3% in six minutes

Three different views of the same chart for you to ponder over the weekend. This setup happens many times a week.


Chart #1:

Fibonacci lines plotted from the previous day's close to the current day's open. My thoughts - strong first bar, orderly pullback, no resistance to the Fibonacci extension (FE).




Chart #2:

Fibonacci lines plotted over the high/low of the opening range. My thoughts - orderly pullback that didn't break the 50% retracement of the opening bar's range, "hammer-type" candles with (bullish) long lower tails.




Chart #3:

The horizontal line represents a "whole number" - $19. My thoughts - nice target that corresponds with the FE mentioned on chart #1 above.




My actual entry was a break of the fifth bar high. My exit was $19.

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Happy Friday

Other than responding to a few comments, I haven't looked at the site too much this week. When I do my weekly review over the weekend, I'll pick a chart or two to post. Enjoy your Friday!

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Tom C's "u-turn" setup on a 2-minute chart

If you aren't familiar with the "u-turn" setup, do a search using the box in the upper left corner.

As discussed in my earlier posts, my Fibonacci lines are plotted from the previous day's close to the current day's open. Price bounced perfectly off the 50% retracement and proceeded to rally to the Fibonacci extension (FE) where it promptly reversed. I entered on a break of the sixth bar's high (an offsetting bar in my language) and exited at the FE for a .90 gain in less than 20 minutes. In addition to the bullish candle formation, price was supported by the rising 8EMA.

note - if you trade later in the morning, CPX presented more entry possibilities as it rallied past the FE.



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Questions and Answers

Here are some questions from the comments in the past few posts, along with my answers.

Q.) Where did you exit?

A.) I exited my initial position at $28.20. I would have been happy exiting at $28, but I didn't have a sell order in and it rallied strongly through that level. I closed the position shortly thereafter as price was overextended and due for a pullback.

note - if you were looking for a probable second entry, you would want to watch how price reacted to the $28 level on the pullback (GMCR presented a few opportunities).


Q.) What was your initial profit target?

A.) I entered the trade with $28 as the target, and I kept a close eye on the $27.50 level for resistance. Price was very bullish around that level, and launched off of it (if you were inclined to add to a position, you could have done so here).


Q.) Why the 8 and 100EMA? How does that compare to other MAs?

A.) For any MA question the answer is simple - I use those because, for the charts and timeframes I look at, they work the best. But don't get caught up in which MA is better, because any MA will yield setups some of the time. If you could plot a 42.385EMA, you would find valid setups.

I look at hundreds of charts every week, and I have become focused on this timeframe. For how I trade, these MAs offer the most - and highest probability - setups. But don't use them because I do - use what works best for you, your timeframe, and your setups.


Q.) How do you prepare your watchlist?

A.) In the past I have had many posts on compiling watchlists - most are still valid, and I suggest doing a search (or looking through the "links to key posts" at the top of the site). Currently I use the gap lists that are in my trading software (Realtick). I spend the first minute combining four gap lists into one, and I am scanning through my "master" watchlist sixty seconds after the market opens (the master watchlist is sorted by volume so those stocks always float to the top).


Q.) How can you do detailed analysis on all the stocks on such a short timeframe?

A.) Practice and experience - I have been doing this for many years, and with a quick glance I can picture where the Fibonacci lines are without having to draw them. I understand my candle patterns and since I only trade a handful of setups I am extremely focused on just those; I don't have to stare at a chart for minutes on end asking "is there some kind of setup there?"

I probably average around 5 seconds on each chart, and I usually limit my focus to the first 20 charts by volume (remember, I sort my master watchlist by volume). So within the first five minutes of trading I have already seen each chart a handful of times.

More to come in the next week.

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Happy Tuesday!

I have a few busy days outside of trading, but I will document all questions from the comments in the last few posts and answer them in the next day or so.

Thanks for reading!

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The evolution of my strategies (part 3)

Make sure you read the first two posts - and the comments in each - before you read this one.

On this chart I show the other indicators I use which - in conjunction with Fibonacci lines and candlesticks - make up my repertoire. I have removed the Fibonacci lines so you get a clean view; on the chart you see:

1.) 8 period EMA
2.) 100 period EMA
3.) A black horizontal line representing a "whole number" as Tom C. calls it - in this case, $27. Refer to some of Tom C's previous posts for the importance of watching these dollar levels for support and resistance.
4.) A red horizontal line representing the Pivot Point (calculated using the standard pivot formulas in my software package).

As you can see, the first three candles print strong green bars and rally through the moving averages, the pivot line, and the $27 level. Price then pauses and pulls back to test those levels and is met by a rising 8EMA. The hammer-type candle forms, and the rally continues. If you remember from the previous post, looking at the Fibonacci lines you have a valid "beyond the Fibonacci extension" setup with price testing the FE as support. If you are keeping count that is five areas providing support for price to rally.

I will make another post in the next day or two answering questions from comments and documenting any other thoughts on this trade. But I encourage you to go back and look at your charts for similar setups and see how they work.



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The evolution of my strategies (part 2)

There is some great analysis in the comments of the last post...take the time to read them.

