Fibonacci Extensions tool?
Author: trade4dough
Creation Date: 3/5/2013 7:03 PM
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trade4dough

#1
Is there a way to take, for example, a move up of a stock of $10 from a starting price of $100 and start at the beginning of that move ($100), drag to the top of that move($110) to set the point calculated, and drag down to the retrenchment of the move of, for example $105 to set the third point needed, and have the Fibonacci extensions plotted?

For example, using $10 as the value of the first move up what I would like to have is .618 of $10, or $6.18 added to $105, the next extension would be .784 ($7.84) added to $105, 1.00 ($10) added to $105, and then a 1.236, 1.382, 1.618, 2.00, and 2.618 (all x $10 and added to $105) and plotted?

I thought I read it is already a function but can't locate it.

Thanks in advance
T4D

P.S. In Think or Swim this feature is called Fibonacci Extensions. This is an example using an ETF SSO

http://screencast.com/t/MwNZiHM1IU

I apologize that I can't seem to upload the picture when saved nor make the link work.
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Eugene

#2
The built-in Fib Retracement tool lets you specify custom (arbitrary) Retracement Levels. To invoke the Properties dialog, double-click on the drawn Fib line.
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trade4dough

#3
I'm not sure we are talking about the same thing. What I have on the SSO chart above are not Retracement Levels, but Extension Levels. I've seen a dozen charting packages used that have them built-in as people post them a lot.

So I might not have been clear, or perhaps it's not possible, which is why I included that chart of SSO. If I draw the retracement line it only lets me add retracementt values, as I see it. All lines are then appearing between those two points connected by the lines. They are only retracements. To project prices above, in this example, it needs to move from where the drop stalled to project. What I would like to do is project UP off the pullback price (as well as the opposite way in a downtrend), as shown in the SSO chart. It needs not two points but three.

For example, if XYZstock has drifted down to $100 and a decline is thought to be over, then rallies to $150 and drops back to $125, if the market were to go back up that first rally was $50. If it rallied to $175 then that second leg up would also be $50 and reach a projection line previously draw after the drop to $125 to equal to 100% ($50) of the first move higher. But I'd also like to draw other lines besides just 100%. Fibbonaci projections would be at (of the first wave uo of $50) placed at 61.8%, 78.4%, 100%, 123%, 138%, 161.8%, 200%, and 261.8%..

As shown on the chart you need three values:

1- The starting price of the move
2- The ending price of the move
3- The retracement price of the move

With those three values you can predict where the next move up might run out of steam.

Was that clearer and is that possible?

Thank you.
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Cone

#4
We don't currently have that Fibonacci Extensions drawing tool, but I can work on that. I already have a couple new drawing tools that I'd like to add in a new MS123.DrawingTools Extension, but we'll need to wait for the next Wealth-Lab client release (6.5) before we can distribute new extensions.

Of course, these drawing tools are nice for discretionary trading, but you don't really know if they work until you actually program it into a strategy. What is the strategy for predicting extensions? What do yo do when the move extends 38.2%, 50%, etc.? If there is some literature on this, I am genuinely interested and could program/use the ideas in our monthly Trading System Lab article for Active Trader magazine.
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Cone

#5
I thought this would be easy to demo using the Peaks/Troughs indicators, but it doesn't really work as expected since, for example, the retracement might not be sufficient to create a peak or trough at the selected percentage. Play with this code, fwiw, but the exercise has all but convinced me that this tool can certainly only be used for discretionary traders.

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trade4dough

#6
QUOTE:
What do yo do when the move extends 38.2%, 50%, etc.? If there is some literature on this, I am genuinely interested and could program/use the ideas in our monthly Trading System Lab article for Active Trader magazine.


Yes, there's whole book on it called "Principles of Elliott Wave Theory" by Frost and Prechter.

The book is how the mkt moves, but Prechter has been a permabear since the 1987 collapse. Still, the mkt moves with these extensions.

Thanks for trying. Would looking at TOS code, assuming it is open source, help?
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Cone

#7
I've got the book and understand how you'd use it in the context of Elliott Waves (way beyond the scope of a trading strategy), consequently the drawing tool for discretionary traders is the way to go.

The TOS code wouldn't help and isn't necessary. The concept is simple and mostly programmed above - it's just that that peak/trough method for identifying the first line isn't likely to pick the points that you'd pick by manually drawing the line.
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streak

#8
Is there a lot of self-fulfilling' turns on fib points (seems to be) ?

Having a discretionary tool would allow incorporating concepts initially recognized visually before transferring into some system (using another app I have checked fib points off for years).

So for eg checking range breakouts with a tool having a number of extensions could ascertain the worth of coding up an exit if a consolidation occurs regularly and quickly after some particular range extension.

An extension drawing tool would be appreciated.
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trade4dough

#9
Dear WealthLab,

I'm surprised in as sophisticated a platform as WealthLab that extensions are not already there. Virtually every other platform has them.

Is there any chance this will be implemented very soon? I ask that because there are a few sites that write articles on Fib Extensions such as SeekingAlpha and MarketWatch. And when the mkt makes a move to where they projected it to go, by using these extensions, they race to print and it brings in subscribers. One guy has over 400 people logged-in right now at $99 a month.

I can't even begin to use a platform during real-time without this tool. It is that important as well as that good for day trading.

Thanks
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trade4dough

#10
Streak: "Is there a lot of self-fulfilling' turns on fib points (seems to be) ?"

These extensions have worked for many years before high speed computers semi-destroyed the flow of markets. And with 2000 PhDs on Wall Street now I have no question that they act at these levels.

Good luck
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Eugene

#11
QUOTE:
I'm surprised in as sophisticated a platform as WealthLab that extensions are not already there. Virtually every other platform has them.

Perhaps because, as Cone pointed out above, Wealth-Lab is a sophisticated systematic backtesting platform, and manual drawing tools are not necessarily in the focus of most mechanical traders looking for more quantifiable approaches?
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Cone

#12
Preview of a new Drawing Tools Extension coming soon! MS123 Drawing Tools (click)
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Geibel

#13
Very nice.
Where will this be announced when it is available? On the home page (Recent Conrbutions)?
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Gerig

#14
Before there will be MS123 Drawing Tools propose to consider a simple script. Maybe it will help. However, it only for short positions.
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