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Thursday, July 28, 2011

Thursday

..When people talk of curve fitting - it's usually a negative thing - and it is usually because people are trying to get a specific stock, index or what ever fit their formula...almost to try to make stock or whatever move according to the formula they are using.
    -Steamtechcleaner

 
Thank you for asking this question!
As a trend ages the patterns will tend to widen.  I draw the forks to the 0.618 Fibonacci Fan at first and then change it to the .786 later.
Also I'm not always correct and when it becomes obvious that the fork should have been positioned differently I yield.   The Fibonacci Fans are a very good way to double check the fork, but sometimes you have to move it around until it appears to track the pattern.  Generally I start with 0% at the first peak or valley, but the market does not always follow perfect math formulas so I use it as a guide not an absolute.  The longer the trend trend, the easier it becomes to find the right placement so refinement is allowed.

The forks are fractal in nature and show the trends in various time frames very well.  By fractal I mean that smaller forks can be drawn within larger forks.  But even if a fork needs to be moved later, chances are it will serve you for a while.  Drawing forks is not as simple as it looks.  It takes practice, and is open to debate which I would like to see more of.  Like I said I'm not always correct and often miss seeing the best positions. 

I present this blog for two reasons:
1. It's a great way to go back and learn from my mistakes.  Even if you don't blog, keeping a diary of your trades is very beneficial.
2. I want to help others keep their forks aligned.  Here again if more people were to share their fork placement, the collective knowledge would benefit everyone even better.

When placing forks I also look at the Volume Profile for guidance.  If an anticipated path intersects with both the outer channel of the fork and a low volume area, then it has an even better chance of being correct.
I also use volume, candle sticks and internals to confirm a break out.  The Ichimoku Kumo can also be a supportive tool when looking for areas of support and resistance.  

When I speak of symmetry I mean that the fork should look balanced.  This is quite subjective, but after awhile you will see what I mean.  This does not mean that forks are always balance. Occasionally  only one side of a fork gets filled and a strong move blows right through the other side without trading even once between the handle and the tine.  Generally when that happens it's because the initial fork was drawn too small and that you should go back and check it with the Fibonacci Fans and open your mind to an even larger patten.  This comes back to what you said about curve fitting.

1 comment:

  1. Bob I'm very grateful for you sharing your thoughts. I've learned so much from your examples of technical analysis and appreciate your thoughts as it helps emensly when sieving through the market to emotional contrasts.
    By the way how do I post pictures here?
    Also your fib fans are Awsome. I really need to Spend time learning how to add additional plots to mine. Thank you for sharing your blog and thoughts please continue with your vortex....

    ReplyDelete

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