Fibonacci Retracements

Discussion in 'Technical Analysis' started by ToTrade, Feb 21, 2002.

  1. ToTrade


    If I wanted to buy on a retracement, how would I determine at which percentage retracement to buy, namely .382, .5 or .618?
    If I was to buy at .382, the price may fall past that to .5 and if I were to buy at .5 the price may fall past that etc... How do you determine which level to buy at, which level is actual support?
  2. stevet


    the first thing you need to make sure you understand is that there is not just one retracement in operation at any one time, there are multitudes of retracements at any one time, as well as extensions - but for me - fibonacci is a key trading aid, and works, but with noise on the US markets, less noise on the FTSE and quite cleanly on the DAX - and you can use it for outright positions or arbitrage
  3. Setting the time frame is as important as picking the right level.

    Just think of them as key levels. Sometimes it will drop, pause at a fib for a brief moment, then plummet right through. Sometimes it never even pauses.

    I'm a big fan of Leonardo of Pisa, filius Bonacci. He was noted for reviving ancient math concepts. The fib sequence was known to the Egyptians and maybe to societies before them. IMO there is more to the Fib ratios in nature than we now understand. It seems to permeate the universe.

    just fwiw
  4. Yes and God created the world in 0, 1, 1, 2, 3, 5, 8, 13, 21, 34 days.
  5. The validity (or invalidity) of Fib retracements to a particular case is primarily based on what the crowd is watching (which in the final analysis is true of all TA).

    So of greatest importance is picking the same high/low in the same timeframe that most of the trading crowd is looking at from which to calculate the Fibs. It's somewhat arcane in that respect.

    For example, if no one else is paying attention to the Fibs based on the high/low of the first 22 minutes of the day (a pretty good bet), it's not too likely there will be any valid action relative to your calculation. Whereas, if you're computing retracements based on say the first 60 minutes (a more common time period) or even better the most recent multiday swing (or an even longer term trend) you'll probably have better luck.

    Nothing especially magical about Fibs - special ratios aside, they're basically just approximating 1/3, 1/2, 2/3, etc.
  6. iiphos


    i used fibos as key areas to watch the market action. the market action will tell you if you should enter or not. retracements can go .236, .328, .5, .618 and head up/down or not bounce at all, or bounce and then head lower/higher. just picking entering at .382 or .5 or whatever is a losers game. let the market tell you when to enter.
  7. Just make sure you are paying attention at .436, .537 and .235 too, or any other random numbers you choose. They're just as likely to reverse there. The market will tell you which number is significant.

    Fibs are not a magic secret to money-making or anything like that, but they are everywhere in nature.

    This is an extrapolation that is just my opinion, but since they are in nature, even in the human body, then changes in crowd emotion might follow similar patterns to some extent. To say that they have no more value than a random number seems to be an oversimplification.

    just my 2 cents
  9. stevet


    The fact that they are in nature is ok, but for a trader the fact that they work in all markets and everyday is definetly more important.

    They work in markets because they are a perfect mathematical method to test for expansion and retraction.

    They are far superior to any other fractional method including 33% and 66% etc, although those and other levels do also act as support and resistance.
  10. Can you prove this assertion?
    #10     Feb 21, 2002