Originally posted by Bogdan G. For the full article click here
Why doesn’t the Fibonacci Tool suck?
Fibonacci levels are one of the most commonly used technical analysis tools around the world. Due to the multitude of traders using them, the Fibonacci levels become self fulfilling to some extent. If a big enough number of traders trade the same way at a certain level, they will move the market in that direction. To make them even more accurate, you could use them in combination with trend lines: if in a trend price retraces to the trend line and that point happens to coincide with a Fibonacci level, the probability of us making some dough increases dramatically.
Why does the Fibonacci Tool suck?
I told you earlier that we must identify a swing high and a swing low. Well, here the discretion of every trader comes into play. I might see the swing high or low differently than a trader living in Binarnia and this will give us different Fibonacci levels. Obviously, one of us will fail; the dreams of wealth and easy life will go up in smoke, the Fib will be thrown away and never used again. If used correctly, this tool can bring lots of profits, but subjectivity is a big drawback. And it has another one: Fib levels are S/R levels and these are bound to fail eventually. Every S/R level will be broken; if that wouldn’t happen, market would just move in a sideway channel.