Category Archives: Trading Psychology

“Workshop at the Toronto Money Show, next October 16th, 2014” – October 9, 2013

20141008_Metro Toronto Convention MoneyShow

Dear all,

this is to let you know that I have been invited for a speech at the Toronto Money Show, next Thursday October 16th, 2014.

If you are not in Toronto, I will try to take a couple of video footage of the event and share it with my free newsletter subscribers.

If you live in Toronto or the Greater Toronto Area (GTA), I would live to invite you to join me at the event.

I am going to talk about a New Philosophy to become a Successful Trader in Modern Markets by leveraging the presence of Algorithms in all time frame.

Join me on Thursday, October 16, 2014, 3:30 pm – 4:15 pm, at the “Metro Toronto Convention Center”.

Find below the details of the presentation:

20141008_MoneyShow_workshop details

Don’t miss it. This is going to be an eye opener. Learning to identify and trade based on the effects of modern algorithms on price has the potential to
turnaround your trading and put you in the elite of 5% of successful and consistent traders in no time flat!

This is not High Frequency Trading, Algo Trading and the family of Program Trading trade in all timeframes, large and small, and its study can produce
very effective trading plans.

 

Find below the link to the workshop information:
http://www.moneyshow.com/tradeshow/toronto/world_moneyShow/workshop-details.asp?wid=10E9E44184484A53B6AB59D3BADBFC6C

 

Come to discover a new, effective and successful way to trade the markets!

To your success, rooting for you…

Giuseppe Basile, CMT, B.Sc. Eng., MA.Fin,
SIAT/IFTA associate, Researcher and Trading Mentor
FXStreet.com Contributor and Toronto Forex Meetup leader

meinlar
Giuseppe Basile, ~FibStalker

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Filed under Education, Event/Webinar, Forex, Program Trading, Trading Method, Trading Psychology

The Pillars of Trading in Modern Markets – Part 5: Psychology of the Trader, August 22, 2014

Hello Traders,

This article completes the mini-series of 5 articles on the “Pillars of Trading in Modern Markets” I have focused on this week.

Yesterday I offered my view on the Psychology of the Market. Today I shift the attention to the Psychology of the Trader, not less important.

20140822_trader_psychologySo here follows a definition of Trader Psychology: it is the beliefs system that has to be in place for a trader to be successful in the markets. 95% of people lose money in the market not always because their trading method is flawed, but rather because they approach trading with a wrong set of beliefs. The common sense ideas and beliefs we bring from our everyday life do not work in the markets.

Note: This is the most important aspect for a trader to understand. If we as traders start with the right foot and question every impulse we have when we approach the markets, we put ourselves in a better spot to become successful in trading.

If, on the other hand, we just second our impulses and let ourselves react and take trades that are not in synch with the market psychology and current price structure, we create from the beginning a very negative energy associations with our trading experience. If you are a starting trader, avoid this at all cost!!

For instance, a lot of traders will initially fall in love with the concept of trading breakouts. This is basically entering the markets above recent highs (for longs) and below recent lows (for shorts). But although it can be successful this is not the best practice, for sure not for all instruments and for all time frames.

Note: The best way to trade the markets is to identify a new trend and then trade retraces before the price starts moving again in the direction of the identified trend.

But before new and experienced traders discover low-risk trades often hidden in price retraces, and learn to manage risk and obtain risk-free trade (another technique used to control and reduce risk even more), they “learn” to apply common judgment and common sense ideas to trading. A huge mistake! Totally wrong! Watch out!

For instance, in our daily life there is a widely accepted principle of “non-solution of continuity“. This has been probably borrowed and adopted from the law or physics or from nature. I am making reference to natural processes which when initiated, do not reverse quickly. For instance, before a process can be completely reversed, it will continue for a while.

Think of a body in motion like a car. If you hit the brake, the car will start slowing down, continue forward for a while, before eventually coming to a complete halt.

This is not true for market prices of EUR/USD or the S&P500 e-mini futures, and any other financial instruments for what matters. In fact, it is said commonly in the trading environment that “price can turn on a dime”. In the markets there can be events that suddenly reverse the process, as well as price direction.

