Stewart sent me an email about a trade he made in GMXR Friday. He traded a set-up in the 15-minute chart, with an entry on a break of the third bar high. There was also a set-up on the 30-minute chart, with an entry on a break of the second bar high.
Stewart's exit was the lower line (38.2%) of the retracement zone from the previous day's high to the opening range low. It was a perfect exit, as price reversed exactly at that level.
Stewart's set-up gives me a chance to elaborate on exits at the retracement zone. When I say retracement zone, I mean the three lines you see on the chart which are actually the 38.2, 50.0, and 61.8% retracements of the associated high and low. When I say exit at the retracement zone, it could mean at any one of these lines. How do you know where? You have to watch the price action - it could stall at the 38.2, or it could break through and go to the 61.8%. If you want to be conservative, always exit at the 38.2%. But, if you subscribe to my school of thought which is take fewer trades and more high-quality set-ups, you should have the bandwidth (the time) to watch the price action and know when to close your positions.
Also, if you have a 34MA coinciding with the retracement zone (or just above/below the retracement zone), that usually represents a good area to exit (look through some of the past charts on this blog).
Read "WELCOME AND LINKS TO KEY POSTS" for additional information.
How to trade market corrections
11 hours ago
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