[Fibonacci Practical Notes] Episode 9: When Fibonacci Reasoning Does Not Apply
This time we will focus on the “situations where Fibonacci tends not to work well.”
This time, we’ll change the perspective a little.We will focus on the situations where Fibonacci itself tends not to work well.
In the second installment, we wrote why Fibonacci works. Because many people are looking at the same line, right? That means,in situations where that premise is broken, it tends not to work wellas a result.
When participants are biased, it tends not to work well
First, it’s the volume (number of participants).
If there is too much or too little, Fibonacci tends not to work well. When volume is rapidly increasing, a variety of market participants move past previous milestones, making them ignored. Conversely, when it’s quiet, that is, when volume is low, there are simply fewer people watching the milestones in the first place.
There are also concrete time-of-day tendencies.From 5:00 to 8:00 in the early morningtends to have lower liquidity. I also avoid this time frame.
There are even more extreme examples.Currency interventionWhen the central bank moves, short-term charts can collapse dramatically. Past milestones can instantly lose their meaning. You can tell from the price action during intervention that large price moves break the milestones.
Around economic indicators and key speeches
Another important situation exists.Around the release of economic indicators and key speeches.
Announcements of rates, employment statistics, and remarks by central bank presidents. In such moments, technical theories often don’t apply as expected.
The reason is simple.Because what’s moving the market are fundamentals, not technicals. Therefore, when new information moves prices, whether people are watching past milestones becomes less relevant.
In actual data, Fibonacci alone seems to have a disadvantage
This is a common claim up to here. Finally, let’s look at numbers as well.
In some tests, when trading solely with Fibonacci levels,the Profit Factor was 0.586. A number below 1 means a losing strategy.
On the other hand, in another test, when combined with horizontal lines, accuracy rose to about 60%.
Because this is a single validation, we cannot say this is definitive.However, from these results, the idea written in the previous sections—“combinations matter”—appears to be more than just a feel.
Summary: understand the premise on which technicals work
There are common threads in the scenarios discussed so far.The premise that “everyone is looking at the same line” is breaking down.
In thinly traded times, around indicator releases, and around currency intervention, this premise does not hold. Even if the Fibonacci level itself does not change, the rationale supporting it may not function at all.
The FTS I use allows me to check important economic indicators on a panel. Since you can notice things before the release, it should make it easier to decide to wait and see.
Details of actual screens and features are listed on the product page.
→Fibonacci Trade System (product page)
Next time
Next time,the market that does not draw Fibonacciwill be written about.
This time we talked about “situations where it’s hard to work,” but next we’ll go a step further andspecifically look at situations where we should refrain from drawing it at all.