Note: There may be possibly dozens of beliefs that we, as human beings, bring into trading from everyday life experiences. Most of these beliefs are what makes us losers in the markets. If you do not understand you need a ‘dedicated’ set of beliefs to function properly in the markets, you will not be successful. You need a ‘dedicated’ set of beliefs to be a successful trader- and that’s the bottom-line.

This article and the other 4 written this week pretty much cover the most relevant aspects involved in Successful Trading.

If you find any difficulty understanding any particular aspect- or have any other queries in general, leave a post in the related post or send your queries to my email address: fibstalker@gmail.com.

I will be glad to assist you with all your queries. I plan to have a Skype call one of these days, with all the followers. If you are interested, contact me at the email above.

I would be happy to hear from you your thoughts, ideas, feedback, or any other comments. Looking forward for your notes.

If you liked this series, please share it with friends and trading buddies on the social Networks! Thank you!

Have a great Friday and weekend.
Regards,,
Giuseppe, ~FibStalker

 

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“Why traditional use of Fibonacci retraces will not make you successful?”, July 27 2014

Why traditional use of Fibonacci retraces will not make you successful?

Here is the reason. Read this article carefully…

I never considered the use of the Fibonacci numbers in my trading…

Until I have discovered that some of the Fibonacci numbers – a very small set – can be used to model the participation of powerful classes of algorithms that are very active and widespread in modern markets.

In today’s markets human participation and volume generated in exchanges is only a portion of that generated by algorithms which, in some cases, exceeds 80% of the total.

If that is the cases then (and it can be proven), why traditional uses of Fibonacci traces found in literature are still regularly proposed by trading experts ?

Are implications of the use of traditional Fibonacci fully understood?

I do not think so. Let me explain why.

First of all we should ask why the majority of the Fibonacci levels are not significant when modeling institutions’ algorithms, probably the strongest power in the markets, backed by billions of dollars?

Secondly, how are the Fibonacci numbers derived?

If Fibonacci numbers are a wonder of nature – i.e. we find them into manifestations of nature, like the DNA helix or a strong hurricane structure – in a recent research paper published for IFTA/SIAT, I have shown how some of the numbers like 38.2%, or 23.6% are engineered in a way that not necessarily reflects manifestations in nature.

So, from a practical point of view, we may well be dealing with pure human inventions rather than levels that explain or help trading the markets. Levels that are “grounded” into real market behavior, as I like to note.

Thirdly, why Fibonacci number are considered useful in trading?

The simple argument – according to traditional literature – is that trading any market is comprised by free willed individuals. Fibonacci places “natural limits” to how excited or depressed a free-willed mechanism will expand or retract into. Therefore, you can look for a Fibonacci ratio to catch the expansion of price or the retraces of a move.

Unfortunately, when it comes to practical trading, Fibonacci has to be paired with other trading techniques. Some writers like to make a parallel with the 3 best-non-kept secret to investing in real estate: Location, Location, Location.

In fact the trading equivalent, they say is, is Confirmation, Confirmation, and Confirmation.

I would rather say it is Psychology, Psychology, and Psychology.

Which brings to the fourth point: why confirmation? And what are the consequences?

Confirmation is needed because Fibonacci levels alone are not enough.

We do not know where price will stop, i.e. at what level. Moreover, typically price will overshoot or undershoot a level in a totally unpredictable way that confuses traders.

For this reason, the most immediate fix has been to consider other supporting techniques, e.g. price patterns or indicators, so that a trader would get involved at a Fibonacci level, only when the confirmation techniques all agree.

If this concept makes sense from a conceptual point of view, it does not mean is the way to go to be successful in the markets.

And, in fact, it is sufficient to look at the statistics for a confirmation. Again and again we observe that over 90% of traders still lose consistently in the markets.

If use of Fibonacci – in the way it is proposed by the traditional literature – was any better, the number of successful traders would be much higher. Don’t you think?

So what is the problem with confirmation?

In my research I have identified two major issues:

  1. Use of confirmation is complex for new and experienced traders
  2. Some uses of confirmation are flawed both from a conceptual and practical view point

Let’s start from the first issue.

The majority of people, including experts, think that you can add several techniques and use their reciprocal confirmation for practical trading.

Nothing more removed from reality and practice.

