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Friday, February 18, 2011

ZMH - 021811

Most of you seem to really like the 5-minute charts, so along with the 2-minute charts I have been trading, I have been keeping an eye on the 5-minute timeframe as well. This morning ZMH provided an interesting setup.

Based on how I normally plot my Fibonacci lines - from the previous day's close to the current day's open - there were several positives and negatives:

1.) Positives - gap up, nice rally in the first four bars, an orderly pullback, and a nice hammer-type candle at the rising 5EMA.
2.) Negatives - I would have preferred the pullback to end, and the hammer candle to form, at the Fibonacci extension (FE) as opposed to a distance above it. And, if you took an entry on a break of the hammer candle's high, you were entering below a whole number ($64). So you had the potential to run into that level and get a quick reversal. It is worth noting, however, that price had previously penetrated the $64 level.

Now for a slight tweak, which I often do in my analysis. When you plot your Fibonacci lines from the morning's low to high (high being the point prior to the first substantial pullback), you will see that the pullback ends and the hammer forms right on top of the retracement zone (RZ). When viewed with those parameters, this is a textbook setup. I entered on a break of the hammer candle's high (sixth bar, if you are counting), and watched the $64 level and the previous morning's high for resistance. Price rallied through both of those levels and continued to the FE. My exit was $65. A nice trade that yielded almost 2% in less than 20 minutes.

Both charts are below in the order that corresponds to my notes above. Please note that due to some feedback in comments, I have tried to adjust colors to make the charts easier on the eyes. I may tweak them more in the future, but here is the current layout:

5EMA - black line.
8EMA - yellow line.
100EMA - blue line.
The "trigger bar" is marked with a blue arrow.
The Fibonacci lines are all white - the highest and lowest lines are what I refer to as the "Fibonacci extension" (FE), the next highest and lowest lines are the high/low of my chosen timeframe, and the middle three lines are the "retracement zone" (RZ).



Frank said...

Nice trade X, I pulled almost a $1 out of ZMH as well. I notice that often times if price fails at the fib extension, it sets up for a good short. ZMH is a good example of this as well, in bars 10/11. What are your thoughts on this type of setup?

Walter said...

Hey X, great post. I want to make sure I have your Fibonacci levels correct:

Fibonacci extension = 1.382 and -.382
Retracement zone = .618, .50, .382.

Thank you!

Chips and Salsa said...


The trade I took today is eerily similar, but I had a different outcome. I seem to have a knack for picking all of the fake-outs. GMCR, 5-min, PDC to CDO, 5EMA, entry on break above the 6th bar.

Set-up is exactly the same as ZMH in that the trigger bar hovers above the Fib Ext, but rests squarely on the RZ if Fib lines are instead drawn for the low/high of the morning's range.

Entry was at $42.11, just above the whole number. I keep getting stuck in these range-bound drifters or getting stopped out altogether.

Perhaps GMCR's morning range is too wide? It doesn't seem much wider than ZMH's morning range, but perhaps I'm wrong.

If GMCR didn't show up as a candidate for you this morning, then perhaps it's my candidate scanning that is flawed.

Any feedback is much appreciated, and thank you for all the great examples over the recent weeks.

Chips and Salsa said...

Oddly, the 10-minute time-frame for GMCR yields a hammer-type bar (5th bar) resting on the Fib Ext (PDC to CDO) but again yields the same sideways drift and eventual stop-out. I must be missing something. I've had a whole string of these lately.

Chips and Salsa said...


I feel really foolish. I never keep a 100EMA on my charts. Now I see why I should. Threw one up there on ol' GMCR, and whaddya know, the entire day's action is far below the 100EMA.

For you, does this generally nullify a gap up if the stock is still below the 100EMA? I mean, do you automatically dismiss it as a candidate?

Kris C. said...

Chips and Salsa, if I may I would like to comment on your trade vs. X's trade because this is exactly the thing that used to screw me up. First and what I consider the key difference - X's trade gaps up above the previous day's range/outside the previous day's range. Your trade gaps up into the middle of the previous day's range. Avoiding your trade type and taking X's trade type will increase your wins substantially. Second, you are below the 100EMA which means you have overhead resistance. Third, if you follow standard pivot lines, your stock's price is bouncing all around the pivot point which adds to the choppiness and indecision. Finally, your pullback actually penetrates deeper into what X calls the retracement zone. It is not a clean bounce off the top, and technically the upper white line of the retracement zone, the 38.2% retracement, is going to be resistance when price tries to move back up.

