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Thread: Introduction Fibonacci

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    Default Introduction Fibonacci

    Leonardo Pisano, better know as Fibonacci, explained the development of natural growing phenomenon through his famous numerical sequence. He proved that this series was highly connected with the growing of dynamics structures, and the most important use is relationated with its ratios.


    The objective of the present work is to demonstrate that the application of these rules, have an important probability of success in financial markets, and principally in FOREX.

    We start with the premise that the human society is a dynamic system, and its behavior is represented in financial markets through prices.

    That is the reason why we will try to prove that there is an important probability to predict the behavior of prices in Forex, joining Fibonacci numbers with Zig Zag Oscillator.

    So, we will try to determine the objectives zones, or where the prices tend to go using Fibonacci. We will study the prices corrections against the major trend

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    well doing copy and paste is everybody can do, I saw your are chasing your 100 posts, and exactly you add no more posting. maybe you never open this forum after all. I think you never read this though.

    Alright everybody, there is no point on this simple case of CNP from another web to here. It's wasting server database.

    You should at least give a description on how to use the Fibo tools, not some junk talk where I can googled it better than yours. And remember, you are posting in teacher's room.

    My essay:
    61.8 is critical point, along with 161.8 and 261.8. There are many buyers and shorter is waiting in area around here. I repeat "area", there are some is waiting with order several pips below the line, and some are waiting above the line. Using fibonacci is giving like a Support/Resistance line trading. It's linear bounce detector.

    61.8 usually will be go for 38.2 and verse, this is the most crowded session that every traders took. when it had passed 100.0, in common sense the 161.8 will be the next target. And finally the 261.8.

    Problem is how to pull a line FiboRet. As I said, it's an area, because big players pulls it within a boundary, means not in a precise lowest low (for e.g) candlestick. They can pull it along the resistance that had failed to break, and not the breakout low one. That's why you will find different location with not in precise scale of Fibo line. Because they play with the area nearby, not with the line.

    For precise, is combining Fiboret with Fibofans tool, this two tools had show a very good team-work along with the process. Fiboret for detecting linear S/R, and Fan is for diagonal bounce and retracement.

    Use them both well, it will give you a better trade in advance. Make analyze for it, and modificate it depending on which chart you are analyzing to suit your trade properly.

    When Fibo is in the right hand, it will be a powerful indicator for your trade. Not win a streak, but can minimize your losses better in advance.

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    Default Fibonacci part II

    How come the candle never reach the next retracement on right this movement?

    This is a bit snippets that is a hidden or another indicators that made it seems cannot pass through. It might just a EMA line between retracement, and it seems they are consolidating to go down first at this point.

    Example, you Long from 38.2 based with your analyzing, and targeting 61.8 as TP point. Then you wait, it's even not touching the base floor of 50.0, it's already goes down. What just had happened? You seek the draw line, any possible line of EMA, ahh it's been stucked by 200 EMA line.

    Now you wait, and it almost reach.. almost. Then big push of decline is coming in, and elsewhere it drops heavily from the 30 pips below of the line. What had just happened? You several pull the line to see whether you wrong in pulling. Nope? It's in the right position.

    The precise word in forex retracement is almost hard to be popped up, why? There is always a hidden spot where big players is trying to get out earlier. Then big major decline had taken place.

    As I said, playing with the area, don't get inside with the line. Because the noise is around the line and keep often been slicing. You will be get trapped and easily capitated in the middle of the war.

    This is what the Fibo Fans will become a helpful indicator to detect the unwanted reversal which might bring the trade turn back and make our trade in break even or hit the Stop Loss.

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    Default Fibonacci part III

    Fb Expansion

    This tools could help as profit targeting when as soon as the Swing pattern had been form with 2 Swing High and 1 Swing Low, or verse. This tools is also to detect the possible breakout and bounce from breakout session.

    Using a proper 3 Fibonacci will not only makes your trade in a real plan. But it will also give you a signal whether time to throw it out or not yet. FiboRet, FiboFans, and FiboExp is one of my indicators that had been in trading plans.