These people seem to forget that trading is a numbers game.

When you use different techniques for confirmation you have also to mind the main problem: reconciling the signals of each and every one of these techniques.

Traders who use several confirmation techniques never seem to mind the probability of each and every ‘combination’ that these techniques can present themselves in a particular situation.

Plus the indications from these techniques have to be reconciled with price itself.

Therefore, initially traders get excited by the idea of confirmation, but then they start realizing that, indeed, their trading becomes even more difficult.

The reason is that traders do not have the knowledge and the skills to reconcile all the possible configurations of the indicators, plus they do not know how to reconcile indicators that offer opposite readings.

Moreover, the majority of traders, including experienced traders, do not use a probability, reliability, expectancy and frequency of opportunity in their trading.

So, confirmation is only useful if you employ a very limited number of indicators and, even in that case, it is still complex and tends to shift trading into discretionary approaches, a sure recipe for disaster and lack of success for starting and experienced traders alike.

The second issue mentioned above (e.g. flawed use of confirmation) is related to the way the techniques are used in confirmation.

In my recent research paper I have documented some issues like the ‘inversion of semantics’ in using retraces and  the practice of using the clustering or confluence.

Confluence is when multiple Fibonacci levels are identified in the same area from different Fibonacci traces. The areas where levels fall close to one another identify ‘clusters’ deemed to be stronger support or resistance areas.

The reasoning behind confluence areas is that of confirmation. However, how can single, unreliable Fibonacci levels come all together to identify something that is more reliable?

It would be like thinking that a bunch of inexperienced and unreliable players could come together to form a great basketball team that wins the season.

How probable is that? Could that ever happen? I do not think so.

Still you find a lot of traders who speak with confidence about confluence and clustering like it was an effective technique. It is not, and you do not have to fall into the trap.

Yet Fibonacci numbers can be employed in a very effective way when used in what would generally be considered a totally unconventional approach (and here lies your edge), to explain price structure in modern markets.

Some of the Fibonacci numbers can be used to model the presence of algorithmic trading on all timeframe in high volume markets, which includes equity indexes, large stocks, major forex pairs, commodities and other highly participated asset classes.

The fact that I found fascinating is that this way of looking at the market enables techniques unheard of before, like procedural tests of areas of support and resistance (a technique I called FibStalking timing) and price discovery.

Particularly, price discovery – a technique to extract information on what price can do next – is enabled by the same levels used for the stop losses.

Moreover price discovery is often obtained without risking any money in areas where timing is performed through the FibStalking technique.

To learn more about the FibStalker methods that can enable you to trade and explain price and get involved in the same price areas where algorithms do, as well as, use a method that incorporates the psychology of the markets, check out the information in www.fibstalker.com

The simplicity of the methods and reliance only on price information, is what a lot of students and followers like and appreciate about my work.

 

If you like this article and it makes sense to you please share your own stories and thoughts about using Fibonaccileave a comment on the blog or drop me an email to: fibstalker@gmail.com.

 

In my research and practical trading I study the effects on price of classes of algorithms in high volume markets. If you are interested in a new and effective trading edge, check my work at www.fibstalker.com.

Happy Trading

~FibStalker

WHO IS GIUSEPPE BASILE?

Giuseppe Basile
Giuseppe is a Certified Market Technician and swing trader, IFTA and SIAT associate. Holds a B.Sc. in Computer Engineering and a MA in Finance. In the markets since 2001, became trader and mentor in 2007. Studied with several traders in UK, Europe and US, adding over 7,000 hours of screen time between 2009 and 2013 alone. In 2012 launched FibStalker, a blog specializing in forex, futures and stocks trading, where he also runs a free newsletter and publishes daily videos with actual setups and complete trading plans.

Giuseppe’s unique method attempts to spotting footprints of Program Trading, a powerful class of algos that governs the markets. Giuseppe is a rigorous researcher with several published papers about money management, automated trading, HFT and innovative timing and trading methods.

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Filed under Articles, Education, Program Trading, Trading Psychology

“The Fallacy of Traditional Technical Analysis…”, July 22 2014

“The Fallacy of Traditional Technical Analysis will make you Unsuccessful in the Markets…”

“… what you need to know and to do, in order to avoid failure and generate a positive experience and outcome in trading, right from the get-go!”

We all know and see that way market price action has been “engineered” in the years in the concepts of Traditional Trading Analysis is varied and imaginative.

From the “fathers” of technical analysis like Charles Dow to the concepts introduced by Gann, Elliot and more recently by Wilders, who is the responsible of the majority of the “art” still used today by professionals and retail traders alike.

Are the methods and concepts of Traditional Technical Analysis successful?

Unfortunately, the answer is a resounding “no”! The proof? Is in the statistics: 90% to 95% of traders lose consistently or breakeven.

If they the method of Traditional Technical Analysis successful and the simple concepts of trendline, price patterns, indicators, average crossovers, etc. would be enough to consistently earn money in the markets, which is clearly not the case.

Some people want you to believe that you can be successful with those methods, but you need discipline, which the majority of people do not have. You need to be a “yoga master”, otherwise you cannot trade successful. My advice: when you see them do not walk, run!

How far from the truth? People still do a lot of things they do not love doing, but have the discipline to do it.

An example?

Think of how many people hate their daily job and trading their time for dollars.

Discipline is a byproduct of confidence, which does not come by acting like a machine or being a superhero with plenty of willpower. Confidence comes when there is comprehension and confirmation.

Comprehension about the way you analyze price and take positions in the markets with low risk idea that almost immediately generate risk-free trade and how and when you take profits.

Confirmation comes from seeing the same setup working again and again, following a well-defined, clear procedure.

But the method of Traditional Technical Analysis tend to do exactly the opposite, they generate confusion and lack of confirmation. Why?

Newbies and experienced traders – using several technique and indicators – think they see exactly the same patterns over and over. The reality is that  in the analysis process they need to use a lot of discretion”, in order to reconcile the indications that come from the different studies and  patterns they use.

And then of course there are the charting specialists who have introduced many ways to help see patterns in price, like linear charts, HiLoClose Bar Charts, Japanese candlestick charts, Point & Figure, pivots, fractals, market profile, etc.

Hundreds of techniques, and today you can find lots of originally mutated techniques and methodologies available to the traders, the analysis and the ch”artist”.

What many fail to realize, is that all the studies of traditional technical analysis, are no more than statistical tables plotted in graphic form to present a “picture” to assist traders in their decision process.

These statistical tables are tools that are built on historical and lagging databases. Moreover the rigidity of the parameters used in the studies imposes rigid responses to changing market conditions.

Have you forgotten that the market is a live beast that learns and adapts to trader behaviours?

Mark Douglas, author of the great  book ‘Trading in the Zone’, reminds us that the markets can do anything. Do you really believe you can cope with this principle and trade the markets with the aid of lagging derivatives of historical databases of price?

I surely cannot, and believe me, I have studied and tried hard and I am actively involved in rigorous trading research with national and international bodies (IFTA/SIAT). But again, if the answer to successful trading was in Traditional Technical Analysis, why not having a higher number of successful traders?

Many have forgotten that the market is the sum total of the behavior of its participants. An most do not know that the composition of participants has greatly changed in the years. In fact, in some markets computer-based algorithms exchange more than 80% of the overall volume.

Indicators, patterns and the technique of technical analysis are used for measuring the markets health, not so unlike the way a doctor measure the temperature of a patient with his thermometer, or the measuring tape to a carpenter. They are just tools.

If you comprehend this concept, you also understand that you need to start to looking at the market differently!

And if you are just starting, I advice you to not learn technical analysis at all! If this statement may see extreme and controversial, just think of a big work that will need to be done to “unlearn” certain concepts and believe.

That work is just “massive”, and some people seem not able to get over and “set aside” all the “art” and methods – that do not work.

Why I say that? It has been hard for me to “let go” to the method and concepts and techniques I have learned during the years to embrace different ways of looking at the markets.

In the end, I was successful, and looking back I was able to accept that some knowledge can ‘hurt’ and ‘damage’ me more than make me successful.

This may well be one those rare cases where ‘ignorance’ is actually and advantage.

So my suggestion is for you to look where other do not look. To ways of looking at the market that are more aligned and in-gear with the modern markets work.

And there is a lot going on in modern markets that is not explained at all by the methods and techniques of Technical Analysis.

