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Wednesday, January 11, 2006

FFIV - 011106; 15-minute chart

Many people have emailed me in the past few months about set-ups at the Fibonacci extension. Often, price will reverse at that point and if the set-up is good, it could retrace back to the opening range (OR) low/high. Use caution with this set-up, as it is not as reliable as others I highlight on the blog; but, if you get a valid signal you will find several good opportunities a week.

FFIV is a good example today - though not a perfect set-up. I would prefer price actually touch the Fibonacci extension or if a hammer forms for the tail/wick of the hammer to penetrate and then rally from the OR low.

But, FFIV printed a textbook hammer and it was close to the Fibonacci extension, making for a low risk trade.

1.) What did I see?
A gap down with price falling through the opening range (OR) low in the first five bars. The fifth bar forms a hammer with a long lower tail/wick, and rallies from the low to close green.
2.) What is the entry?
A break of the fifth bar high.
3.) What is the exit?
1/2 closed after $1 gain. The other 1/2 closed at the OR low.

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