    How and When?
    Don't think it will be easily to learn the art of Fibo without learning and experiencing in live chart. Because besides we know in where the area it will impact, we still have a lot of work to do, to see possible reversal point which is hidden among those line. Entry is advisable in bigger TF analyzing and exit in some smaller TF retracement points. And last point, is to make a decision. Should this trade plan go along for more? Make the analyzing is depend to each traders demand.

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    I have problem with fibo, as i get confused, from where cold i start the draw, each time i make a zoom out of the chart appear new hi or low, so where is the exact point to draw?

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    No exact point. Random. Flexible.

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    Quote Originally Posted by aowaow View Post
    No exact point. Random. Flexible.
    if that was true, so the price must not respect it, as the price movement depends on the traders, if it was random so how the traders define there trades according to its level (i am saying that because the price does repect some fibo's )

    i know also that there is a period of nearly 10-** days to draw fibo lines in it,

    look at the attached image:
    Attached Thumbnails Attached Thumbnails fibo.jpg  

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    I prefer read a retracement/line as an area. Yes, price never respect any indicators. One time did, but never the twice exactly.

    Random. Some price hit exactly in the line. some make a gap nearby. some will create a fake whipsaw.

    Flexible. Even though you had pull it exactly in your favourite TF. By changing the TF time, it will be different in the decision point.
    Last edited by aowaow; 12-23-2007 at 08:54 AM.

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    Default

    Quote Originally Posted by aowaow View Post
    I prefer read a retracement/line as an area. Yes, price never respect any indicators. One time did, but never the twice exactly.

    Random. Some price hit exactly in the line. some make a gap nearby. some will create a fake whipsaw.

    Flexible. Even though you had pull it exactly in your favourite TF. By changing the TF time, it will be different in the decision point.
    Thank you, valuable difinitions

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    Default

    nice info...
    thx for sharing...

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    Default Anything About Fibonacci (1)

    Hey brother, this is a very complete fibonacci explanation, i hope this will be usefull :

    Fibonacci Who?

    We will be using Fibonacci ratios a lot in our trading so you better learn it and love it like your mother. Fibonacci is a huge subject and there are many different studies of Fibonacci with weird names but were going to stick to two: retracement and extension.

    Let me first start by introducing you to the Fib man himselfLeonard Fibonacci.

    Leonard Fibonacci was a famous Italian mathematician, also called a super duper uber geek, who had an aha! moment and discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe

    The ratios arise from the following number series: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144

    This series of numbers is derived by starting with 1 followed by 2 and then adding 1 + 2 to get 3, the third number. Then, adding 2 + 3 to get 5, the fourth number, and so on.

    After the first few numbers in the sequence, if you measure the ratio of any number to that of the next higher number you get .618. For example, 34 divided by 55 equals 0.618.

    If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and thats as far as into the explanation as well go.

    These ratios are called the golden mean. Okay thats enough mumbo jumbo. Even Im about to fall asleep with all these numbers. I'll just cut to the chase; these are the ratios you have to know:

    Fibonacci Retracement Levels
    0.236, 0.382, 0.500, 0.618, 0.764

    Fibonacci Extension Levels
    0, 0.382, 0.618, 1.000, 1.382, 1.618

    You wont really need to know how to calculate all of this. Your charting software will do all the work for you. But its always good to be familiar with the basic theory behind the indicator so youll have knowledge to impress your date.

    Traders use the Fibonacci retracement levels as support and resistance levels. Since so many traders watch these same levels and place buy and sell orders on them to enter trades or place stops, the support and resistance levels become a self-fulfilling expectation.

    Traders use the Fibonacci extension levels as profit taking levels. Again, since so many traders are watching these levels and placing buy and sell orders to take profits, this tool usually works due self-fulfilling expectations.

    Most charting software includes both Fibonacci retracement levels and extension level tools. In order to apply Fibonacci levels to your charts, youll need to identify Swing High and Swing Low points.

    A Swing High is a candlestick with at least two lower highs on both the left and right of itself.