Again, I make these comments in a positive spirit. I used to do the exact same things as you, and another commenter pointed out these things to me and my trading drastically improved. I hope my comments help you in kind.

Chips and Salsa said...

Kris C.,

Thank you for your help and your analysis. I appreciate the feedback and certainly don't take it in any negative way at all. Great points all the way around. I am always learning and am open to helpful criticism and instruction. It's the only way I'll improve! So thanks! :)

Also, you're definitely right about the RZ lines, and I should not have said that the RZ was exactly like the ZMH set-up in that respect either. I meant to explain that it looked like it was squarely at the midpoint of the RZ and hi/lo range. But even then, it is still a few pennies off the 50% line, so not the most accurate comparison on my part, for sure. :\

You actually brought up another point that I am curious about. X had responded to me weeks back about not really paying any attention to Daily charts. And I understand that looking at Daily charts is not necessarily what you're suggesting here either when you talk about being aware of the previous day's range, as that can be analyzed by simply using a 2-day, 5-minute chart, not needing a 6-month Daily chart.

But it does make me wonder, how many days back do you typically look to ensure that an established range is sufficiently broken? I don't really want to go back to my old ways of Daily charts analysis, but my looking at only the current intra-day chart is obviously insufficient. Do you find that you only need to look at two days (previous day and current day)? Or is it more complicated than that (like looking at the previous week or two weeks)? :D

Marc W. said...

Nice trading and analysis!

bl said...

Nice chart and trade. Do you ever delete big points up/dn gaps, say >2, as less chance for continuation?I traded SPWRA 8/5" hammer like, 38F retracement prev close-open high. Was below the open. Terrible trade. Delete those that break the opening low. Plenty others to choose from and less scrolling. The importance of buying above the opening high-low 50% retracement level, at the FE, or retest of FE, or beyond FE.

Alex said...

Great post, X. Thank's for still been around and posting.
I'm just like previous commenter have lots of trades recently that just do not work, some failures I can explain, some - not. For example today it was INTU and ARUN. INTU worked pretty well, but ARUN was a miserable attempt. I use 3 minute charts, and it looked really well from my point, 7th trigger bar was standing on 5EMA, pool-back was above 50% of opening range, and then I entered on 8th. It reversed so quickly on 10th, that I even missed my mental stop loss.

Chips and Salsa said...


On Feb 5, you posted TSO and SIMG charts. Both of those trades had trigger bars that strongly closed above the Fib Ext with clear support from rising EMAs.

However, neither of those trigger bars had support beneath them (at or near their lows) from a horizontal Fib line, and the trigger bar for SIMG wasn't retesting any kind of support and didn't really represent a hammer or close at its high.

Are you more lenient these days about a) what type of candles qualify as acceptable trigger bars and b) about whether or not a candle has to be (nearly) perfectly supported at its low/close/open by a Fib line?

Or is it more about feel and intuition now that you have seen your strategies further evolve?

I've seen readers post examples where a perfectly formed, green doji resting beyond the Fib Ext is used as the trigger bar to enter a trade. I don't know if that's taking liberties with your methods or if I'm just being too legalistic about your methods.

I am confused when different readers give different views on the concept of what bars qualify as legitimate trigger bars, or whether a trigger bar's low, close, open, or general body/wick should truly rest upon, cross through, or simply be in contact at any point with a Fib line.

Tom C. rightly warned me that a candle merely passing through a Fib line is not a reason to take a trade. That I understand. But beyond that, the specifics get hazy for me. Other than Xanax, what might you suggest? :)

Trader-X said...

Lots of comments. I will probably start with the latest and work my way backwards. I may not get to everything for a few days. Chips and Salsa, on your last comment you talk about charts I posted on 02/05, and say "neither of those trigger bars had support beneath them (at or near their lows) from a horizontal Fib line, and the trigger bar for SIMG wasn't retesting any kind of support and didn't really represent a hammer or close at its high.".

