Because it is extremely hard (and subjective) to determine where a trend starts and ends. If you can't do that, how can u calculate the retracement properly? One more thing, on a reversal I expect a more than 50% retracement and if it is under 50% it is not really reversal but a pullback.
The fallacy about trading is that this or that will work. New blood comes into the futures mkts at a consistent rate to replace the constant outflow of losers. Charlatan's unable to do the rubik cube of trading feed on the new blood with the "SOLUTION" while the small % of consistent winners clean out their wallets. Trading is gambling, the sooner you admit that the sooner you will understand what you are trying to accomplish. This is an "ODDS" based game for entry and a "RISK" based game on exit. Unless you know the odds of whatever signal you use as entry and also know where your "lunch point" is before you enter you will fail in futures trading. Your grandmother will confirm that as a general statement about life. The 50% retrace level question in this thread was immediately subjected to some coming in and saying use this or that instead of the 50%, ha. See what i mean about playing the odds? When someone says , NO, NO, do it this way or that way aside from what was originally posed to them you can be assured they are themselves still a babe in the woods and have not yet developed a winning, consistent strategy. A Winning strategy requires SOLID GOLDEN signals derived from heartaches, tears, broken marriages, running out of money maybe a couple times before it all "CLICKS". Guesswork and constant tripping over yourself while in a jungle of indicator mush is a sure way to feed the Lions and Tigers. There is NOT even a GOLDEN signal that will not usually bobble around like a bobber in the water while fishing until you get the BIG BITE you are looking for. The difference is many never understand that in trading because they have such short lives. Trading is NOT science, it is MORE art. That becomes obvious when some come in a thread and debunk a perfectly good SOLID , GOLDEN indicator like the 50% because they want a PERFECT game to play are are NOT equipped to gamble in an "ODDS" based game of chance. Winners have found what works for them and thats it............there is no other answer, either you DEVELOPE a winning strategy or you will be toast before Memorial day 2009. bighog is winding out for the end of year. i posted these couple posts to just give a little tough love to a few that indeed need some. Have a good year end. Could anyone have asked for a better year to trade?
It's interesting that the 50% level has nothing to do with Fibonacci numbers, but they use it anyway- it just 'looks' magical.
The best setup I have found for ES is from a 15 minute chart and calculating a Fib extension--ABC--from the previous high/low pivot points. This is almost an 80% probability fade setup. Good luck.
hopefully i can help shed some light on your inquiry! in response to your inquiry of 50%, i can not be sure where that comes from with 100% certainty, but while reading lots of books by old commodity traders published in the first half of last century there was a very common saying...."Two Steps Forward and One Step Back"...which implies the markets move & retrace 50%...others were more specific and stated that they "eyeballed" the chart and it looked like 50% from these books when Fibonacci studies were mentioned those pioneers felt that you used the impulse wave only for retracement levels on a complete wave or move if you will, not the subwave or smaller timeframe within that move and not at all on retracements. also during the later 19th and early 20th centuries the most common form of chart for technical analysis was the line chart of daily time frame of closing prices... perhaps you should consider their insights into trading, technical analysis, etc and do some serious study before forming an opinion that it does not work....maybe it is not the tool, but how you use it that is the problem. now to answer the other point of 38.2%, 61.8%, etc...perhaps these might be a refinement of what the old traders "eyeballed" with the math capabilities of other tools like calculators, computers, etc.....lastly don't forget the markets are dynamic
Today was another perfect 50% retracement. (although the up move hasn't started yet, we'll see) I was pretty surprised it happened with one bar though. <IMG SRC=http://elitetrader.com/vb/attachment.php?s=&postid=2202040>
I agree with da-net. The fib re trace zones are there to confirm if the prior move was real or not meaning; if there is a impulse up at some point it will re trace the up move (it wont go straight up) If the price holds at a fib support the chances of it extending the prior impulse move is higher than if it re traces to deep. The more it re traces the less the impulse was real and then if it falls below the .886 it is almost certain to test 100% (the low) or break the low. If it is a true impulse move up a normal pullback (or re trace) would be the 50% or the .618. You cant blindly just but the 50% or .618% there still has to be a buy signal, but knowing if the fib supports are holding will give you the direction the market is trending (higher highs, higher lows) . The (higher lows) is usually between the 50% - .618% as the market is trending higher. The trick is if you are in a 60 min down trend a 1 min impulse up with a minor .618 pullback is probably not buy able since the 60 min direction is down therefor someone could say the fib didn't work, but if you are trading in the bigger direction the fibs can be the best tool you can use in my opinion. P.S the impulse move must be a true impulse or you are drawing the fibs in on a meaningless move, which the fibs would then give you a meaningless result. TG989
On higher timeframes, the typical fibs work with excellent consistency and accuracy. However the biggest factor for determining what fibs to use is the price action that is occuring. I'll create zones using fibs on the higher timeframes, but smaller timeframes are a little more shoot-from-the-hip. Don't think of fibs as magical numbers, but rather as a way to define how far you expect a retracement to go. If you see impulsing price action, it might be a good idea to jump in around the 27.6 or 38.2. If you want to try and catch the end of a trend as it reverses you should be looking for the retest to be very deep to take a position. The 50% can be good for buying the dips on a moderate trend day. On higher timeframes its good when coupled with previous pivots in my experience.