    A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.

    Let's take a closer look at Fibonacci retracement levels...

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    Default Anything About Fibonacci (2)

    Fibonacci Retracement

    In an uptrend, the general idea is to go long the market on a retracement to a Fibonacci support level. In order to find the retracement levels, you would click on a significant Swing Low and drag the cursor to the most recent Swing High. This will display each of the Retracement Levels showing both the ratio and corresponding price level. Let’s take a look at some examples of markets in an uptrend.

    This is an hourly chart of USD/JPY. Here we plotted the Fibonacci Retracement Levels by clicking on the Swing Low at 110.78 on 07/12/05 and dragging the cursor to the Swing High at 112.27 on 07/13/05. You can see the levels plotted by the software. The Retracement Levels were 111.92 (0.236), 111.70 (0.382), 111.52 (0.500), and 111.35 (0.618). Now the expectation is that if USD/JPY retraces from this high, it will find support at one of the Fibonacci Levels because traders will be placing buy orders at these levels as the market pulls back.


    Now let’s look at what actually happened after the Swing High occurred. The market pulled back right through the 0.236 level and continued the next day piercing the 0.382 level but never actually closing below it. Later on that day, the market resumed its upward move. Clearly buying at the 0.382 level would have been a good short term trade.


    Now let’s see how we would use Fibonacci Retracement Levels during a downtrend. This is an hourly chart for EUR/USD. As you can see, we found our Swing High at 1.3278 on 02/28/05 and our Swing Low at 1.3169 a couple hours later. The Retracement Levels were 1.3236 (0.618), 1.3224 (0.500), 1.3211 (0.382), and 1.3195 (.236). The expectation for a downtrend is if it retraces from this high, it will encounter resistance at one of the Fibonacci Levels because traders will be placing sell orders at these levels as the market attempts to rally.

    Last edited by desta_wp; 04-24-2008 at 09:54 AM.

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    Default Anything About Fibonacci (3)

    Lets check out what happened next. Now isnt that a thing of beauty! The market did try to rally but it barely past the 0.500 level spiking to a high 1.3227 and it actually closed below it. After that bar, you can see that the rally reversed and the downward move continued. You would have made some nice dough selling at the 0.382 level.


    Heres another example. This is an hourly chart for GBP/USD. We had a Swing High of 1.7438 on 07/26/05 and a Swing Low of 1.7336 the next day. So our Retracement Levels are: 1.7399 (0.618), 1.7387 (0.500), 1.7375 (0.382), and 1.7360 (0.236). Looking at the chart, the market looks like it tried to break the 0.500 level on several occasions, but try as it may, it failed. So would putting a sell order at the 0.500 level be a good trade?


    If you did, you would have lost some serious cheddar! Take a look at what happened. The Swing Low looked to be the bottom for this downtrend as the market rallied above the Swing High point.


    You can see from these examples the market usually finds at least temporary support (during an uptrend) or resistance (during a downtrend) at the Fibonacci Retracements Levels. Its apparent that there a few problems to deal with here. Theres no way of knowing which level will provide support. The 0.236 seems to provide the weakest support/resistance, while the other levels provide support/resistance at about the same frequency. Even though the charts above show the market usually only retracing to the 0.382 level, it doesnt mean the price will hit that level every time and reverse. Sometimes itll hit the 0.500 and reverse, other times itll hit the 0.618 and reverse, and other times the price will totally ignore Mr. Fibonacci and blow past all the levels like similar to the way Allen Iverson blows past his defenders with his nasty first step. Remember, the market will not always resume its uptrend after finding temporary support, but instead continue to decline below the last Swing Low. Same thing for a downtrend. The market may instead decide to continue above the last Swing High.

    The placement of stops is a challenge. Its probably best to place stops below the last Swing Low (on an uptrend) or above the Swing High (on a downtrend), but this requires taking a high level of risk in proportion to the likely profit potential in the trade. This is called reward-to-risk ratio. In a later lesson, you will learn more money management and risk control and how you would only take trades with certain reward-to-risk ratios.

