Fib1.pdf

Anatomy Of A Trade Using Fibonacci Price Analysis

By Carolyn Boroden

Fibonacci price analysis can be an extremely powerful trading tool, if used

correctly.

The typical argument against using Fibonacci price relationships to trade is that

levels can be projected all over the place -- confusing traders as to which level or

area to execute the trade against. In this lesson, we are going to focus on how

we choose the appropriate levels to execute a trade against.

The first example walks through a relatively recent trade setup against a price

cluster zone.

Price clusters are the first and most powerful way to use this type of price

analysis. The definition of a price cluster zone is when the coincidence of three or

more Fibonacci price relationships come together within a relative tight range.

Let's start with an example in the December Nasdaq futures contract (NDZ0). We

are looking at the high that was made on Nov. 15 at the 3155 level. First, if we go

back in time to this price cluster setup, we saw a healthy confluence of price

relationships between the 3153-3180 area. This zone included the .618

retracement of the 3400 high to the 2755 low, the 50% retracement of the 3558

high to the 2755 low, along with the 100% price projection of the 2975 low to the

3400 high projected from the 2755 low.

At that time, the Nasdaq 100 contract was trading straight up into the 3153-3180

area. Did we just want to sell into this zone and HOPE the market stalled?

Probably not. It would have worked in this case, but there are of course times

when a cluster will be violated, so it is worth waiting for confirmation of a price

reversal before entering a trade against one of these price cluster zones.

Let's take a look at what might have confirmed a reversal and told us to execute

a trade against the 3155-3180 zone. First note that this coincidence of price

relationships was defined projecting from key highs and lows obvious on the

daily chart. If you used the daily data to confirm a change in trend and just

waited for the low of the previous day to be taken out, you would not have seen a

sell trigger until the 3020 level was violated. Now that's a long time to wait for

confirmation, though this type of entry is still valuable if you are a longer-term

trader.

Most of us have no patience, however, so we would want to take it down to a

lower time frame than the one that we projected the Fibonacci price relationships

from. For example: Since we ran the projections from a daily chart, we would

want to go down to a 60-minute or even a 15-minute chart to confirm a sale

against this key resistance area.

If you look at a 15-minute chart back around Nov. 15, you can see where a prior

swing low was taken out at the 3118 level. This would have been considered a

sell "trigger" against the 3153-3180 price cluster zone.

If you went down even further to a two-minute chart, the violation of the 3135

swing low could have been taken as a sell trigger.

Now let's look at moving averages . If you are short-term oriented, you want to

get a trading signal as soon as possible. Therefore, you would probably want to

use a five-minute chart for trade entry using these averages. In this example, the

averages were violated after the high was made within the 3153-3180 price

cluster zone (3155 actual high) . As soon as these averages were violated

(eight- and 13-bar in this example), we would consider a sale with the risk

defined just above the top of the price cluster zone, or just above the high made

before the reversal signal via the averages. If you are longer-term oriented, you

may want to use the 60-minute chart and moving averages for your trade signals.

For those of you that have a favorite indicator of a change in trend (MACD,

stochastics, buy or sell patterns, etc.), I invite you to combine your

trigger/indicators with these key price relationships and check the results. I think

you will be pleased with the combination of methods. Personally, I will either buy

or sell directly against a cluster IF and ONLY IF it is in the direction of the main

trend. Otherwise, attempting to pick a bottom or pick the top can be very costly.

Alternately, I use the violation of a prior swing high or low as confirmation,

typically on a shorter-term chart (five- to 15-minute) similar to the example

described above.

What about stops and money management?

Initial risk against a cluster trade is always defined as just marginally above or

below the actual price cluster zone. Once you enter a trade against this zone, if it

starts to move in your favor, you should move to a breakeven stop ASAP and

then trail the stop.

What about exiting the trade?

There are two ways to exit a price cluster trade. Either allow a trailing stop take

you out (as long as the initial stop does not), or you could exit if the price

objectives via this same analysis are met. For a trailing stop, I recommend

placing these stops just ticks below a prior swing low or high as the market

moves in your favor.

What about trading against single Fibonacci levels?

Although we prefer to see a confluence of levels before stepping up to the plate

on a trade, there are instances when a single retracement, price-extension or

price-projection level will produce a "turn" or change in trend in the market. In the

case when we only see one of these price relationships , we would definitely

wait for confirmation of a change in trend against the level as the odds for a

change in trend are lower than when we have a confluence of relationships come

together.

In the example below on a 30-minute chart in the Nasdaq 100 futures, we had a

single .786 price retracement of the 2436 swing low to the 2683 swing high come

in at 2488. A low was made just a touch below this key retracement level at

2481. How would we have known not to take a trade against the .382, .50, or

.618 retracement of this same prior swing and to take a trade against the .786

price retracement zone instead? If you waited for confirmation of a reversal or

change in trend, you would not have entered a trade until the fourth (or .786

retracement) essentially held and was then followed by a reversal trigger. What is

the reversal trigger? Check out the next chart example.

If you went down to a five-minute chart after this contract held right around the

.786 price retracement , a rally above the prior minor swing high at the 2514 level

would have been considered a "buy trigger" against the .786 retracement. The

risk at that point was defined below the 2481 low. Personally, I rarely use a single

retracement to trade against, unless it is of a major daily range since price

"clustering" is so much more powerful.

Plik z chomika:

Inne pliki z tego folderu:

Inne foldery tego chomika: