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Interesting way to think about something: so I've published a lot of work over the years debunking Fibonacci and other "magic" market tools. I stand behind the math that shows these are no better than a coin flip, but the interesting question is why do are many people (and...
...probably YOU reading this) so convinced they work? The reason is that these ratio tools are based off current swings which are one way to measure current volatility in a market. If you have a measure of volatility and multiply it by any...
...constant, it will "seem" to work. (Common sense example: if we're looking at a $100 stock on the daily chart, is a $1 or $50 move more likely over next few days?) You add this to some cognitive bias which none of us are ever fully aware of...
...and Fib lines start to look magic. But you'd be just as well off using ANY reasonable number that hovers somewhere around one. Play with decimals. Make your own magic numbers from your birthday, phone number, address or whatever. Or just go with...
... 1 and 0.5! I think re-thinking Fibs in this context has tremendous power to simplify. When I show traders how to rethink chart patterns in terms of momentum and price action all kinds of light bulbs go off. Could be same here. Late night thoughts.
