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Tuesday, March 14, 2006

ECA - 031406; 15-minute chart

Note - Blogger seems to be experiencing some technical problems, so it may be a while before I post again.

1.) What did I see?
A gap up and strong, wide-range first bar. The second and third bars attempt to break through the opening range (OR) high set by the first bar; they fail and leave upper tails/wicks. The third through sixth bars also fail to break the opening range high, but they remain in the top 1/2 of the first bar's range (bullish) and they narrow in range. The seventh bar leaves a short lower wick/tail and closes strong; with the exception of the fifth bar, it is the narrowest of the morning.
2.) What is the entry?
A break of the seventh bar high*.
3.) What is the exit?
The target was the Fibonacci extension of the previous day's low to the opening range high; it was hit five bars later.

I re-entered the trade on a break of the fourteenth bar high - as I have pointed out many times in the past, if price sets-up above the Fibonacci extension it is likely that it will continue to move in that direction. ECA was a great example, as the fourteenth bar formed a "hammer-like" candle on the Fibonacci extension (the twelfth bar broke though the extension, and the thirteenth bar made a shallow pullback with very little penetration into the twelfth bar's real body) . ECA continued to rally and I closed the position on a break of the twenty-third (3:00) bar's low.

Set-up grade = B, and B

*as with any entry below/above a previous high/low (in the case of my charts, the opening range (OR) high/low), you need to watch for resistance/support as price approaches those levels. If it stalls, you want to exit. If it breaks through, the odds are good you will have a move to the corresponding Fibonacci extension.

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Mark in NJ said...

Hey X, love the blog and thanks for comments. On ECA, what about an entry on a break of the eighth bar high? You have done that in the past, and it is what I was looking at today.

Great trade on the second entry above the extension. Thanks and keep posting!

Trader-X said...

Hey Mark, of course you are right. I just got caught up in my entry. A break of the eighth bar high was actually a more LOW risk entry, as price closed above the OR high. I would give that set-up an "A". Great job.

Anonymous said...

Hi X
Love your blog and trading tactics. I learned a lot from this blog.
I notice that you use a Fibonaci extension target of 138.2%. Why don't you use other extensions (like 150% or 161.8%)? It seems, at times that you leave a lot of money on table. Don't get me wrong, any profit is a good profit, but there are times when stocks like ECA and other examples you posted in the past, had a strong move towards the 161.8% extension.

Love to hear your comment.


Trader-X said...

Hey anonymous (post names guys!!!)

That is a great question. And my answer is similar to why I use a 34MA...I learned a long time ago to pick something and stick to it.

I have found through experience that price reverses at the 138.2% line more than it continues to the 161.8%. So, it makes sense to take money off the table at that point. Having said that, this chart (ECA) provides a perfect example of how I take advantage of moves beyond the 138.2%...if price sets-up above the 138.2%, it usually continues to rally. As I pointed out in this post, I took a second trade based on that premise, and caught another move up.

Bottom-line is you are right - I sometimes leave money on the table. But I consistently make money by sticking to my plan, and I am still able to catch additional moves beyond my targets in many cases.

Hope that makes sense...