TRADING SYSTEMS
periphery of price as the market prints
structure – the extension
‘golden zone’ - where, quantitively, price is not expected to move beyond.
There are contrary opinions about Fibonacci in the trading c ommun i t y . After all, if you are going to accept the Golden Mean and Ha rmon ies, then why not astrology and the phase of the moon and see how may i m p os sib le things
to
believe before breakfast. But the reality is that these numbers can be self-fulfill ing , and where else will human programmed algo’s place their resting liquidity? HAL 9000 in Kubrick’s 2001 was the apex of technology, but the most human of the crew. Algo’s are programmed to be the best technical traders. This is a different take on the notion that we trade or take profit at extensions based on ‘faith’ in Fibonacci; the data series presented shows a quantified niche that needs no faith.
Algo’s are programmed to be the best technical traders
advantage of Fibonacci extensions in this article is that they are based on the print of the previous daily range, instead of standard deviations from an arithmetic mean. Additionally, it’s not only market making algo’s that rely on mean reversion to help them rebalance inventory risk, as studies have
shown; students of price
inefficiency can use extension zones as context to exploit price behaviour as part of an intraday
Quantifying the Extension ‘Golden Zone’
Traders familiar with Bollinger Bands should note that Fibonacci extension ranges provide an alternative method to gauge overbought & oversold. The
rebalancing strategy, divergence techniques, The Golden Zone
Te Golden Zone is the extension area beyond the previous daily
range
which is shown to provide a ‘container’ for price, providing a context in which to trade. Trade ‘context’ is less talked about than price patterns or behaviour. A strategy exploits price behaviour in context, and the discre t iona r y trader can select
from a tested set of tools (price behaviours) to trade the context effectively.
Figures 1 thru 5 show how price is contained as it moves towards extensions
of the daily
FX using among
others. This is shown later by example.
range
defined by the Fibonacci extension ratio’s 1.272 (127), 1.618 (162) and 1.786 (179).
The keynote is that price is less likely to break the 162 (and 179) FX TRADER MAGAZINE January - March 2018 41
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76
