Best Retracements?

Hello Guys and Girls,

 

Thanks for this wonderful forum. It is not only about the shared material but also the knowledgeful discussions.

 

I would like to ask what experience everyone has regarding the best retracements to trade on. I myself have tried several on different timeframes and despite looking for the best confluence of Pivots and Fibs, I get stopped out 70% of the time. I have often followed this method of uptrend meaning higher highs and higher lows, but what happens when a retracement makes a lower low to your point of confluence. Should that be considered a retracement for a long and should it be stayed away because it has made a lower low. the same problem arises when I am looking to go short on retracements?

 

Can anyone enlighten me on this? I have read several books, but this matter still remains unsolved.

 

I am sure this will help other members who are just as confused.

 

Thanks in advance.

Hi Gambler, I'll give you my honest opinon and i've been trading a good while. You probably will be disappointed but seasoned traders i've come across use them all 38.2. 50 and 61.8. ....Some will use 61-38 from the last 2 swings with tight conflluence on fibs with trendlines connecting. ...one trader i know only trades the 38.2 after a strong impulse move....others trade all theses different zones with candle stick patterns. I guess that is why the market is wild and wooley :) Take care,Rob

but .786 retracement works better

There ok silly ---I normally place stops btween 78.6 and 86 when trading the 61.8. 127-78.6 confluence is good on gartleys but i still don't thnk they have a 70% win rate as all these harmonic gurus claim and hitting the first target.

Thanks for your input rob123, but regarding candlestick patterns, what time frame do you use for the pattern and how do you trade this particular pattern, eg. the Bearish engulfing? If sometimes you look at a higher time frame, like the one hour or 4 hour, which the books say are more reliable, the pattern almost retraces from one fib level to the next. Then where do I place my trades?

Your welcome Gambler.Let me see if i can help you here. I've seen quiet a few fib methodsfrom different companies. Type in ratiotrading.com they have a free news letter and video once a week where the owner does a free video analysis on stocks, options,currencies etcYou can sign up there if your interested it's free Also they have a webinar coming up i believe dec8 and the costs is 95.00 if your interested.

 

I have there basic package and the file is huge so i can't download it.One particular set up i like is the pull back trade which only takes trades off the 61.8 level....I mainly look at the daily and take trades off the 4 hr charts . What we want to do is find an impulse move coning off the daily chart....once we do that we look for SR---closed and open candles not wicks to the left---symmetry ---fib ratio confluence -trendlines--weekly pivots or just any pivot really. ....we just need one of these to be present to qualify.One imprtant point it can not bounce off the 50% fib off the impulse move

 

Let me give you an example:: I have IBFX feed :

1.Go to the daily chart on the usd/jpy chart and locate the 11/23/10 candle

2.You can see that is a swing low candle with an impulse move,so we draw fibs from that candle to the top with our 4 hr charts

3.we place a buy limit order at the 61.8 and are first target with half are risk would be the 38.2 level up.Are stop would be between 78.6 and 86.0 level.

4. Stops moved up from the 78/6 right under that low.

5.The reason for this trade was trendlines very close to 61.8 and we didn't get a bounce off the 50% fib coming down.

6. Some traders wait for candle conformation---so now you have a pin bar there.....but ratiotrading does not use candle confirmation

7. 70% of time price will go to 127 level and then 45% it will go to 161.8 level.

 

Hope this helps some.It does take practice and it's not the holy grail . I thnk if you take the best trades that your familiar with and comfortable with i beleive a 65% percent hit rate is achievable and you can get some awesome runs on the last 2 postions some times.

 

take care,Rob

Hi

Interesting discussion on Fibo retractment.

I also trading based on Fibo, but mainly on the break of 76.8% level.

As mentioned, lot of people trade based on the 38-61.8% depend on their

strategy.

 

Personally, I think there is no best retractment, how is well we

able to determine which of the retractment is A+ setup to give

us a higher level of probability.

Thanks again Rob, very much apprected. I think I am getting the gist of the matter. I will give ratio trading a try.

Your welcome gamble .Hope it helps . Rob

Fibo retracements are usually hindsight observations. I would only give credibility to a retracement if it happened at previous support, resistance or pivot levels. Otherwise it is like catching a falling knife.

Hello Shabz, Thanks for your input. SR and pevot levels are fine, but only in hindsight. When you actually go to trade them, you never know which will hold. Sometimes I feel the prices seem to be manipulated by the brokers and we are at their mercy as fx is always traded on market makers platforms.

Yea they stop run. Rob

Sometimes I feel the prices seem to be manipulated by the brokers and we are at their mercy as fx is always traded on market makers platforms.

 

I might be wrong but from observation I've seen that the low of a candle can be determined by the spread.

 

I.e. on a variable spread broker, they could increase the spreads right as the current bar closes, basically selecting exactly where they want the candle to close and where the low is. They could do this several times in the same area to make it look like a support area and lure traders into taking long positions. Then as soon as they get enough traders with long positions at that area, they increase the spread further to trigger the SL.

If you feel really compelled to keep researching retracements and how to trade them, I would recommend you look into a trader named Bernie Mitchell and his use of what he calls FIb Clusters. I took his webinar a couple of years ago and truly believe his use of Fib Clusters produces the most accurate levels out there. He does'nt disclose the exact algorithims he uses to generate them, but I've compared them to the usual 38% to 78% Fib levels and they are different. All that being said, I still was'nt able to be consistently profitable using them due to the fact that like most Fib level methods, when you are wrong you are really wrong. I finally became a consistently profitable trader when I threw retracement trading out the window and began buying strength and selling weakness (the exact opposite of what retracement trading dictates...). I consider my time chasing retracements as a waste of both time and money.

