FibGrid | The E-mini Trading Professor

More Notes on FibGrid from a Technical Analysis Skepticyes,

December 25th, 2010 |

Author: admin

Years of trading experience has reinforced a single, indisputable fact; prices tend to stop and start along common lines. The reason for these phenomena is poorly understood, as is the position of the exact point these lines utilize for their stopping and starting points. This observation is not an extraordinary revelation for anyone who has spent any length of time in front of a trading chart. Often called support and resistance lines, these stopping and starting points are evident when observing the price action on any futures or stock chart.

The world of Efficient Market Theory would have us believe that these areas of support and resistance are the result of random market movement where supply and demand are in equilibrium. In an academic sense, this explanation makes good sense, as there does not seem to be a discernible pattern in either the lines of support or lines of resistance. It might also be useful to note that once a line of resistance is passed through by the price action, it often becomes a line of support, and vice versa when considering support lines. In short, it is common for most lines to be, at one point or another, both support and resistance; it all depends upon the time period under analysis and the movement of the underlying assets price action.

There have been a wide variety of attempts to quantify the location, or predicted location, of these support/resistance lines. Floor traders pivot points have been a popular support/resistance predictive device for quite some time, and can be very useful. On the other hand, pivots points can often be far off the mark and, on some days, completely irrelevant. There is no reliable way to determine on which days the market will honor floor traders pivots and which day they ignore them. That, of course, creates a problem for traders and pivot points…it is difficult to discern which day to use pivot points and which day to ignore them.

FibGrid on the other hand, has added much needed clarification to the support/resistance equation. As anyone who has consistently read this blog can attest, I have been a long time critic of the vast array of technical trading tools that have come to market. Everything from goofy robots, to elaborate charting programs have all been tested and found wanting. But this darn FibGrid actually works, and I have been forced to retract my iron clad condemnation of technical trading programs. It is most embarrassing.

David Starr describes the program most eloquently:

“The tendency of financial market movements to be proportional to other movements in ratios that have Fibonacci proportions is well documented. For example, many know that prices often retrace 38. %, 50%, or 61.8% of a move. Others know of some of the common projection ratios and we use many of these in our analysis. Less known is the FibGrid technique that projects a series of possible support and resistance levels based on projections from the beginning stages of the last bull market of significant degree.

The amazing thing is how prices tend to find these support and resistance levels that were projected from prices years earlier (sometimes even decades earlier) and those projections provide levels that are meaningful in almost all timeframes, including short day-trading timeframes. This 2584 share chart of the emini Dow futures shows how price obeys FibGrid levels on intraday movements. The key values for the projection of these levels were set back in 2002 and the support/resistance levels shown today have not moved since then. Prices still find them.”

I use FibGrid in my trading room and wouldn’t consider trading without the program running. There are many lines that appear in the FibGrid program that might normally be ignored by the average trader, yet time after time I notice price action stopping on these less than obvious lines, sometimes right to the exact tick.

It would be difficult to calculate how many point I have made or been prevented from losing using the FibGrid program, so my endorsement is primarily anecdotal; but I am often astonished at the accuracy of this program in identifying support and resistance.

I would like to point out that FibGrid, in and of itself, is not a complete trading system. This program will only make you existing trading system far more effective and profitable.