Fibonacci in the Modern Age - Unknown

www.bobokus.com

“Support and Resistance levels either hold or they don’t” - Jeff Sorrells (Bobokus)

Golden Ratio: 1.618

It’s actually a good thing that there are traders with this mentality because
someone has to loose in this game and it may as well be them. I applaud those holy
grail traders for their persistence in donating to the markets. I hope their quest
for the holy grail continues for years to come. Now if you are just starting out in
this business do not follow that path, it is paved with pain. Thinking that
Fibonacci is magical because we can find it in nature and elsewhere, so it will
also work on financial charts and will even hit to the exact number specified, is
just silly.

To be successful in trading you simply have to learn to see the market you are
trading with a logical framework, instead of searching for the perfect combination
of indicators and holy grail systems so you don’t have to learn how to trade. Isn’t
it better to use what has been working for years and years instead of some new
“holy grail system.” It isn’t the complicated systems or methods that work, it’s
the most simple and basic of tools that can help you become successful. For some
odd reason learning how to use the simple tools becomes something no one is willing
to do. The simple things like basic support and resistance and trend lines are all
that’s really needed. Fibonacci is just a way of displaying support and resistance
points in the markets.

The first thing I try to teach my students is basic support and resistance, its
very simple in concept, but because it is so obvious and simple most ignore the
fact that it’s the most successful route to profit. Support and resistance is
nothing more than points in the market where we see the market change direction.

Next we’ll cover some of the basic rules of using the Fibonacci retracement tool.
First let’s make sure you understand what the numbers on the levels represent. The
100 level and the 0 level you simply place at the high and low points of price that
you want to measure with the tool. Next is placing the tool in the correct way and
its very simple. If price is moving down you start at the high point and pull down
to the low. If price is moving up that you want to measure you start at the low
point and pull up to the high point. The reason for this is the way the tools
levels are displayed in a percentage.

Which brings us to another general rule while using the Fibonacci retracement tool
and that is the less price retraces the stronger the movement prior to the
retracement is. The more it retraces the weaker the previous direction is and
retracing more than 61.8% is an early sign of the market possibly reversing.

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There is no series of text books and exams that will graduate you as a trader. The
same easy access to information that may be a godsend for other fields of study,
can be a curse in our profession and might even make it harder to achieve success.

The problem with this new found easy access to information, at least when it comes
to the trading profession, is that trading remains a discretionary field, there is
no clear path to success.
Trading is far from easy. You know
trading with profitably with ease,
point you will be at a stage where
exiting trades, but the reality is
career.
you have become a good trader when your are
but that does not mean it is easy. At a certain
you are calm and at ease when entering and
it is still hard work and must be treated as a

THE STEPS TAKEN TO BECOME A TRADER

Begin With Humility
Emphasize Equity Management
Create Your Market Lens
Operate Like a Surgeon
Maintain Your Mind
Expect The Unexpected

BEGIN WITH HUMILITY. This is very important when you are starting your trading
career. You must come to terms with the fact that you are a small fish in a big
ocean. The big fish will happily enjoy you as a little snack. When you enter the
Forex market most of the liquidity is coming from big banks and experienced
traders. Don’t for a second start off by thinking that it will be easy to take
these big traders money out of the market. What you have to learn is to swim along
side the big fish, catch the same currents they do, don’t swim against them or they
will eat you up in passing. A funny misconception is that these big traders must
have access to some holy grail strategy or use some secret indicator, but this is
plain and simply not true. Online you can find access to daily bank analyst reports
on currencies. Analysts at the biggest banks in the world generate these reports
which are then sent off to their trade desks for the banks traders to consider. In
these reports you will find simple, but proven technical analysis techniques - most
commonly horizontal support/resistance, identification of trading ranges,
Fibonacci, and fundamental themes. Begin by accepting that the other participants
are highly experienced in the market and then learn to trade like them. They make
money because of experience, not because they hold a holy grail or secret
indicators.

