The following text is from today's column in Innerworth. Since I could not say it any better myself, I just copied and pasted it for your reading pleasure. The Golden Mean: Real Trading Phenomenon or Just Wishful Thinking? If you've spent any time around trading, you've probably run into the Golden Mean. You may have seen it represented as Fibonacci lines on a price chart. The Fibonacci sequence is a string of numbers in which two consecutive numbers are added together to produce the third, for example, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, and so on. Some traders use ratios derived from the Fibonacci number series to define key support and resistance levels, often with the belief that such estimates are more "natural" because they are based on the Fibonacci sequence. Fibonacci claimed that consistent patterns could be found in what appeared to be random numbers. Subsequent followers of Fibonacci extended his theory to the trading of futures and stocks as they attempted to find patterns in random price activity. But are there "natural and pristine" patterns in the seemingly random movements of prices, or is it just wishful thinking? One way of calculating the Golden Mean Ratio is to add two random numbers together. That result is then added to the sum. After eight reverberations, one can divide the former number into the latter and find a definable pattern, which is represented mathematically as 0.618 or its reciprocal, 1.618. This Golden Mean is thought to reside in the most beautiful architecture, music and art. It is commonly found in nature in the structure of many of the most beautiful flowers, animals, and seashells. Greek philosophers and mathematicians saw the Golden Mean as significant because it illustrated balance in nature, the arts, and even the human body. It was the epitome of balance-the perfect shape ⦠the most pleasing vision. In the natural world, it is amazing how consistent patterns abound, but when it comes to human behavior, social scientists have long known that such consistencies are rare and almost non-existent. And what is trading? It is human behavior. It's not a natural phenomenon, but made up by humans. It's not perfect. It's not pristine. It is in disarray and unpredictable. To be a successful trader, one must accept the uncertainty of human behavior and engage in the daunting task of finding consistency where there is little. Nevertheless, many traders find ideas, such as the Fibonacci number sequence, fascinating, almost mystical. But not all traders appreciate the beauty of the Fibonacci number sequence. Indeed, the Editor of a popular trading magazine noted that there might be nothing mystical about the sequence. It may seem to work merely by coincidence (the market is likely to correct somewhere between one-third and two-thirds of the previous trend, which is similar to the commonly used Fibonacci ratios of .382 and .618.) Where you stand on such issues may reveal a lot about your trading personality. Many traders are drawn to the superstitious aspects of trading. They don't have confidence in themselves, so they start searching for methods based on the "laws of nature" that can give them a solid, yet false, sense of reassurance. They seek out universal and general rules, all in an attempt to seek out certainty and the security it provides. Concepts, such as the Fibonacci number sequence, do just that. They offer promise. One has the luxury of not believing in oneself, but in the greater omnipotent laws of nature. It's like believing in luck, fate, or destiny. One can chose to live one's life passively believing in external forces, waiting for the proverbial stars to line up in one's favor. But the most successful members of society don't have time to wait for fate or to depend on luck. And if you want to be a profitable trader, or stay that way, it would be wise to abandon any forms of superstition. The surest way to success is to build up your trading skills. Build them up to the point that you can't wait for so-called "luck" to move against you so that you can demonstrate your actual fortitude. With solid trading skills, and the rock solid confidence it will give you, you'll find that you can accept the uncertainty involved in trading the market, and depend on you, your skills, and nothing else.
My dear IGNORANT friend, It is not plagiarism, since I am not taking credit for the text. Rather, I am quoting it. I have neither a paid subscription with Innerworth nor an ownership interest in it. What you have read is available for free. I am passing on free information. Any other questions? If not, then go keep a watchful eye on your neighbors for suspicious or subversive activity.
I am a subscriber to Innerworth and was surprised to read this article. They usually aren't so judgemental and especially regarding a trading method the writer seems to know nothing about. I'm sure in the writer's mind it is acceptable to use lagging indicators based on past price action because they are mechanical and used by most traders. Joe Dinapoli in his book, "Trading With Dinapoli Levels, the Practical Application of fibonacci Analysis" set out a method of trading fibonacci levels and also incorporating popular lagging indicators for help in determining trend and entry/exit. This man's background is in Electrical Engineering and Economics. Not exactly pie in the sky stuff. The bottom line is that the more you trade utilizing fib levels properly, the more you see it working. Innerworth reminds me of those in the fundamentals camp laughing at technical traders. I think no two traders are alike and if you find something that works, isn't that what all of this is about?
Was this guy serious? If so, then he is a moron. And if he is a moron - what does it make you for rehashing such jibber-jabber... Get a clue man...
Actually, I read the Innerworth column occasionally and, unless I am mistaken, it seems to focus more on the technical side of trading rather than the fundamental. Sorry, but your trying to connect the dots between electrical engineering & economics, and Fibonacci numbers is something of a stretch in my opinion. Forgive me, but I just happen to share the writer's opinion that Fibonacci numbers are a crutch. You may wish to take it up with him. Regards, Thunderdog
My dear Specul8r, If you actually read the column as I copied and pasted it, then you would see that the writer of that column believes that Fibonacci numbers give traders a false sense of reassurance in trading; essentially, that such numbers are a crutch. I just happen to share that view and, from what I gather by your comments, however rude, so do you. And yet, we seem to be at odds. Is it because you did not read the whole column before you decided to criticize it? If so, that is unfortunate. Perhaps, if you have an attention deficit issue, you may wish to have someone else read it for you and paraphrase it in simpler terms for your benefit. Then you may wish to come back and be insulting. Hope that helps. Regards, Thunderdog
Thunder, I'm not too proud to admit that I have made a mistake. When I first read the sentence that I quoted above - I mistakenly read it as "Fibonacci claimed that consistent patterns could be found in the stock market from what appeared to be random prices". And I immediately said to myself that for someone so outspoken and ready to critisize the matter at hand -- the guy could know his history... At any rate, I won't say anything about what he wrote except that his assumptions are not in accord with my own experiences... PEACE and good-specul8tion...