    Another problem is determining which Swing Low and Swing High points to start from to create the Fibonacci Retracement Levels. People look at charts differently and so will have their own version of where the Swing High and Swing Low points should be. The point is, there is no one right way to do it, but the bad thing is sometimes it becomes a guessing game.

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    Default Anything About Fibonacci (4)

    Fibonacci Extension

    The next use of Fibonacci you will be applying is that of targets. Lets start with an example in an uptrend.

    In an uptrend, the general idea is to take profits on a long trade at a Fibonacci Price Extension Level. You determine the Fibonacci extension levels by using three mouse clicks. First, click on a significant Swing Low, then drag your cursor and click on the most recent Swing High. Finally, drag your cursor back down and click on the retracement Swing Low. This will display each of the Price Extension Levels showing both the ratio and corresponding price levels.

    On this 1-hour USD/CHF chart, we plotted the Fibonacci extension levels by clicking on the Swing Low at 1.2447 on 08/14/05 and dragged the cursor to the Swing High at 1.2593 on 08/15/15 and then down to the retracement Swing Low of 1.2541 on 08/15/05. The following Fibonacci extension levels created are 1.2597 (0.382), 1.2631 (0.618), 1.2687 (1.000), 1.2743 (1.382), 1.2760 (1.500), and 1.2777 (1.618).


    Now lets look at what actually happened after the retracement Swing Low occurred.

    * The market rallied to the 0.500 level
    * fell back to the retracement Swing Low
    * then rallied back up to the 0.500 level
    * fell back slightly
    * rallied to the 0.618 level
    * fell back to the 0.382 level which acted as support
    * then rallied all the way to the 1.382 level
    * consolidated a bit
    * then rallied to the 1.500 level


    You can see from these examples that the market often finds at least temporary resistance at the Fibonacci extension levels - not always, but often. As in the examples of the retracement levels, it should be apparent that there are a few problems to deal with here as well. First, there is no way of knowing which level will provide resistance. The 0.500 level was a good level to cover any long trades in the above example since the market retraced back to its original level, but if you didnt get back in the trade, you would have left a lot of profits on the table.

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    Default Anything About Fibonacci (5)

    Another problem is determining which Swing Low to start from in creating the Fibonacci Extension Levels. One way is from the last Swing Low as we did in the examples; another is from the lowest Swing Low of the past 30 bars. Again, the point is that there is no one right way to do it, and consequently it becomes a guessing game.

    Alright, lets see how Fibonacci extension levels can be used during a downtrend. In a downtrend, the general idea is to take profits on a short trade at a Fibonacci price extension level since the market often finds at least temporary support at these levels.

    On this 1-hour EUR/USD chart, we plotted the Fibonacci extension levels by clicking on the Swing High at 1.21377 on 07/15/05 and dragged the cursor to the Swing Low at 1.2021 on 08/15/15 and then down to the retracement High of 1.2085. The following Fibonacci extension levels created are 1.2041 (0.382), 1.2027 (0.500), 1.2013 (0.618), 1.1969 (1.000), 1.1925 (1.382), 1.1911 (1.500), and 1.1897 (1.618).


    Now lets look at what actually happened after the retracement Swing Low occurred.

    * The market fell down almost to the 0.382 level which for right now is acting as a support level
    * The market then traded sideways between the retracement Swing High level and 0.382 level
    * Finally, the market broke through the 0.382 and rested on the 0.500 level
    * Then it broke the 0.500 level and fell all the way down to the 1.000 level


    Alone, Fibonacci levels will not make you rich. However, Fibonacci levels are definitely useful as part of an effective trading method that includes other analysis and techniques. You see, the key to an effective trading system is to integrate a few indicators (not too many) that are applied in a way that is not obvious to most observers.

    All successful traders know its how you use and integrate the indicators (including Fibonacci) that makes the difference. The lesson learned here is that Fibonacci Levels can be a useful tool, but never enter or exit a trade based on Fibonacci Levels alone.

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