EMPHASIZE EQUITY MANAGEMENT. It is crucial that as a beginning trader your emphasis

is not on how much you can make, but rather how you can properly manage what you
have. This is most likely to be the downfall of traders. It would be common place
to see a starting trader risk their entire account on one or two positions. This is
not the way to a sustainable trading career and this is not how the professional
traders you are up against in the market manage their risk. At some point in your
trading career you will likely have a string of bad trades. A reasonable number
might be 10 losing trades in a row. Are you managing your equity in a way that you
can survive this? The solution is using simple formulas to calculate your maximum
risk per trade and total risk in the market at any one time. Doing this is not
difficult, but you must have the discipline to follow through with it on each and
every trade.

CREATE YOUR MARKET LENS. Many fail to realize that when you open your charting
software and pop on the latest hot indicator or charting tool you’ve heard works so
well, you are extremely unlikely to see much success from it. This is because an
indicator on a chart does not provide you with a market lens to trade from. Your
market lens comes from experience. It comes from knowing how the market behaves
around your chosen framework. There are many traders that are profitable with
various indicators or tools such as fibs, pivots, price channels, etc. But the
tools they have chosen are not what is making them profitable. A common theme
between successful traders is that they have the experience of seeing how the
market behaves around their chosen tools and framework, day in and day out. The
only way to achieve this is to stop jumping between tools and select those that are
based on logical reasoning, understand how they work, then spend time in the market
experiencing them.
OPERATE LIKE A SURGEON. It should be your goal to take your pips out of the market
with precision, the same precision a surgeon must use with his scalpel. Traders who
don’t treat each trade as a business decision by calculating their risk and
defining entries and exits, open themselves to big losses when a trade goes bad.
Once again it is a novel concept which you will hear again and again, but for some
reason it is difficult for many traders to exercise the discipline to follow a plan
for each trade. Instead what often happens is what I call the “Lazyboy Trade.” The
trader sees a potential set-up, Decides on some arbitrary sum to buy with a quick
guesstimate, then carelessly gets in the trade without analyzing risk and having an
exit strategy. The Lazyboy Trade may work out a few times solely because of luck,
but eventually the trader wakes up from a nap to find themselves under water in a
position and that’s the end of their trading career. Now there’s nothing wrong with
trading from your Lazyboy, but be sure you never partake in the Lazy Boy trade and
you must exercise discipline each day to keep your account healthy.

MAINTAIN YOUR MIND. Entire books have been dedicated to the subject of psychology
and its role in trading. That doesn’t mean they are all going to help you, but you
should take this as a sign that the subject is not to be ignored. Like a
professional athlete must maintain their fitness at a level that allows them to
compete at the top, we must maintain our mind because it is relied on each and
every day to trade at the top of your game. This comes down to a few things. First
you must understand the role psychology plays in trading. Second you must make it
your aim to never stop learning. You cannot get yourself to a certain level and
then become complacent. Your entire career in this industry will be a learning
experience. Until the day you stop trading you must be prepared to learn lessons
from the market and be willing to do R&D and testing of newly gained knowledge,
just as a business would invest in R&D.

EXPECT THE UNEXPECTED. I’m writing this at the end of 2008 which has been quite a
wild year in the markets. We’ve seen bank runs followed by bailouts, brokerage
bankruptcy’s, government intervention in free markets, housing bubbles exploding,
and a global deleveraging of the financial system of historical proportions. At the
beginning of the crash it seemed like every other week the market was being saved
by rumors of Warren Buffet buying out struggling companies. Now we see pundits
questioning the savvy of the oracle himself as he loses large sums on the same
derivatives he once criticized as a bad idea and sees his prized AAA credit rating
for Berkshire being threatened. Did anyone expect to see that? These are indeed
interesting times, but there is one thing every investor needs to learn. Expect the
unexpected and do not get wrapped up in the euphoria of those around you. There
will always be bubbles, crashes and threats to your profitability, but as long as
you maintain and objective outlook and think for yourself you will have a feast
when there is famine for those who are caught up in the hype.