If you want to learn more on different ways of looking at modern markets, have a look at the Education section of my blog.

 

Please let me know what you think about the content of this article. Go ahead, leave a reply in the form below.

 

In my research and practical trading I study the effects on price of classes of algorithms in high volume markets. If you are interested in a new and effective trading edge, check my work at www.fibstalker.com.

Happy Trading

~FibStalker

WHO IS GIUSEPPE BASILE?

Giuseppe Basile
Giuseppe is a Certified Market Technician and swing trader, IFTA and SIAT associate. Holds a B.Sc. in Computer Engineering and a MA in Finance. In the markets since 2001, became trader and mentor in 2007. Studied with several traders in UK, Europe and US, adding over 7,000 hours of screen time between 2009 and 2013 alone. In 2012 launched FibStalker, a blog specializing in forex, futures and stocks trading, where he also runs a free newsletter and publishes daily videos with actual setups and complete trading plans.

Giuseppe’s unique method attempts to spotting footprints of Program Trading, a powerful class of algos that governs the markets. Giuseppe is a rigorous researcher with several published papers about money management, automated trading, HFT and innovative timing and trading methods.

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“Proper Risk Management will Make You Wealthy in the Markets…”, July 15, 2014

“Proper Risk Management will Make You Wealthy in the Markets…” (as appeared on July 15 in my eZine)

“… not taking Big Risks based on the Huge Leverage nowadays available in the Forex and other markets.”

And the good news is that becoming wealthy it is really possible, even if you start from a very small account (hundreds of dollars).

No SECRETS to share here, what works in other fields works in trading as well: hard work, a positive attitude to learn, an open mind to accept ways of thinking differently from the majority – 95% of traders lose consistently –  and consistent results, not necessarily large.

Let me first tell you how a typical starting or inexperienced trader looks at the gains and risk part of the equation of successful trading.

Keep in mind that when you trade professionally, you will have a lot of trading opportunities and you need only to make a 3% to 5% every month.

When students and followers hear this statement they are not very comfortable with it.

They understand the importance of being well capitalized to trade the markets, and the typical answers I get are “I need to have much higher monthly returns than that” or “that may be a good way for rich men, 3% to 5% is not good for deposits like mine”.

These expressions hide the highly dangerous seed of greed and fear of losing opportunities, that is typically responsible for the  large percentage of losing traders still in today’s market (near 95%).

This way of thinking leads to ‘not acceptance of risks’ which is at the roots of why people cannot stick with a position, even when it promising and well initiated, or do not use stop-losses (current recent statistics from a large North American broker shows that is still 22% of Forex traders).

But having “reasonable” monthly returns (which, by the way, could be much higher than the 3%-5% mentioned above), risking 1% or less at each trade, is the right way to go.

Ask me why? I have learned this the hard way!

When you reach consistency and say make a 5% a month, you can start adding to your account, with time.

Initially a $20,000 account would only yield a ‘dismal’ $1,000 in monthly profits (5% of $20,000). But then you can commit to saving more – and a for a good reason – and even improve your monthly returns, and keep building your capital.

In less time than you believe you will have a sizeable account.

Is it really important if this takes a few years ? (if you choose carefully your mentor, this could go down to months).

Not, it is not! Here is the reason.

Even if you are about to retire or are retired, it is still a good time to start. Trading Forex, or any other asset class, is an “evergreen” skill! You can profit with it for the year to come!

It is a skill you can teach to your children and grandchildren and that will keep you going and mentally active, and wealthy.

When you remove the emotions from trading, by using methods like the FibStalker method which incorporates the psychology of trading (intended as the average traders’ response to price, taken in aggregate) you can enjoy trading even if you are under aspirins treatment to lower the risk of heart attack!

What if you are younger? More power to you! You have even more time to enjoy the learning and to practice the skills.

It’s not difficult, although maybe not anyone can do it. But if you have a sufficient does of determination, willing to learn and patience, the skills is yours to acquire!

Now here is the important mental shift that is necessary and the mean reason why I wanted to write this article.

This is SECRET, if you want, the way you have to mentally approach trading.

When you have few hundreds in your account, say $500, a 5% is only $50. Not something you can bank on or that can justify the time you dedicate to trading.