Thanks chrisenjy and tmalone. What however I do not understand is what do brokers have to gain by manipulating prices quoted to us? they make money from spreads anyway.

 

tmalone, I have tried Bernie Mitchell, but was just as unsuccessful. Are you able to tell me how you determine strength and weakness? Are there any indicators or fundamentals you look at?

Are you trying to trade every retracement that occurs ? You need to be more selective I would only look at retarcements that occur in an established trend and then I would make sure that that trend has not been violated.

Trying to catch a reversal at the exact bar at an exact fib percentage level is a very dangerous way to trade.

Thanks chrisenjy and tmalone. What however I do not understand is what do brokers have to gain by manipulating prices quoted to us? they make money from spreads anyway.

 

tmalone, I have tried Bernie Mitchell, but was just as unsuccessful. Are you able to tell me how you determine strength and weakness? Are there any indicators or fundamentals you look at?

 

I do not use any indicators or fundamentals. My trading is about as simple as one could get. I basically buy new highs and sell new lows when they occur on larger than average price bars that close near the top or bottom of the range on daily charts. I also keep track of the size of corrections in terms of the amount of pips and the amount of bars they consist of. For example, if a market is trending up, it's first two corrections may run 3 to 4 bars long and be 95 to 100 pips deep. The third correction may then run 10 bars long and be about 300 to 400 pips deeps. I then begin to key off of the biggest (3rd) correction and will watch and wait for a correction that is more than 10 bars long and 400 pips deep. I will sell the market as soon as such a correction occurs with a stop above the previous high. This is a technique I got from reading Gann and it's quite accurate at positioning one into developing trends.

Thanks chrisenjy and tmalone. What however I do not understand is what do brokers have to gain by manipulating prices quoted to us? they make money from spreads anyway.

 

tmalone, I have tried Bernie Mitchell, but was just as unsuccessful. Are you able to tell me how you determine strength and weakness? Are there any indicators or fundamentals you look at?

 

Money from spreads is not enough. Nearly all firms have a profit maximising objective, and manipulating prices is how they can achieve it.

Are you trying to trade every retracement that occurs ? You need to be more selective I would only look at retarcements that occur in an established trend and then I would make sure that that trend has not been violated.

Trying to catch a reversal at the exact bar at an exact fib percentage level is a very dangerous way to trade.

 

Hello shabz, Thanks for your input. I actually look at higher time fromes like 4 hour and daily fractals. However, those in very strong trends hardly retrace at all, sometimes not even 32.8. They just bouce away from 23.6. Therefore waiting can be a boring game and will hardly enter any trades.

I do not use any indicators or fundamentals. My trading is about as simple as one could get. I basically buy new highs and sell new lows when they occur on larger than average price bars that close near the top or bottom of the range on daily charts. I also keep track of the size of corrections in terms of the amount of pips and the amount of bars they consist of. For example, if a market is trending up, it's first two corrections may run 3 to 4 bars long and be 95 to 100 pips deep. The third correction may then run 10 bars long and be about 300 to 400 pips deeps. I then begin to key off of the biggest (3rd) correction and will watch and wait for a correction that is more than 10 bars long and 400 pips deep. I will sell the market as soon as such a correction occurs with a stop above the previous high. This is a technique I got from reading Gann and it's quite accurate at positioning one into developing trends.

 

Thanks tmalone, Do you have a book by Gann explaining this particular technique?

Money from spreads is not enough. Nearly all firms have a profit maximising objective, and manipulating prices is how they can achieve it.

 

Thanks chris, but then how do we avoid this manipulation?

Hi gambler67,

You will find the manipulation is mainly done by the professionals, those that have very large positions to place into the market. They do not want to alert everyone to their intentions and so will generally in the first half hour of the market open, reverse the price to get a better deal for when they finally make their move. This also occurs before major news events.

Brokers generally however will try & match counter orders against each other, making the spread on both sides and widen spreads if there is an imbalnce of orders and may also delay execution of orders whilst they hedge larger orders. They are basically Bookmakers. This is not a zero sum game, they are like a casino, the house will always make a profit.

Edited December 3, 2010 by shabz

Thanks tmalone, Do you have a book by Gann explaining this particular technique?

 

It can be found in more than one of Ganns writings, but here is one for you:

http://www.4shared.com/document/EN_jxSMf/w_d_gann_1942_how_to_make_prof.html

Thanks chris, but then how do we avoid this manipulation?

The forex industry pushes and caters to daytrading/daytraders heavily because it is those traders who are most susceptible to short term manipulation and stop-running. Prices can't be manipulated too far from the underlying cash basis otherwise it would become far to obvious and watchdogs like the NFA and CFTC could be brought into play (which is happening more and more anyway...). One easy way of avoiding the manipulative noise is to trade from a larger timeframe. Larger timeframe perspectives usually result in stop levels far enough from current prices to render the short-term manipulations a moot point.

However, those in very strong trends hardly retrace at all, sometimes not even 32.8. They just bouce away from 23.6. Therefore waiting can be a boring game and will hardly enter any trades.

 

Now what would happen in these instances if, instead of waiting for retracements which may not appear at all, you instead bought the market as it trades above the previous high that occurred before the bounce and participated in these strong trends? When I began to systematically take such trades, I finally turned the corner and began to make money.