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3 hours ago, Caracappa said:

Most pennants are formed exactly on fibonacci levels and known resistance/supports from previous years. Indeed because many traders use those levels to decide resistance/supports making it a self fullfilling prophecy. Once they reach the resistance level traders start selling some anticipating a drop. If it drops they buy again and traders start trading multiple times within a bouncing range to try and make some well-timed profits. Over the next few days less and less people trade the bounce inside that range because the risk/reward shrinks and so reducing volatility untill the smaller waves are forced into the narrowing pennant, forced to make a decision up or down eventually.

That seems like a reasonable interpretation, I also suspect this is what is happening, however, it's the (frequent) straightness of the lines forming these triangles that bothers me. One might expect traders to fit a normal distribution in terms of how much they will put in on a short term trade,  the time they will hold for, what profit to expect (%), and also the amount they must pay in fees (which often drops to lower rates for frequent traders). The combination of these parameters would lead me to think that there should be non-linear movements in trading around these points. However, as I write this, I realize what nonsense it is - I am assuming that everyone is converging on a "price" where the true value at that moment lies, when in reality, nobody has any idea what the value is and the trades are only based on whether they think it might rise or fall in some timeframe (and the timeframe is random - at least in terms of #number of candles in the future ....)

The nature of the fibonacci  levels themselves is also a curiosity. On what basis are they chosen other than a self fulfilling prophecy that rises and falls will land on these points. If there was a good reason, based on economic fundamentals or a mathematical relationship between prices and times, it would be interesting to know. I presume the TA experts on these threads have read up on this and there is a good explanation? 

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6 minutes ago, jbjnr said:

The nature of the fibonacci  levels themselves is also a curiosity. On what basis are they chosen other than a self fulfilling prophecy that rises and falls will land on these points. If there was a good reason, based on economic fundamentals or a mathematical relationship between prices and times, it would be interesting to know. I presume the TA experts on these threads have read up on this and there is a good explanation? 

Interesting question. When searching on Google for it most answers are "If all traders use them, they automatically become important trading points". I guess there can be a whole debate why fibo's show up in nature and whether it's some sort of universal law for certain things. But for trading I think it is mostly the earlier explained self-fulfulling prophecy...

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My two cents:

16 hours ago, jbjnr said:

The triangle/flag/pennant/wedge/channel patterns keep reappearing time after time and have made me very curious, because once a pattern starts to form, it's clear that thousands of TA chartists are drawing these lines and then trading based upon them (or so it seems to me). This causes the lines of support and resistance to become "real" and the become self perpetuating. They certainly happen in fractal dimensions, from the shortest timescales/candles to the larger ones.

Retail traders do not have the capital to create support and resistance. This is done by the big movers in the market. You are right though that common retail trading techniques are exploited by the market makers for liquidity, most commonly in 'stop runs'. This create things that people like to call 'false breakouts', etc. 

11 hours ago, jbjnr said:

The nature of the fibonacci  levels themselves is also a curiosity. On what basis are they chosen other than a self fulfilling prophecy that rises and falls will land on these points. If there was a good reason, based on economic fundamentals or a mathematical relationship between prices and times, it would be interesting to know. I presume the TA experts on these threads have read up on this and there is a good explanation? 

There is nothing magical about fibs. They are just another way of imposing a pattern on the market. Sometimes the price goes there and sometimes it doesn't. This is one reason why I'm so skeptical of 'market cycles'. A lot of the time it seems like it's a guy drawing a fib on a chart and say 'it's gonna go here for sure'. Basing your whole trading strategy on a fib seems risky to me.

The beautiful thing about the market is that it will reflect back to you whatever you want it to. It is like a Rorschach of your hopes and fears. People see animal patterns in it, heads and shoulders, cups and handles, lies and promises. If you want it to go up it will look like its going up, if you want it to go down it will look like its going down. If you want it to go up and someone tells you it's going down, inexperienced traders will lash out in anger, to protect their illusion of the market. People can hold onto such illusions deep, deep into the red, even til they have nothing left. 

This is the same with experienced, successful traders too (I'm not one, but I've met them). They too hear the siren call of the market, but they have trained themselves to dispassionately follow a plan. They have a checklist, if it's not completed then they don't trade. When the checklist says it's time to get out, they get out. They strap themselves to the mast and put on autopilot. They have enough experience to know their system works most of the time. They know that if they don't tie themselves to the mast, they will go to the Sirens. What man wouldn't? 

There is a reason 90% of traders lose money. If it was as easy as drawing a line on a chart then you would think more people could do it. Doesn't that tell you that maybe the lines and shapes don't mean that much?

Edit: I've been a little unfair to 'lines on the chart' here. They can provide some clarity on what the market is doing. A huge percentage, perhaps the majority of successful trading, is about psychology. Even if you know exactly what the market is doing you can still fail because of poor trading strategies and poor psychology.

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