Fibonaci Numbers - Depth Added

[Lance]

There is a long term debate which has been going on since time began. Newton and Leibniz puzzled over it, as have many before and many more will still do so.

The debate is also present in the Forex field.

Some Forex traders believe that we as traders follow patterns (such as Fibonaci numbers) which in turn changes the time and trades of each transaction, which then leads the price action to emulate those patterns. Others claim that the price actions follow the actual patterns.

In other words it is the Free Will / Predestination debate.

So here is some food for thought about the whole issue.

Firstly, it is improtant to realise that the Fibonaci numbers themselves, ie. 1,1,2,3,5,8,13... are not as important as to the number Phi that they lead to.

( 0+1=1;1+1=2;2+1=3;..+..;987+610=1597;1597+2548=4181;etc. then from the 18th cycle of the sequence and onwards (1597+2548=4181) you divide the current answer (2548) by the previous one (1597) and you end up with Phi = 1.618034.

Now if you were to use any other 2 numbers for the start of the Fibonacci Sequence, for example 98778.2321 and -0.1112455 you end up with the same result.

So, the important part is using Phi, and the derivatives of Phi for some wondering and pondering.

I assume you are familiar with the Fibonnaci lines, as well as the Fibonnaci Fan options available on metatrader programs. Instead of using the 'usual' 3 numbers that are set as the Fib Fan base, I started messing around with derivatives of Phi.

1/(1.618034^(1/1))= 0.618034; 1/(1.618034^(1/2))=0.786151 ; 1/(1.618034^(1/3))=0.8518 (in Xcel, ^(1/3) is the cube root)

I used various derivatives, and used those numbers in the FibFan.

Here is where things start getting interesting. The first set of numbers I used were the following,

0.14590 0.23265 0.38197 0.48234 0.61805

0.78615 0.85180 0.88665 0.90824 0.92293

0.93357 0.94162 0.94794 0.95302 0.95720

0.96069 0.96366 0.96621 0.96843 0.97037

The following pic was captured on 30th December 2010 20:01 London Time, GbpJpy.

Notice that the FibRays are NOT on high's and lows of any importance. They are on 2 random bars. In fact, they can also be set to opens and closes, or highs and highs, lows and lows or close and low or any other variant. Yet the Price Action STILL follows the Rays at points into the past data, as you can see with the inserted pic within this pic.

The second pic is a few minutes later (20:42 to be precise) and I have added a second set of Fib Rays at the previous highest high and the bar after that ones low.

I think you can safely say that there are not a great deal of people that use these numbers in their Fib Rays. OK, granted, in the first 5 numbers, 2 of them are extensively used (0.2326 0.382 0.618 which is very similar to 0.23265, 0.38197 and 0.61805). So the idea of Price Action being 'led' by us traders is already weakening.

Primarily because the FibRays work on ANY bar regardless of whether it is a high,low,open or close placement. Also it does not need to be used on Lowest Lows and Highest Highs. Yet since the first 2 pictures used 3 'normal' Fib numbers, the proposition is not fully strong.

So now I choose to use random choices of the many Phi derivatives that exclude the 'normal' Fib Numbers. Let us see what it shows.....

0.988332 0.435731 0.421914 0.737180 1.009121

0.989593 1.007920 0.731460 0.438319 0.976227

1.510540 0.723293 1.061997 0.724384 1.371728

0.957197 1.481331 0.446621 1.667437 0.450178

If you are not clear on what I mean by the Phi derivitaves, check the Xcel file attached.

As far as the Indicator goes, it is easiest to start it with the setting 'All_Fibs_On = false', then it places the FibRay bar on your screen but no Rays. That allows you to select the bar so you can move it around which is difficult to do if all the rays are already there. The last setting says ' AllOn = false ' if you set that to true, the rays will be as my original numbers set above, but if it is set to false, you can place your own numbers in the variables from v1 to v20.

If you move the primary FibRay Bar, it will redraw the new rays on next tick, or alternatively you can change timeframes to do it for you.

If you set 'Delete_Fib_Base' to true, it means that if you delete the indicator, it will delete the base too. If false, it will leave the base behind.

To place more than one FibRay on a chart, you need to use individual ID settings.

Explore it, check it out...

As far as free will goes, the easiest way to think of it is this....

I can do whatever I want, but I have no choice.

[Chess4Life]

Great post! It's good to know more about what's going on "behind the scenes" with an indicator.