The first thing I will discuss is plotting Fibonacci lines. There are numerous ways you can do this, and if you have read this blog, Tom C., Trader Jamie, TRADEthemove, or the other resources that are out there you will see many different ideas. And, they all work! As I said before, the key is finding what works for you and sticking with it. You can plot lines over the previous day's range, the previous two day's range, the previous day's open/close to the current day's close/open, the morning session's high/low, or most swing highs/lows (et cetera) and they will all yield valid setups. But if you try to chase all of those different methods over the course of your daily trading, you will most likely miss the good setups and your performance will be mediocre at best, and a disaster at worst.

Consistency is key - there is an old saying, "if you chase two rabbits, both will escape." Figure out what works for you and your style, and focus until you perfect it!

As I mentioned in the last post, I am focused on making the majority of my money in the first hour (or two) of trading. I have found that plotting my Fibonacci lines over the previous day's close to the current day's open yields the highest probability setups for that timeframe.

If you plot the Fibonacci lines as such on the GMCR chart (see below), you will see that price rallied off the opening low, through the retracement zone (RZ), through the Fibonacci extension (FE) and then pulled back to form a hammer-type candle (5th candle) above the FE. There is a setup that readers of this blog know - "beyond the Fibonacci extension"*** - and GMCR forms it in a near textbook manner ("near textbook" because I would have preferred the 5th candle to be a green hammer, but nothing is perfect).

Based on just this information alone you had a valid, high-probability entry. But there are a handful of other indicators that contributed to GMCR being a solid opportunity. I will discuss those in the next post.



***use the search function at the upper left of the site to find similar setups.

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The evolution of my strategies...

As I mentioned in the previous post, my trading has continued to evolve and I am very much focused on making the majority of my money (and spending the majority of my time) in the first hour of trading. I have stated in past posts that based on my research and experience, setups in the first few hours offer the highest probability trades. So everything comes together nicely.

If you are familiar with the years worth of charts on this blog, everything (setups, indicators, timeframes) is still valid. But I have fine-tuned my indicators, how I plot my Fibonacci lines, and the timeframes I follow. So, some of my new strategies and thoughts might appear to contradict things from the past. But in reality, they don't. There are always valid setups no matter how you plot your Fibonacci lines, or what MAs you use, or what timeframes you follow. The key is finding what works for you. The secret to success and longevity is to pick something and stick with it, and not switch at the drop of a hat. Change is fine, especially if it is part of the evolution of your strategy. But switching from 15-minutes to 5-minutes to 30-minutes and back again, or plotting a 34EMA, then a 13EMA, then a 50SMA from day to day and week to week will only ensure that you self-destruct at a rapid pace. Consistency is key.

I made a good post emphasizing this point back in 2006 titled "Chasing Success" - read it here. I also made a follow-up post here.

Having said all of that, I will outline some of my fine-tuning over the next few posts, and I have a good chart from today's trading that will allow me to do so - GMCR. Below is a 2-minute chart of GMCR "naked" - no indicators or Fibonacci lines. Don't get caught up on the 2-minute timeframe, as these patterns will appear on any timeframe. In fact, a word of warning - trading timeframes this fast can be extremely dangerous unless you have perfected your setups and entries/exits. If you think losing money on a 15-minute timeframe is difficult to stomach, moving to a chart this fast may bring on suicidal tendencies. I made a post back in 2005 about trading fast timeframes, and although I have now migrated to a faster timeframe personally, this advice is still worth reading.

Back to the chart. This is the kind of setup you can find multiple times a week, and if you only focused on this your could probably make a living trading. But 99% of us lack the discipline to do that, so there is little danger in it becoming a reality. As you look at this chart the key question is, "how could you have anticipated the setup was going to be a runner (ie, a nice gainer) after the first five bars?" Over the next few days I will post the things I saw in the setup that pointed to a high-probability trade. But for now, try to answer the question on your own.



10/14 edit - so far, great analysis in the comments. I will post what I saw, my thoughts, and a few updated charts over the weekend.

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Back from the dead?

Greetings. My engagement has officially ended and I am free to post again. The question is, to post or not to post. That, repetitively, is the question.

There are many days I miss blogging and interacting with faceless names on the Internet. And there are many days when I don't. I certainly have a lot of new and interesting things to share as it relates to trading, Technical Analysis, and Fibonacci strategies. But over the past year plus I have also seen and met several people who "tried their hand" at trading and failed miserably, and a part of me wonders if blogs like mine might adversely influence people.

I have never claimed trading is easy, only that it can be done successfully with a lot of hard work, study, and patience. To be sure, there are more failures than successes - but that is almost always because someone is looking to make a quick dollar and does not approach this business with the proper mindset. And to those that approach trading as if it were gambling and risk their life savings, their houses, and worse yet go into massive debt trying to trade - you are what creates the stereotype that makes the rest of us look bad. Go to Vegas and lose your money there instead.

So I have to weigh the pros and cons, as well as some of the other things about blogging that can be disturbing. I am not sure where I will land, but I wanted to check-in and say hello to everyone. As far as my trading - I have honed my strategies even more, and 75% of my trades are now complete within the first hour of trading (95% of my trades are easily complete within the first two hours). I am pleased with my style (which still closely resembles what you can find in the blog archives) and with the time I spend each day in front of the screen. There will always be room for improvement, but overall my accuracy and profits are better than ever.

I hope everyone out there is having a wonderful year, and I look forward to [possibly] re-connecting in the coming months.

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