Skip to comments.Is Fibonacci simply a B/S system for stock market movements...or is it real?
Posted on 01/20/2014 4:28:48 PM PST by RoosterRedux
I have been a long time fundamental investor and have always done well with fundamentals.
Warren Buffet and his hero, Ben Graham, were my heroes. Ben Graham was taught to me in undergrad and grad school.
But as someone who specialized in math (operations research/economic modeling) in grad school, I am digging into the Fibonacci sequence to see if it holds any significance in stock trading.
As an aside, as I am getting older, I find myself wanting to increase the power of my portfolio (such as it is) by trading.
Hence, the Fibonacci factor.
Your thoughts please re: Fibonacci please?
BTW, the chart system I use is the Street Smart Edge from Charles Schwab (free). It isn’t perfect, but it is free.
“BTW, the chart system I use is the Street Smart Edge from Charles Schwab (free). It isnt perfect, but it is free.”
It isn’t free if it doesn’t work...
I think the “Big W” observation has more credence than Fibonacci.
I’ve been at this for a long long time.
The Fib fans when pressed will tell you that “It works, until it doesn’t”.
Elliot Wave is a cult. They use fibs, and will always blame themselves for their error, not the system.
There are many automated trading programs that use some form on Fibonacci, in this regard, it can become “self-fulfilling”.
When using a fib tool there are any number of theory’s about where you should “Start”. Should you take the “low point” or the “beginning” of the move ?
Btw, there are a boat load of “Free” analysis tools available. Free being the operative word.
That being said, Fibs are good as a “Supporting” tool. Not the only tool.
The shorter your time frame, the less effective they become.
So are willing to elaborate?
I haven't used it as a trading tool but I have found it rather correct on certain stocks and ETF's. On the stock I am following, it is on the money when producing upper resistance levels and lower support.
Yes, the .38 and .5 fibonacci is essential for trading.
I somehow thought it was B/S.
But Fibonacci is not Elliot Wave Theory. That said, it may be B/S...but it isn't EWT.
Could you please elaborate just a little?
Thx! Will check it out!
Greatest video ever on investing.
Here’s what I know.
I ran a Daytrading office back in the day and used virtually ever “tool” available to find trades. They worked until they stopped working. Some of them worked for weeks or months at a time, then nothing.
It comes down to “Risk management” and the consistent application of those rules. It’s the only way you can measure their usefulness over time. Most people can find something that seems to be working and they will increase their risk, since it seems to be working, and they will blow up their account.
If you consider probably the most famous group of traders, “The Turtles”, the guy that developed this trading system stated in a WSJ interview that “I could publish the rules for this trading system and well over 80% of people wouldn’t follow them”. Even if they knew that following the rules would make them money.
You need to develop a set of rules.
if this, and that, then, push the button.
Test it in real time. Backtesting doesn’t work.
Be consistent in your application so you can measure it’s effectiveness.
If you find something that always works.
Don’t tell ANYBODY. They will find it soon enough, so you need to maximize your profits while you can.
Best of luck.
Fibonacci is more of a confirmation indicator for me. It works similar to other well known indicators in that if enough people believe it works then it will. Lots of people throw up fibs waiting for a retrace and buy back at that point so if enough people believe it works. Other theory would be fibonaccis pretty much explain the universe so it has to work!
To be clear.
Fibonacci is not EWT, but EWT uses fibs.
I agree, Fibs are “confirmation” not “Justification”.
Rubbish. Technical trading is rubbish.
I started out as a fundamental investor/trader, I moved into trading, 100 plus trades a day, on technical’s and other market/price action based on “Market mechanics”.
Using indicators for primary decision making doesn’t work.
There are however, other ways to look at a chart then an opportunity to slap some Moving Avg’s, Fibs, RSI etc, in order to find trades.
Many years ago I read a book the title of which I believe the name was “The Encyclopedia Of Technical Market Indicators” first edition.
In it the authors did an analysis table of results of computer trading the NYSE index over the same years with each index. The chart showed the positive or negative lump sum results of the trades and how many trades, average trading length etc.
One column that stuck in my mind was the percent of winning trades. This showed me at the time that all the most popular trading indicators, most of which I forget the names, and were indices touted by Stockbrokers such as MACD, Stochastics and more had winning percentages in the mid 30% to the mid 40% level. The siimple 40 day moving average was 25% as a benchmark. That surprised me because my computer blackjack playing taught me that I did not start really making money until my winning percentage reached 55-60% wins.
Hidden away in the details and not presented in the table was a method called Trailing Reversal. If memory serves it is a percent or amount from a previous close that triggers a buy or sell.
What surprised me about that indicator was it had a much higher win ratio of about 66% if I remember correctly.
Now here is an indicator much less hoopla and math behind it with a better winning ratio. The book simply noted that it deserved better scrutiny than what they could provide.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.