Technically, they both had support from a horizontal Fibonacci line - the Fibonacci extension. Neither were classic break-through, pullback, and test setups though...so that may be the confusion. Regarding TSO, the trigger bar was a form of offsetting bar (one of the patterns I have discussed most on the blog), and the overall strength was compelling. You had support from a rising MA, a close in the top 10% of the morning's range, an offsetting bar, and a beyond the FE setup. On SIMG, you had a strong green bar as the trigger bar. What was key is it had support from a rising MA and closed above the FE, but also made a new high for the morning.

No doubt my trading is discretionary, and much of it is intuition. But, the best was to answer your question is to have you post examples of charts that failed and we can analyze them against what you think are similar charts and see where the differences exist!

Trader-X said...

Alex, how do you plot your Fibonacci lines on those trades? Looking at ARUN you had long upper tails on bars 2, 3, and 6 which meant you had sellers coming in there. After your entry on a break of 7, price rallied back up to the morning's high where it failed (see the previous tail in bar 2). It presented a very bearish candle with bar 9, and you could have used a break of that bar's low to signal a failure and exit with a small gain. Just a few quick thoughts before my morning coffee.

Trader-X said...

bl, is that trade from Friday 02/19?

Trader-X said...

Walter, yes...correct!. Frank, good observation. I have traded those before, but the reliability isn't as high as my other setups. However, it is high enough that it is worth looking at. If you apply the right trading rules, I think it has the potential to be a profitable strategy.

Kris C. and Chips and Salsa, nice comments and analysis. I will take a look at them in more detail later today.

Anonymous said...

Alex, ARUN also stalled at the .50 mark. Gotta watch .50 and 1.00 marks for resistance.


Alex said...

Thanks, X.

I plot Fibonacci from opening range low to high. Unfortunately comments do not allow embeddable images to show my exact chart. Here's a link: ARUN 3min
And on 2 min chart it looks even different: ARUn 2min

I'm always asking myself on those trades, what would X do? Would you have taken it and exited as you described after 9th bar low was broken? Or not taken it at all?

Thanks, Alex.

Times of Your Life said...

great trade and comments

um...will Trader X and you guys take the SVVS, 15min, (classic FE Trader X Plotting) PDH to current day first bar low, 5EMA
entered at the break of 6th bar low

here is my analysis why not working, see if you guys agree and want to add some of your comment to let me have further study in the future....

maybe the 6th bar is too far from the resistance and also the 6th bar is penetrate too deep to the RZ

Times of Your Life said...


here is what i see...
um....if that is how you plot your Fibonacci than you have meet your goal...

for 3 min chart, entered break of 7th bar high and exit break of 9th bar low or the 31.58

that is just what i think...maybe not right...

Alex said...

Times of Your Life, the goal there was Fib extension, which was somewhere around $32.3.
Sorry for broken links, here's a working set: ARUN 2min and ARUN 3min

Times of Your Life said...

ops.....OMGOMGOMG...i was reading Trader X blog (old post) and i realized i made some mistake in the previous comment that i made...

@.@ i must be falling asleep...
in the previous post i said stock symbol SVVS, but I gave you guys the wrong symbol ah..........

I mean "BBL"

let me ask the question again...@.@...

Will Trader X and you guys take the BBL, 15min, (classic FE Trader X Plotting) PDH to current day first bar low, 5EMA
entered at the break of 6th bar low

here is my analysis why not working, see if you guys agree and want to add some of your comment to let me have further study in the future....

maybe the 6th bar is too far from the resistance and also the 6th bar is penetrate too deep to the RZ

Sorry for the confusion...

but SVVS also have a nice trade for
5 min timefram, 5 EMA, plot PDC to CDO
enter at the break of 6th bar low (but you have to know the risk cuz of the OR)

Anonymous said...

Times of your life, you say 6th bar "penetrates too deep to the RZ", but when I plot the Fib lines it doesn't even reach the RZ..it reversed before then. Which is why I would not take it. I like the signal to come at the RZ. Am I looking at the right chart? Friday? BBL?


Times of Your Life said...

Thanks Terry

Yes BBL Friday chart...

um...i guess you are right, didn't touch the RZ yet and more risk involve with this trade