However this is the correct way to think of it.

When you become consistent and start making 30%-40% a year or even more (I worked with a mentor who made 400% in one year), and you can prove that you are consistent that’s where things get interesting.

If you can show 9 months of regular consistent results and an additional 6 months live, you will start seeing interest from investors to having you trade their money.

So if there is a SECRET, when it comes to learning trading starting from limited resources, this is it.

“Learn to trade and money will take care of itself!”

Learn the ‘evergreen’ skills of trading and you or other people will eventually commit money into your decision process.

In fact, our job as traders is to mind the decision process, is to to make sure we take quality decisions.

This is what there is to trading, really. Forget the forex robots and fully automated trading and – most EA (the “Expert Assistants”), forget the 100% of returns monthly. That is not going to happen.

For every guy or gal who gets lucky there are tenths of thousands who follow the dramatic, losing fate of the average traders.

Do you want to trade or do you want to gamble? If you picked the second, you should really unsubscribe my email list. Seriously!

On the opposite, do the right thing! Invest in your education because when you will be proficient and consistent with regular gains, the money you have in our account will not be an obstacle.

And if you decide to do so, please review my work before you take a decision and let me know what you think.

Whatever the size of your account, it will not prevent you to express the fully potential of your newly acquired, evergreen skill.

As Benjamin Franklin would say: “an investment in education pays the best interest”. In this context he would probably also say: “you may delay, but time will not”.

PS: I love Franklin’s quotes. Find here more inspirational quotes from Benjamin Franklin

 

Please let me know what you think about the content of this article. Go ahead, leave a reply in the form below.

 

In my research and practical trading I study the effects on price of classes of algorithms in high volume markets. If you are interested in a new and effective trading edge, check my work at www.fibstalker.com.

Happy Trading

~FibStalker

WHO IS GIUSEPPE BASILE?

Giuseppe Basile
Giuseppe is a Certified Market Technician and swing trader, IFTA and SIAT associate. Holds a B.Sc. in Computer Engineering and a MA in Finance. In the markets since 2001, became trader and mentor in 2007. Studied with several traders in UK, Europe and US, adding over 7,000 hours of screen time between 2009 and 2013 alone. In 2012 launched FibStalker, a blog specializing in forex, futures and stocks trading, where he also runs a free newsletter and publishes daily videos with actual setups and complete trading plans.

Giuseppe’s unique method attempts to spotting footprints of Program Trading, a powerful class of algos that governs the markets. Giuseppe is a rigorous researcher with several published papers about money management, automated trading, HFT and innovative timing and trading methods.

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Filed under Education, Program Trading, Trading Psychology, Webinar

My Resource Box, July 14, 2014

Resource Box

Want to learn more about what I do to help traders to move from the group of 95% of losing traders into the 5% elite of consistent traders? Read  below…

Market professionals are not smarter individuals…

They just know how to take advantage of widespread weaknesses, i.e. how the crowds creates their own demise through the emotional response of greed and fear of losing opportunities.

If market professional do it, you can do it. The difference? Just knowledge that you can acquire relatively quickly…

The key? It is simply to look at and read the markets not using functions of price, i.e. indicators and traditional technical analysis, but using functions of psychology.

What does that mean?

I have touched and explained this important point recently in my Webinar: “The Bandwagon Theory Illustrated in Modern Markets” presented on FXStreet.com.

To get started with the material browse my blog at www.fibstalker.com.

You will find tenths of articles, over 500 video analysis and educational videos, in over 600 posts!

You can start your discovery by reading and watching some of the material I have selected for you and linked below:

With over 14 years of trading experience, harsh lessons learned from Mr. Market and working with mentors and successful traders, I have enriched my trading methodologies and understanding of the market and how modern algorithms have an effect on price.
Such effect can be used to create a very effective edge, and that’s what I do in my trading.

Sent me an email at fibstalker@gmail.com for more information.

To your success!

