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Thursday, March 16, 2006

Mirror image

This is a variation of a set-up that I have featured time and time again on the blog. Basically a gap up with price falling back to the retracement zone and forming a buy set-up. The first target is the OR high, the second target is the Fibonacci extension.

IO - 031606; 15-minute chart

With IO, price begins to rally from the retracement zone (from the previous day's low to the opening range high) on the fifth bar, and price closes on the line. The sixth bar is the narrowest range of the morning (NRM is the newest "Frequently Used Term"), with a higher low and matching high. The entry is a break of the sixth bar high, and price rallies through the OR high to the Fibonacci extension over the next three hours. A low priced stock, good volume, a low risk set-up, and a narrow-range bar with only .05 risk to the stop; you could have taken a nice position and the total move was over 7%.

CPWM - 031606; 15-minute chart

Our infamous "bread and butter" set-up. Answer the three questions on your own.

Note - if you have not already noticed the similarities between these two set-ups, look again.

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Michael B. said...

Got it. So, do we call the buy a bread and butter set-up also>

Trader-X said...

Hey Michael - yes, I think we can refer to both of them as bread and butter - perhaps "bread and butter buy" or "bread and butter sell".

Englishman Trader said...

I saw the IO setup but I was concerned about the fact that the bar you entered off was a gravestone doji, so although it had a matching high to the prior bar, it finished at the bottom of its range and within the retracement zone.

I know you normally look for a hammer and a close outside the retracement zone, so what was it about this one that made you take it ?


Englishman Trader

Trader-X said...

Actually, I find gravestone doji's bullish...especially after a decline/downtrend and if price is moving into support. I know some sources say they are bearish, but others list them as bullish - such is the nature of candlesticks...there is conflicting information.

What is important is EXPERIENCE - based on my experience, gravestone doji's are very bullish if price can take out the high.

It is the same with a "shooting star" - in an uptrend, it is a bearish indicator...but many times if price takes out the high it can be bullish.

I am putting together a post on candles and will try to get it up this weekend. I hope this helps. FYI - here is a link showing a "gravestone doji" as bullish.