Fibonacci Pullback Strategies

[Soultrader 12]

Many of you may be familiar with the 61.8% fibonacci retracement trades. I used to use plenty of fibs in my trading but have recently drifted away from it. However, fibs can not be ignored as they are followed by many traders and can play a critical role in price movement.

 

The 61.8% fib retracement is a commonly used setup by day traders. In this post, I have added one filter to this setup: FORGET the small swings and apply fibs to the bigger swings. Let me explain:

 

 

In this example, I have applied the fib lines from the swing low to the swing high. Im basically using fibs lines for moves of over 50+ points on the YM. I find that they work more effectly on a bigger swing rather than trying to use fib retracement strategies on a small price movement.

 

This is an example of a 61.8% fib retracement failure using a 38 point swing.

 

 

This chart below uses a 54 point swing. Although price declined afterwards, the initial 61.8% retracement setup would of worked for 20+ points.

 

 

 

Of course there are many different techniques to use fibs in your trading. But for those who are familiar with some of my setups through the chat room, I will be looking to apply this one into my trading. I have used this technique in the past successfully but am now incorporating a stricter rule of 50 points. Why 50? Fib setups is just an extra in my trading since I am mainly a pivot and MP based trader. 61.8% fib retracements seem to work fairly well in a 50+ swing move so will be looking to take this setup whenever it happens. From the look of it, I'll be lucky if I get it once every 2 trading days.

 

Please leave me your feedbacks. Thanks

[MrPaul 10]

Thanks for the detailed post Soul. I have been taking a closer look at fib levels ever since I have been noticing them on the ER2. I see there are a couple new members who use fib studies, I'll be interested to see where this discussion may lead...

[torero 10]

Welcome back to fib fold, soul! I don't use fibs as religiously as others but 50% fib level cannot be ignored (it's the same level as Pivot point in Floor Trader Pivot calculation), this is automatically 2 cluster points in 1. Extremely reliable.

[Sniper 10]

Nice charts soultrader

 

It's good to hear that you're using fibs back.

 

I've been using fibs for 15 years and it's my weapon of choice for trading.

 

I would like to add some suggestions

 

first, I strongly suggest not to use fib retracements on tick charts. I have traded with fibs in all forms/shapes/gann's elliot waves etc available on this earth and tick charts don't give you an accurate pattern most of the time. I don't say they can't be used on tick charts but fibs are more related to actual time .

 

As for your swing filter, I prefer the ones who have minor corrections(pullbacks) built in.

 

Just a short explanation here. Fibs are a combination of price/pattern and time. That's one of the reason fibs are widely misunderstood.

 

Another suggestion is to have a target. Many fibs traders are counting cycles (waves). Well that's good, but has to be done under the light of time. Some others has a fixed price target. I personally use a combination of the two. Has been more efficient to me.

 

I used to manually count cycles. I recently switched to a broker who has a time cycle tool. It helps you to time how long you'll reach to your desired profit target( not to the T but they work really good most of the time). The minute I see a C correction, I begin to draw profit target lines and time cycles. I also use extensions but in that I am very discretionary.

 

When I started trading, after try all indicators, bells and whistles know to man, I decided that I will have a better understanding of the market, I will have to use a tool that's forward- approach to instead of past history

 

Andrew's pitchfork, pivot points, fibs, S/R Regresion channels and even trendlines have this particular forward approach to the market I was looking for. Because of that, a lot of discretion is applied and many times traders falls into a real discretionary nightmare. You have no idea how many nights I spent calculating and backtesting charts using ganns, elliot waves and fibs until one day I decided to get rid of plenty of stuff I had already built in and keep only fibs and time cycles.

 

My trading improved dramatically when I decided to keep what I choose to be my way for trading and not to incorporate anything else. The thing is , fibs or not fibs, many traders are in this constant quest looking to mix all kind of things and when something doesn't work, they keep moving on to the next brand-new indicator until they get frustrated and sadly out of the market for good and pocket empty.

 

Back to the fibs, My humble advice is to keep it simple as they are. They're just guides. Have an entry, exit and stop-loss points already in place and when you hit the signal, just go for it. Don't hesitate. Fibs are not always right, but they work enough times to give you a statistical edge

 

My charts are brand new. I am still getting familiar with the whole package, but as soon as I learn how to screen capture a chart, I will show you how I trade, with precise entry and exit points and how to deal with a broken fib(because you'll have broken fibs along the way for sure) .

 

Regards

[Soultrader 12]

Thank you for the comments Sniper. I would be very interested in hearing more about your fib setups. Regarding exit points, I find that a good initial target would be just shy of the previous swing high. Usually a good level to scale out.

 

I find that a combination of the 61.8% retracement line with a pivot adds further strength to the support level. I'll find some setups this coming week and will post some charts on it.