Giuseppe Basile, CMT, B.Sc. Eng., MA.Fin,
SIAT/IFTA associate, Researcher and Trading Mentor
FXStreet.com Contributor and Toronto Forex Meetup leade

Fibstalker_face_picture
Giuseppe Basile, ~FibStalker

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“Traditional and new uses of Fibonacci retraces in modern markets”, SIAT Journal VII – no.13 – July 8, 2014

Dear reader,

I want to briefly talk to you about a recent topic on which I have prepared and published a research paper for SIAT/IFTA.

The research paper I have recently published on the SIAT Journal, the Italian Society of Technical Analysis, member society of the larger IFTA (International Federation of Technical Analysts) includes a review and critique of common and traditional uses of Fibonacci retraces, and discusses some of the problems related to both the way numbers are derived and their use.

Problems like the way extensions, expansions and projections are used, the concept of convergence or confluence (also known as “clustering”), the inversion of semantics and others are explained with real trading examples.

In the second part, the opportunity to use Fibonacci retraces with a different objective is investigated. Such objective is no longer, or I should say not only, that of identifying low risk trades with very high probability of success, within retraces.

New objectives include the possibility to “frame” and ‘explain’ price structure?

What does that mean?

Typically when we think of Fibonacci retraces we think of trending market in counter-trend moves and of ways to enter the market as it resumes the move higher.

But we rarely think about framing the sequence of price movements, the price structure resulting from the interactions of effects of players (humans and algorithms) on price in the different timeframes.

The majority of people dismiss the idea that price could be “explained” somehow and to a certain extent.

However modern market structure with a strong participation of algorithmic trading, that in certain markets is responsible for over 80% of the overall volume, offers opportunities to do just that.

In fact, there are methods that allow to identify what I call the “algorithmic trading footprints”, the levels and areas of participation from algorithms and professionals, on the upside or the downside, in major markets.

Not only that.

It is also possible, due to the presence of algorithmic trading on the smaller timeframes, to confirm the presence and activity of the big players (the smart money of the Bandwagon Theory) and their commitment around the areas of support or resistance.

In the second part of the paper I show how, using methods based on the observation of price behavior in presence of program trading – an important class of algorithmic trading  – it is possible not only to  solve most of the issues and problems related to the traditional use of the Fibonacci levels and retraces in the modern markets, but also to enable enhanced and precise timing and technique that allow to obtain risk-free trades with very high probability. These methods also enable price discovery, when key levels watched by algos are violated.

Methods grounded in the observation of price behavior in presence of algorithms include, for example, the FibStalker method and the FibStalking timing technique are not theoretical models but rather practical and effective trading methods that allow to pinpoint entry areas, entry levels, stop and profits with uncanny, consistent precision.

 

This is how Eugenio Sartorelli, member of SIAT scientific committee, introduces my paper:

“.. the second paper is from Giuseppe Basile, who has a huge experience with Fibonacci techniques he has used in trading for years. The first part revisits and critiques the different uses of Fibonacci retraces and projections in Technical Analysis. In the second part a few techniques created by the author are showcased, with the intent of explaining price structure.

The research paper featured in the article is the third after a paper on Money Management and its linkages to trading goals (2012) and an analysis of the Effects of HFT (High Frequency Trading) on price and Program Trading (2013).

If you want to learn more about my research, check the “EBook and Papers” page on my blog and watch the videos in the Video Analysis & Forecast section.

 

Please let me know what you think about the content of this article. Go ahead, leave a reply in the form below.

 

In my research and practical trading I study the effects on price of classes of algorithms in high volume markets. If you are interested in a new and effective trading edge, check my work at www.fibstalker.com.

 

Happy Trading

~FibStalker

WHO IS GIUSEPPE BASILE?

Giuseppe Basile
Giuseppe is a Certified Market Technician and swing trader, IFTA and SIAT associate. Holds a B.Sc. in Computer Engineering and a MA in Finance. In the markets since 2001, became trader and mentor in 2007. Studied with several traders in UK, Europe and US, adding over 7,000 hours of screen time between 2009 and 2013 alone. In 2012 launched FibStalker, a blog specializing in forex, futures and stocks trading, where he also runs a free newsletter and publishes daily videos with actual setups and complete trading plans.

Giuseppe’s unique method attempts to spotting footprints of Program Trading, a powerful class of algos that governs the markets. Giuseppe is a rigorous researcher with several published papers about money management, automated trading, HFT and innovative timing and trading methods.

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