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Harvey,
I'm not sure I understand the logic that the Fibonacci behavior
is more social construct than a natural effect just because
of the lack of decimal precision. Since most instruments trade down to
a precision 3 decimal places, it would be impossible to use true
Fibonacci precision.
Many of the cases of Fibonacci phenomenon in nature would not
be exactly precise either. Mathematically which is the
correct Fibonacci ratio? Take a look at the relationship between
the first 10 Fib numbers you will see that the ratios are not
mathematically identical. As the neighboring Fib numbers become
larger the ratios become more similar, but it is not necessary
to limit our thinking to absolutes. I do stick to .618, 1.618,
.382, 1.382 etc. rather than 3/8 and 5/8 though just out of habit..
It is important too that beginners realize that one of the basics
rules of Fibonacci trading is that you do not expect to place
your buy and sell orders at exact Fibonacci nodes. Fibonacci
trading tactics leave room for subjective decisions, precision
is not vital.
Perhaps readers should imagine the word "almost" before the word
Fibonacci when dealing with trading methods. As in "Neal uses
Almost Fibonacci tactics"...
-Neal.
At 04:45 PM 12/19/97 -0600, Harley Meyer wrote:
>Let me throw a fly in the ointment of Fibonacci here. I would say that
>most folks would not argue with me if we said that a fib retracement of
>0.618 is approximately 2/3 and .382 is approximately 1/3. Likewise
>0.61803999 is approximately 0.618. So do I place my trade or support
>line at the fib number or at the other fractions. Since they are very
>close.
>
>The point that I am trying to make is that in mathematics everything is
>defined to have a very specific meaning. For example 0, 1, 1, 3, 5, 8,
>... is defined to be the fibonacci sequence. 0, 2, 4, 6, 8, ... is NOT
>the fibonacci sequence, by definition. The "NOT" that I am using is the
>'logical' not that turns a true statement into a false statement and
>vice versa.
>(I hope you can see where this is going by now.)
>
>So if the retracement was actually 0.61803999999999999... which isn't a
>fibonacci number then the retracement isn't fibonacci. Some ratios that
>are observed in nature that are fibonacci are exact, not approximations.
>
>Hopefully this takes us back to trading using Fibonacci techniques is
>more of a social construct than being one with nature. Let alone by
>definition it isn't even Fibonacci, since an approximation of a
>Fibonacci number is Not a fibonacci number.
>
>Just something to think about.
>
>Harley
>
>Neal Hughes wrote:
>
>> Walt, Tom, (Realtraders),
>>
>> This is an interesting discussion.. I've looked at some old charts,
>> and it
>> is apparent that Fib rules applied in the 1920's and 1930's.
>>
>> I'd have to agree that every market turn could be a .618 retracement
>> from "somewhere", so .618 is as good as any random number for that
>> purpose...
>>
>> However, could you profitably trade using any random number in this
>> way? The answer is no.
>>
>> As Tom said:-
>> >In the past, I have run tests on statistical relationships of FIb
>>
>> >ratios in the market. I found that no Fib ratio value held a
>> >major significance. this meant that no Fib value could be
>> >mathematically defined as having relevance.
>>
>> I have an open challenge to anyone who can trade profitably
>> using a random number instead of .618, .382 etc..
>> No-one has taken me up on that challenge and I don't know of
>> anyone successfully doing this. I know of many who successfully
>> trade Fib retracements/expansions.
>>
>> The reality is that there is an art to it, it not a tool for
>> trading mechanically (there aren't many tools which meet that
>> criteria, they would be holy grails).. However, there are firm Fib
>> rules to be applied, for example some fib projections carry more
>> weight
>> than others. There are also subjective rules to be applied. There are
>> also non-Fib rules to be applied (trend determination for example).
>> So Fib trading methods do not lend themselves to mathematical
>> (mechanical) testing.
>>
>> The traders brain is required for trading Fibs, which is fortunate
>> or we would not have an edge, the markets would be traded by machines.
>>
>> Our brains are our most valuable edge over computers.
>>
>> -Neal.
>> --------------------------------------
>>
>> At 11:53 AM 12/19/97 -0800, Tom Stein wrote:
>> >I believe what Walt is saying has some validity....in fact, we we're
>> sittin'
>> >around this morning arguing that lots of turns in the market are .618
>>
>> >retracements from "somewhere".....I believe it is an "art" and not a
>> science
>> >to develop where those "somewhere"'s are...ie:this wave or the next
>> larger
>> >wave or the next larger wave.....
>> >
>> >Still one can make some pretty nice change, once one gets a feel for
>> using
>> >the .618
>> >retracements...Look at
>> CH8.....2.36-3.04=.68...618*.68=.42...3.04-.42=2.62
>> >THE LOW TODAY WAS 262.5.......you could buy down here using a 2.59
>> stop.....
>> >Oh...where to exit?????????????????????????????
>> >
>> >Tom Stein comfut@xxxxxxx
>> >
>> >
>> >
>> >
>> >
>
>
>
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