 

Im not too familiar with cycles and how one can apply it to exits. Perhaps you can help clear this up for me? Thanks

[torero 10]

 

Andrew's pitchfork, pivot points, fibs, S/R Regresion channels and even trendlines have this particular forward approach to the market I was looking for. Because of that, a lot of discretion is applied and many times traders falls into a real discretionary nightmare. You have no idea how many nights I spent calculating and backtesting charts using ganns, elliot waves and fibs until one day I decided to get rid of plenty of stuff I had already built in and keep only fibs and time cycles.

 

Regards

 

Hi Sniper and welcome to TL! I wanted to ask you about the time cycles. Is the cycle fib calculation as well? In Tradestation, there is a fib time calculation tool but I've never found any good reading material in applying it but am very curious to learn. If this is not it, would like to your how you use yours.

 

[momentom 10]

There's a program out there that you may want to look at:

Elliott Wave software for trading Stocks Commodities Futures and Forex

 

It is basically a fib pullback and projection software with position sizing. It uses ABC waves.

[Anonymous 11]

Welcome back to fib fold, soul! I don't use fibs as religiously as others but 50% fib level cannot be ignored (it's the same level as Pivot point in Floor Trader Pivot calculation), this is automatically 2 cluster points in 1. Extremely reliable.

 

 

Please explain. If pivot is (H+L+C)/3 and 50% fib level would be from significant high to significant low (H+L)/2, how is this the same number? Are you speaking of a particular case, or are you saying it is always the same?

[Anonymous 11]

I love the whole "universal numbers" that govern the heavens and the earth aspect of Fibs. I also like Murrey Math for the same reason. They are interesting concepts to think about and in some ways connect one to the greater whole. Trading, however, is a different story.

 

My main problem with Fibs was when to apply them. I will give a brief tale (example):

 

Price is in an up trend for last 10 periods. On period 11 price closes down. I ask myself, " Is this the start of the retrenchment? One down period does not a retrenchment make." The next period, price again closes lower. Now two periods down is obviously more than one, but are we in a pull back ? The 2 period pull back doesn't seem like much at this point. So right now, I will wait to see what happens. Now this is the kicker. On the next period, price trades down then closes on its high and higher than previous period. I read in a blog, or hear an analyst on CNBC say, that price in this market retraced 38% intra period and closed higher as all the people watching that key level entered. I thought I was one of them, but I never got to put the FIbs on. Looking back at the chart it becomes clear. I call my broker for a price fill some time in the past, and they hang up on me.

 

Maybe it's just me, but things like that are one reason why I don't use Fibs. When I did use indicators, you can believe they all had periods of some length like 3,5,8,13,21,34,55,89............... or Music Math numbers like 8,16,32,64. Dynamic support/resistance levels like those of Market Profile came to my rescue.

[Soultrader 12]

I love the whole "universal numbers" that govern the heavens and the earth aspect of Fibs. I also like Murrey Math for the same reason. They are interesting concepts to think about and in some ways connect one to the greater whole. Trading, however, is a different story.

 

My main problem with Fibs was when to apply them. I will give a brief tale (example):

 

Price is in an up trend for last 10 periods. On period 11 price closes down. I ask myself, " Is this the start of the retrenchment? One down period does not a retrenchment make." The next period, price again closes lower. Now two periods down is obviously more than one, but are we in a pull back ? The 2 period pull back doesn't seem like much at this point. So right now, I will wait to see what happens. Now this is the kicker. On the next period, price trades down then closes on its high and higher than previous period. I read in a blog, or hear an analyst on CNBC say, that price in this market retraced 38% intra period and closed higher as all the people watching that key level entered. I thought I was one of them, but I never got to put the FIbs on. Looking back at the chart it becomes clear. I call my broker for a price fill some time in the past, and they hang up on me.

 

Maybe it's just me, but things like that are one reason why I don't use Fibs. When I did use indicators, you can believe they all had periods of some length like 3,5,8,13,21,34,55,89............... or Music Math numbers like 8,16,32,64. Dynamic support/resistance levels like those of Market Profile came to my rescue.

 

Im not a HUGE fan of fibs either. But just build your own set of rules on when to apply fibs to your trading setup. Maybe they do not fit into your trading concept. I personally do not use a ton of fibs on the daily charts but with intraday swings I may apply them. I know several excellent fib based traders... fibs are accepted by many traders just like pivot points and market profile. Which is why they simply can not be ignored. Just my 2 cents.

[torero 10]

Please explain. If pivot is (H+L+C)/3 and 50% fib level would be from significant high to significant low (H+L)/2, how is this the same number? Are you speaking of a particular case, or are you saying it is always the same?

 

I'm not saying they are the same, but many times (days) they coincide or close to it, it's repeated over and over again.

 

Regarding your other question about fibs, sniper has mentioned they are guides and nothing more, they are not sure fire spots for entries. I place the levels on my charts, they don't mean anything until prices react to them, favorably or unfavorably. Like anything else, nothing is pure science so nothing works 100%. We all get faked out and stopped out even when we think it looks like a rejection, it turns and heads in the same direction and pierces the levels. It happens, but like I said, when there are more than 2 calculations coincide (be it VOP of MP with Pivot and/or Fib), chances are higher prices will react to them.

[Sniper 10]

Torero

 

Thanks for welcome me to the forum! I think what you have is a fib time ratios tool. The one I use is called "cycle finder" It calculates how many bar/candles are between the initial swing(a) to the retracement © I use to do that manually, now I have some charts that has this little tool. You can do it manually too, simply count how many bars from a-c and there you have it. If you had already an entry, let's say on C, and from A-C you have 13 bars, then it will give you an estimate time frame(13 bars) in which you can reach your target. Cycle finder helps you to stay on a trade longer. It's just a guide. Please remember there's nothing for certain in the markets. But it's a good helper guide, I've been using it for years now.

 

Pivot Profiler

 

As soultrader said at the beginning, you need to qualify the initial wave in order to have a valid fib. That's called a "swing filter" I don't know what you trade but for ER2 (my favorite mini) anything less than 40 ticks It's not for me.

 

Also for the swing filter, I try to avoid those that don't have minor corrections on the way. Sometimes I take them but that's another story.

 

Like I said, I don't know which market you trade. But if you don't have a swing filter , you simply don't have a valid fib . If your fib comes down and passes .786 area, then you have a broken fib.

 

Listen people, don't fall into a discretionary nigthmare like I did some time ago. If you like to be complicated and you're a mathematician who needs to be analytical and precise like a swiss watch in order to make money, well throw all kind of bells and whistles to the mix and my hats off to you. I sincerely respect that as not every trader posses the same personality. I like for my trading style to be simple and my charts to be as clear as possible.

 

If you're curious about fibs and after a while you decide they fit into your trading style and personality, my advice is to use them on it's pure and simple form. As they come.

 

PD: If anybody is familiar with trade navigator from genesis, I need a little hand, please. I am trying to do a screen capture but I can't find it anywhere.

 

Regards

[torero 10]

Hi Sniper, thanks for sharing your cycle finder. I'll try it out. You can find a free screen capture tool here:

 

http://www.faststone.org/DN/FSCaptureSetup52.exe

 

I use this one, easy, simple like you! LOL.

[Soultrader 12]

Hello Sniper

 

Very interesting concept with the time cycles. You are the first trader I have met that applies them to trading. Exit targets based on time.... very interesting.

 

As for keeping it simple.. I would have to agree with your 100%. Many traders begin with a mindset that complexity is the key to trading success. The day their trading turns around is the day they realize that trading is simple.. but not that easy. I like to keep my trading as simple as possible but adjustments need to be made when your setups stop working.

 

Sniper, if you need a screen recording or screen capturing software pm me. Best of trading.

[Sniper 10]

well, I finally found it.

 

Here's a chart of an actual trade this past Friday. Notice that there's was an earlier retracement to .382 area but I didn't take as it was 11:55 am. I avoid doldrums time at all cost. My entry was at 12:50PM, some sort of risky time for me but hey, you gotta be pushy sometimes.

 

Yellow vertical lines are cycle finder lines. As a rule I wait 2 cycles before taking profit. In this particular case, note that 2 cycle were passing closing time. I decided to take the 1st cycle as it was wide enough for a market play.

 

Notice that profit target was on a confluence of the fib extension, but the target failed. I pulled out at the end of the cycle. One of rules is not to leave any open orders before closing time.

[torero 10]

Excellent yet simple strategy, sniper! I see how you apply the time cycle. Very nice indeed!

[Sniper 10]

Here's a risky trade for today 1/22/2007 I enter off a pullback at .236 level, which means there was a strong downside trend As I don't know how long this trend will last I went in with 2 contracts. Notice how time cycles along with fib retracements played beautifully today. As you notice down on the charts, time of exit - 11:10 AM.

 

Regards

[Pismo10 10]

The biggest problem I have with Fibs is that I can justify just about any point on the chart using many Fibs of different highs and lows. So the big questions gets to be, which one of these many points is the important one......I have yet to figure this out.

[torero 10]

50% is the most important IMO. I used to use other areas, but it's not as reliable as this lelve.

 

I assume you know how to draw the top and bottom to make the levels. Go back and look, you'll be surprised how often it's stopped there. If it fails, then the trend is over and time to reverse positions.

[Soultrader 12]

Here is another fib retracement setup on the ER2. Unfortunately I did not see if until after the move

 

Great 61.8% retracement setup. Also on this day, 1/26/07... the TICK's started hitting 1000+ readings multiple times creating the impressive afternoon rally.

 

[tblack 10]

I am a newbie at TL and I want to say how impressive the wealth of knowledge is here. It is appreciated and I look forward to learning from all of you. Thanks

[trader273 10]

why did you dig up a thread thats almost a year old and not add anything of value to it?

[tblack 10]

How can you improve on perfection?

[trader273 10]

How can you improve on perfection?

 

umm...ok

 

Dont have any here at TL on ignore, but I think you may be the first, congratulations:cheers:. With the influx of newbies around here that feel the need to bump a post by saying "hi" or "wowzers thats really interesting", it's annoying as hell. I go my unread post and there are a bunch and about 99% are people like you bumping old old old threads with absolutely nothing to offer.