "aware" of . . . but also the standard fibonacci retracements of 38.2% and 61.8% which come into play the majority of the time.

    Based in nature, these retracements can be found to occur with mind-blowing consistency in the markets.

    I just explained how these 3 retracements cover just about most, and so are meaningless. People always say the 50% 'area' which means pretty much anything 40-60%. It's kind of stupid when you stop to think about it, confirmation bias at its finest.

    Fibonacci is not based in nature, it is just a recursion relation and it is just one of many. Nothing special here aside form the hyped pseuso science. For a good debunking see http://www.lhup.edu/~dsimanek/pseudo/fibonacc.htm

    A search of the internet, or your local library, will convince you that the Fibonacci series has attracted the lunatic fringe who look for mysticism in numbers. You will find fantastic claims:

    The "golden rectangle" is the "most beautiful" rectangle, and was deliberately used by artists in arranging picture elements within their paintings. (You'd think that they'd always use golden rectangle frames, but they didn't.)
    The patterns based on the Fibonacci numbers, the golden ratio and the golden rectangle are those most pleasing to human perception.
    Mozart used f in composing music. (He liked number games, but there's no evidence he ever deliberately used f in a composition.)
    The Fibonacci sequence is seen in nature, in the arrangement of leaves on a stem of plants, in the pattern of sunflower seeds, spirals of snail's shells, in the number of petals of flowers, in the periods of planets of the solar system, and in stock market cycles. So pervasive is the sequence in nature (according to these folks) that one begins to suspect that the series has the remarkable ability to be "fit" to most anything!
    Nature's processes are "governed" by the golden ratio. Some sources even say that nature's processes are "explained" by this ratio.
    Of course much of this is patently nonsense. Mathematics doesn't "explain" anything in nature, but mathematical models are very powerful for describing patterns and laws found in nature. I think it's safe to say that the Fibonacci sequence, golden mean, and golden rectangle have never, not even once, directly led to the discovery of a fundamental law of nature. When we see a neat numeric or geometric pattern in nature, we realize we must dig deeper to find the underlying reason why these patterns arise.

    The "golden spiral" is a fascinating curve. But it is just one member of a larger family of curves/spirals collectively known as "logarithmic spirals", and there are still other spirals found in nature, such as the "Archimedian spiral." It's not difficult to find one of these curves that fit patterns found in nature, even if those patterns are only in the eye of the beholder. But the dirty little secret of all of this is that when such a fit is found, it is seldom exact, and considerable variations from the "golden ideal" are seen in nature. Sometimes curves claimed to fit the golden spiral actually are better fit by some other spiral. The fact that a curve "fits" physical data gives no clue to the underlying physical processes that produce such a curve in nature. We must dig deeper to find those processes.


    It's not difficult to find examples of most any pattern or mathematical relation you want. Then some people make the mistake of supposing this reveals some mystical governing principle in nature. This is reinforced by ignoring equally important cases that don't fit the pattern. If the fit isn't very good, approximate or fudge the numbers. If some things remain that ought to fit but don't, just rationalize a reason why they are "special cases".


    I remarked that stock traders and investment counsellors these days often use Fibonacci ratios in guessing their predictions. There is even computer software for making market predictions that claims to use "Fibonacci methods". One only has to eavesdrop on the websites and forums these people frequent to discover that many of them still believe in the "magic of numbers". Whole books tout these methods, with testimonials to their success, and these do make money, for those who write the books. One fellow who uses Fibonacci ratios frankly admits that they may not be "magic" but they do make his presentation charts look more impressive to clients. Of course the efficacy of such methods has never been scientifically tested. And why should anyone waste the effort?
    One such fellow emailed me, complaining about my negative comments. I soon discovered that this fellow was a sucker for all sorts of pseudoscientic numerology. He even tried to tell me how valuable was the Martingale system, popular in 18th century France and still used by some gamblers. It's simple. Each time you win you make the same size bet the next time. When you lose, you double the size of your bet the next time. Of course, any "system" can work in the short run, once in a while. But in the long run (when played for a long time, or many times) it has no advantage, and while your chance of winning in the short run may seem to be improved, your chance of losing big increases the longer you play. Statisticians have analyzed such systems and concluded they are deceptions, but gamblers are often susceptible to such deceptions. And what is the stock market, but a gambling game with confounding variables, and with the players themselves affecting the odds?

    Then this guy tried to tell me that Fibonacci numbers show up more often in lottery numbers. He could provide no data supporting that. Then he claimed they show up more often in the digits of phone numbers in the phone book. Well, duh? Of the digits 0 through 9, six are Fibonacci digits (0, 1, 2, 3, 5, 8) and four are not (4, 6, 7, 9), so Fibonacci digits should show up about 60% of the time. No great mystery there. The only example he could produce, from his own "extensive research", was a set of 200 phone numbers, 65% of the digits being Fibonacci digits. That's well within the limits of error for that small size sample.

    Some say that you can increase your success in the stock market by rolling dice or throwing darts to make your choices. Such investments will, in the very long run, averaged over many investors, do as well as if you used a broker, and you won't have to pay the broker's fee. I am sure there are brokers who shun mystical and magical formulas, but I remain unconvinced that even they earn their large fees.

  10. Then why aren't the vast majority of traders rich from employing them? After all, Fib numbers are not a well kept secret.
    #10     Nov 29, 2008