Ed,
I have a question for you on trading with the trends. I have been experimenting with Fib retracements and pivot points to help me better pick my pullback targets. I generally use a 4 hour chart for my smaller moves and use a weekly/daily chart to establish my overall trend directions and bigger retracement areas. I don't know much about Elliott Wave, I just draw my fib retracements off obvious up and down moves in the directions of the overall bigger trends. It seems to work pretty well but I still can't seem to spot when a pair is done retracing and at what level it should retrace to. I use weekly and monthly pivot points with fib retracement numbers to try and find areas at which a pair may turn around at also. I guess my question is how do you know which fib retracments or pivot point areas are most likely going to be your pullback targets? Thanks so much.
Hi i9markos,
Thank you for your question. I'm a big believer in Fibonacci when trading Forex, because it is such a huge part of the Forex trading "culture". This makes it much more likely to be effective in creating a self-fulfilling prophecy. Pivot points are an ingrained part of the futures trading culture. I think there are some inherent problems with Pivots regarding Forex. Fib retracements are price-based, they have no time reference, whereas Pivots depend on time (opening price, closing price are determined by the time used to begin and end the trading day). Because time is part of the equation, and because there is no standard time of day that every currency trader uses to begin and end the Forex trading day, it's highly likely that different traders are using different reference points for the opening and closing time of daily candles. If the time varies, the price is likely to vary also, meaning that the pivots themselves could vary. This reduces the chances of a self fulfilling prophecy.
To determine which Fib levels are more likely to work, I don't assume that any will work, instead try to observe price action when a level is reached. If it shows support or resistance, then I might use it - not before. Nobody knows for certain which levels will hold, but if I see some evidence, I know there is a chance. It's my belief that effective trading is nothing more than the art of stacking probabilities in your favor. Hope this helps!
Ed Ponsi
President
FXEducator.com
edponsi.com
