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Wednesday, March 15, 2006

RIMM - 031506; 15-minute chart

1.) What did I see?
A gap up and strong, wide-range first bar. The second bar closes above the opening range (OR) high, but the third through sixth bars fall back and consolidate just below that level. The seventh bar forms a narrow-range (NR7), inside bar that closes at it's high.
2.) What is the entry?
A break of the seventh bar high*. Another more conservative entry is marked on the chart - a break of the twelfth bar high. This bar was a narrow-range, inside bar ABOVE the OR high.
3.) What is the exit?
1/2 was sold after $1 gain; the target for the other 1/2 was the Fibonacci extension of the previous day's low to the opening range high. I decided to see how price acted at that level before I closed the remainder of the position (maybe because of comments from yesterday!). The nineteenth (2:00) bar was wide-range and closed above the Fibonacci extension, indicating a good probability of a continued move in that direction. After three bars of consolidation, the rally continued. The remainder of the position was closed at the end of the session.

Set-up grade = B (it was below the OR high); I give the conservative entry noted above an "A".

*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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Shay, Israel said...

Hi X
That was a great trade and a good example of sticking with the trade to the 161.8% extension, as volume and volitility incresed at about 14:00.


Trader-X said...

Thanks. Just to be clear to my readers, though, I see more stocks reverse at the 138.2% (what I refer to as the "Fibonacci extension") than continue to the 161.8% - especially in the shorter-term which is what I trade. But, as I always say - if price sets-up above that Fib extension, the rally has a good chance of continuing. Also, if I have closed 1/2 of the position and have a nice profit, I may wait to see how price acts when it reaches the 138.2 - as I did with RIMM.

But, generally speaking, closing the position at the Fib extension works best for me - and provides consistent profits.