In Monday's session this week there were two excellent entries using the Fibonacci levels beneath the current price. In other words, we look for a pullback within the trend to a Fib number.
1. Sell the 100, 127.2, and the 161.8 fib levels which normally are firm resistance to a rise in price. When it becomes obvious that this market is not going to stop the trader can wait for the top to come into place. (It would be extremely unusual for the price to continue rising indefinitely, wouldn't it?) In this scenario the trader would be underwater $1375 per contract at the top, just above the pivot R3 and the 261.8% fib (also strong resistance). She would have sold three contracts on the way up, to which she would add, say, five more when it became clear that the rally was over, or at least taking a breather. She would be now short eight contracts from the 261.8% fib level. With the eight she is going to reach her break-even with a little more than three points at $400 per point. The first good support level is at 2481, five points away. At that time she is up $625, and is happy even if she misses the rest of the move of another nine points ($3600). And she would still be alright if the rally continued after even a three point rest.
2. The trader can buy at many points in the rise of price. He can see that the price is overcoming resistances in a very orderly way at each fib level, giving back just a little at each then continuing. It crashes through the R1 pivot without noticing then the R2 stops it for just a moment, but then the price uses that pivot as support during a congestion area, after which it conintues to R3 and the 261.8% which are close together. He knows that these numbers represent powerful resistance and is not surprised when the red volume bars start to predominate and price starts declining. Let's say he got in at 2475; he than got eleven points, or $550 per contract, assuming he got out near the top.
Which of these is best? It's purely subjective, I'm sure, but it seems that it would be easier on the emotions to be long in the rising market, and of course, there is nothing to say that after getting in on the rally the trader could not have also gotten in on the decline. I guess all in all one would want to get in on both sides. I believe each strategy is good if handled well.
Three fine entries using the fibs confirmed by the stochastic oscillator on the five minute chart.
On Thursday there were two very nice entries on low volume upthrusts in the downtrend.
On Friday we had five good entries using the 50%, 61.8%, and 100% levels, confirmed by stochastics on the five minute chart.
I'm not saying that these were the only entries, only that these were very good ones. And I don't try to tell anyone how far to carry a position because that is a very subjective issue, governed by the trader's risk tolerance.
A new week begins with a bang. The upset over Trump/Korea seems to be over and the ES gaps up at the open.
I decide to watch two instruments. These two charts represent another possibility, a trend/countertrend combination, a sort of pairs trade that would reduce risk. It is a profitable trade.
Another one of these is the CL/QM combination. With this style it's possible to take off the trade that is not working out as well as the other.
Here it is Tuesday and the market is quiet, if you consider the ES the market. There were meager opportunities however:
You can see the ovals showing the buy and sell points from which you might expect to gain a couple of points at the best. However, other markets were much more active:
A good deal more opportunity with oil here. You can see that around seven o'clock (Pacific) there was a nice reversal almost exactly at the 161.8% Fib level, often a good one, just as is the 127.2% which was also good here but only as a pausing point on the way down. The positive divergence of the Stochastic played out nicely and would give any trader courage to take this trade. There were more buys on the way up for any that missed the first one.
The bonds were a beauty this morning at six when after dawdling for an hour at the level where the S3 pivot coincided exactly with the 161.8 Fib level, finally taking off and making a nearly full handle move.
Wednesday, 8/16/17
The ES had a small range today even with the FOMC minutes being released in the middle of the day, but there were, nevertheless, many chance to buy and sell with expectations of a point or two profit.
The ovals indicate areas where price met one of the Fibonacci levels and reversed. The orange oval above points to a level where the price/fib relationship was good but not confirmed by the Stochastic.
The chart of oil below shows an orderly decline with a number of opportunities. The orange oval indicates, again, a good price/fib relationship but without confirmation from the oscillator. The green dotted line is a pivot point and the black ones are the high and low of yesterday's trade which can have an effect on the action.
Bonds had a fairly nice rally with a number of opportunities to get in. This ZB product has the annoying characteristic of trading sideways for extended periods (the yellow rectangles) but one could put a buy stop in above those areas to capture some number of ticks.
Thursday, 8/17/17
A strong trending day in the index products.
The direction was clearly down and all the statistics confirmed that to be the case. The advancing issues in the OEX were zero! Nonetheless, having seen the market rebound so often in the last few years I thought it would be prudent to be ready for a reversal and to that end I considered selling the NQ as soon as the ES seriously breached its 161.8% retracement level, indicating a possibly serious sell-off. I normally consider buying the 127% and the l61% but only second of these worked for more than a point. Finally after a buy at the 161 and sale upon the upthrust to the 100%, I decided that I would let the NQ fall while trying to anticipate any upward reversals on the ES. None of these worked leading to small losses or break-even trades, but having sold two and then two more NQ, the day would have been a great success if I had been trading it for real money!
Friday 8/18/17
The expected decrease in volatility came today, though the volume was high. The small rally that could have been expected happened and was promptly crushed, leading to a small loss in the indexes. The action, however, provided some chances for profit.
The first 127 was good, and even better was the higher low around 8:30.(11:30EDT). A small sale (or cover) at the 100, and then a sale at the 161/daily pivot was it for the day.
The ZB offered more opportunities:
This was a very nice day to be trading the ZB: lots of range and fluctuation.
Monday, 8/21/17
A placid day for the ES offered only two really good trades. The first was at the 100 (the Globex low) which, though it didn't hold could have been added to at the 127 which did hold for almost ten points before there was a clear indication that it would not go higher right away. The trader could have reversed at the 23.6% level going by the volume and the stochastic indications. After selling off for a while ES traded in a range for about an hour and a half before breaking out of the range to come back near its high for the day. The oval at the overnight high is where I would have sold this if it had come that far.
The ZB had just one nice trade:
:
At about nine o'clock PT there was a ;pullback to the 38.2% retracement from the overnight high which, having taken out the high of the low bar offered a good chance for the trade. Orders can be entered in advance at these fib levels since they are reliable in themselves and in this case in combination with the positive divergence in the stochastic. Failing that one could enter with a buy stop above the trading range in which the pullback bar is located.
Tuesday, 8/22/17
We had a low-volume rally today that presented another opportunity to show the manner of hedging if one is not certain whether the rally will continue or not, wanting to be able to take either side. My instinct is to trade counter-trend, and that can be a problem on days like this one. I consider it a hard and fast rule that I will sell rallies to the 100%. 127/2%. and the 161.8% unless it is too obvious that it won't work.
For scalping the bonds were somewhat better giving just two very good chances for profit. one buying a pullback around 7 and the other selling the daily pivot/28.2% fib combination.
Wednesday, 8/23/17
The ES was choppy today, the ideal condition for my methodology. You will see that there were eleven opportunities that worked out well at two points each, one that would have been a break-even trade (the light yellow oval) and one would have lost two points (the orange oval).
The ZB was also quite nice and sedate after an overnight rally. It offered six good trades of around six ticks each and three break-even trades later in the day.
Thursday, 8/24/17
A quiet day that offered quite a few opportunities. I'm doing experiments to find the best and safest system for Fib trading during the day. This is the ES chart for today.
I am following my system mechanically. For the ES, when a fib is reached by ascending price and the stochastic is above 70, sell. The stop-loss is three points against the position. The target is reached when the stochastic goes to 30. When a fib is reached by descending price and the stochastic is 30 or below, buy. The stop-loss is three points against the position and the target is reached when the stochastic reaches 70. After a position is taken, when it goes one point in its favor the stop-loss should be put at break-even. In the case of two losing positions trading should be closed for the day. Today the system would have yielded eight trades, four breaking even and four profitable by fifteen and a half points.
The system would vary slightly for the ZB. The fib/stochastic relationship would be the same. The stop-loss would be five ticks. The target is reached when the stochastic reaches 30 or 70 depending on the side of the market. Today that would have yielded four good trades with two break-evens. It would have made twenty-six ticks.
Today I'm starting to use clearer signals (I hope) to show the buys, sells, and results. The color of the ovals is so:
I hope these will make the placement and results clearer. One other thing: It will be noticed that the trades often leave something "on the table". As a mechanical system--which I hope to make it--it will necessarily miss what a trader sitting in front of his computer each minute of the trading day would not miss, but if one doesn't want to sit in front of her computer all day this is a reasonable alternative I believe.
This was quite a nice day for the ES, though many would complain of the lack of "action" or volatility. The system can wring a few points out of it anyway. And there were even a couple of trades in he ZB as well:
Monday, 8/28/17
An interesting day to look at the difference between the mechanical system that I'm trying to build, and the way one instrument could have been traded with discretion. It is the ZB, and I'll show first how what the system I have been building would have traded it today.
It will be apparent that out of five trades on unusually active day for the bonds, I would have made just three ticks of profit. The system would have missed almost all the good trades--but of course I would have been out having a good time! Here is the same chart with discretionary trades, including some taken at fibonacci extensions (the gray lines), the use of which is one of the advantages of discretionary trading.
One can see here that full advantage of the price action would have been taken--as long as the trader stayed in front of his computer the entire day. It would have been worth thirty ticks!
On the other hand the ES would have cranked out a pretty nice eleven points on what was a very placid day for the ES.
After a missile scare yesterday that made the ES sell off to the tune of 20 handles, we got back our "what me worry" attitude and took back all that was lost. It was instructive particularly in the use of the oscillator which, as is well known, is mostly good for congested markets, and counter-trend trading. During a rally or sell-off, the indicator will normally never get to the opposite side of the scale. For instance, during today's rally the stochastic never got as low as the 30 level until the end of the day. This is useful for those who like to trade counter-trend--like me--as a warning sign not to expect very much in the way of profit from selling the levels that are usually good for counter-trend positions: the 0, 38.2,50,61.8, 100, 127.2 and 161.8%. It's not that these levels are not useful; it's that they become support rather than resistence to a rising market. You can see in the chart below how that works.
I have added some extensions here according to the rule of first swing" which I will explain later. This is an additional way to find precise entries. You can see how the price seemed to find those levels--the grey lines--even more definitive than the usual levels calculated from the Globex. The yellow rectangles define areas where price went sideways for a while before continuing upwards. Counter-trend trades would still be possible within those areas.
The following chart is interesting because, though I am not a follower of Elliot Wave, this does have the look that is advertised in their literature. If all charts had patterns this clear I would no doubt be an adherent of their theory.
After a fairly steep sell-off the price of oil started to rise in a very orderly way. I saw the beginnings of a channel after the second point along the bottom of the trendline that came into being. You can't see that there will be a channel right away, you can only see a pullback to a significant level and then put a line prospectively on the chart and do a projection when you have the three points to do it. The first pullback to the 161.8% would have been fine in itself as well as the pullback from the 100%, which in its turn gave the excellent opportunity of catching a buy at the 127.2 which had been resistance but which now became support. It was a perfect five wave structure, I have to admit.
Wednesday, 8/30/17
For trading the ES the system I devised would have been nearly useless, giving a trade only near the end of the day. One can know that it won't be the kind of day that the system likes by noting that the stochastic oscillator doesn't oscillate! It spends the entire day above the 50 level, never signalling a system buy.
For discretionary trading, on the other hand, the day was very good:
Each of the green ovals indicates a place where one can buy on a pullback to a fib level. The trader can take profits or simply add to his position as the rally progresses.
The bonds were another matter. There was a lot of back-ing and forth-ing which offers plenty of opportunities for trades. The only problem with this is determining the parameters of the mechanical system, i.e. how many ticks one way or another and how close to the fib level does one take a position, and at exactly what level of the stochastic does one consider a valid signal. I will have to take these matters up with someone when I find him or her to code the system.
Thursday, 8/31/17
A pretty decent day for both the ES and ZB.
This other version of the same ES chart shows a technique that is not mentioned often in the literature, and that is the fibs calculated from the first high/low swing of the day after the open. This often governs price action in a significant way: The ovals are the three points used by the tool, and the orange lines are the result.
The ZB was good today, too.
Friday, Sept. 1,2017
Little action in the market today. Nevertheless there were a few good trades to be had. In the
ES there were two which would have added up to around six points with no losses or break-evens.
In the ZB there were two, one excellent trade which would have brought twenty ticks (at $31.25 per tick per contract). The other was worth seven ticks.
In Gold there was one trade worth about nine handles at $100/contact, and some smaller mostly break-even trades. But this system would not have complained.
For those interested in longer term trading--say, swing trades--this four time-frame perspective could be useful. It shows today's move down on low volume--this is a market holiday--and trading up from the open. The fibs and the trader's pivots show us what might be the more precise entries as we keep the daily and weekly charts in mind. The stochastics cannot be read definitively as we can in the five or fifteen minute time frames; we would be looking for some coordination in the indicators, but mostly we are looking at the price action in itself.
Tuesday, September 5, 2017
A bit of a sell-off today as nervousness about nuclear war edges into our consciousness. It was interesting to see that both the ES and the ZB found the limit of their big moves--one up, one down--was to be found exactly at the 423.6% fib level. Even I, a devoted believer in the Fibonacci calculations, am astounded when I see this kind of exactitude even on such an extremely volatile day.
Just to show that this system does not only work on the indexes and other financial products. Here is today's chart of the soybean futures with two nice trades.
As usual I am trying to work up an mechanical system, but it's clear that trading with discretion would offer additional possibilities.
Today was non volatile day, a bit of relaxation after yesterday. But I'll show two ways of trading the same instrument, each with it's virtues. First the counter-trend effort:
Out of six attempts came only two successes. The rest were break-even trades, so it wasn't a disaster.
On the trending side came more probable successes. I'd say this was much better than the counter-trend side. Each entry would have been on a pullback to a fib level. The order would have been put in after the move in the direction of the trend.
Even with this we can see that a mechanical system using the stochastic would have left a bit on the table though it was very reliable in getting some profit.
Thursday, September 7, 2017
One might have expected to have no opportunities at all on such an uneventful day (marketwise), but in fact it turned out to be quite a reasonably good day. In the ES there were two very nice trades, for the patient:
And one good one for the late-riser in the ZB. The trader in Hawaii or even on the west coast of the US could be forgiven for missing the rally that happened at six o'clock Pacific Time. There is always another opportunity coming. Here can be seen the reaction to the R2 pivot. I haven't discussed the trader's pivots in this blog, but they are as good as the fib numbers when it comes to support and resistance. I have know experienced traders who have ignored these and missed many opportunities as a result. We see here that though the ZB cut right through the R1 pivot which we might have been tempted to sell, it would be too abnormal for it to ignore the next one. We can see that the rally is quite extended at the R2, and the stochastic on both time frames (15 and 5 min) are in overbought territory, so an expectation of a pullback would not be unreasonable. If one hesitates to put in a sell order in advance--having seen how ZB has treated the pivot earlier--there is plenty of time (over a half hour!) to see how the energy for the rally is dissipating. There is no reason one couldn't pick up a nice ten ticks here.
A mechanical system guided by the stochastic would have taken a couple of other trades, at break-even, but those would not have affected the overall P/L of the day.
Friday, September 8, 2017
An uneventful day but one on which the system worked very well. In the ES the trader would have captured something over ten points with the stochastic/fibonacci system.
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| The stochastic remained high and the first trade was cancelled before reaching its profit target, but it then oscillated nicely, giving a number of successful trades. |
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| ZB was also quite nice, especially if you were trading at about four thirty in the morning, Pacific Time, when the biggest move occurred. After than came some smaller trades and a couple of break even trades. The last would have been better for the discretionary trader as the target based on the stochastic came early in the move. |
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| CL was the most volatile of the products. The discretionary trader would have gotten more than the system, but the system gave results that would not have had any complaints. |
Monday, September 11, 2017
A fairly dramatic release of energy today which gave some lessons about counter-trend trading. Attempts to sell this rally because the stochastic was high and price came up against fib numbers all failed except for the 261.8% level which defined, almost to the tick, the end of the rally. A little pullback at the trader's pivot was the only other during the rally-time.
ZB, on the other hand, had some nice back and forth which offered chances for profitable trades.
The pink lines on this chart are extensions from the high/low swing that was the first in the down-move (the pink trend lines show the points from which the drawing came.) These extension levels can be extremely good in areas in which the levels of the ordinary retracements are too far apart to be of use. They are clearly used by significant players in the market, and they can be relied upon just as the retracements can be.
Wednesday, September 13, 2017
It was a narrow range day presenting only small opportunities in any of the instruments that I follow.
Only three good trades, one break-even and one quickie at the end of the day. Each one would probably be good for only a couple of points.
The ZB was somewhat better, but only because each tick is worth much more than they are in the ES.
Thursday, September 9/14/17
The ES was difficult for the stochastic method today. The system is not good with markets that are going in one direction, and this is an example. But even so, there were only two losers, three break-evens and two profitable trades, which says for the system that even on the worst of days it doesn't lose much, but maybe won't make a lot either.
The ZB was a good deal better with only one break-even trade, one loser, and four winners.
Friday, September 15, 2017
I've started using both the slowK and the slowD lines on the stochastic indicator. Here is a chart of the Euro future, fifteen minute, which would have been extremely profitable. I could hardly believe myself that this would have made $15,000 between the two trades with just one contract!
We will see how this does in the future. Next is the ZB, five-minute, which--using the same system--did very nicely with four good trades.
A few points were possible in the ES, though you would have had to wait most of the day for any action to occur. But then, it was quite a rally.
Three good trades on CL.
After two weeks of being without a computer I am re-beginning this project. It's okay, nothing happened during that time. Lucky me!
It is now Monday, October 2, 2017. I will demonstrate my system as usual except that I won't be trying to find the way that the system could be traded automatically. I'm sure that it is possible, but it would be vain for me to continue to do it in view of the fact that I'm not a programmer. So we will consider these virtual trades to be what a trader could do with these instruments. It's not that anyone would take every possible trade in any of them, but rather that these were there to be taken with little risk and good reward.
So first is the ES: This set of two time-frames will show how the longer the view might be the larger the profit (or loss) could be. If you examine the fifteen minute chart on the left you'll see that there were three very nice trades. First was the re-visitation of the overnight low at 5:30 a.m. Pacific Time. That fact alone would make it a good buying possibility, and the stochastic was a clear buy in addition to the obvious change in direction of the price. How long one could hold on to this is hard to say, but the stochastic rising above 70 would give an intimation that the move might end. There is a trader's pivot there as well, and these often signal turning points.
Then we have the 127.2% retracement. This level is very often a good turning point and a trader cannot be blamed for having an order to sell at that number, especially when there is a back-up at the pivot just a few ticks higher. The stochastic is also evidence that the move is probably over for the time being. Again, how far this might be held depends on the steeeliness of the trader! But it would certainly be over when the price hits the 38.2% fib level, puts in a lovely doji and turns ineluctably higher for the rest of the day.
Looking at the ZB we can see that there were at least three good trades. These are ones which don't require a perfect entry, in which you can wait until you see a change in behavior. But in this chart one can see areas that could have been tradable, but which I did not draw ovals on to indicate that they were ones which I would have taken, in all probability. The reader could well say, Peter, you said the 127.2% level is very often a good turning point and seemed to indicate that a trader could easily put an order in at that number expecting an end to the move that does certainly look a little wobbly as it gets to that number, even showing a big bar seeking that number out just as we see so often: the fib level seeming to be a magnet for the price. And on top of that is a pivot which would act as a second level of interference with the direction of movement. And on top of those two things already, you have a high stochastic! What happened?
These are good questions. It shows without a doubt that the system is not perfect. But is all lost? Or is there a way to make this not a disadvantage at all, but rather something that we can use to our advantage in the longer run? I have said that if one were to do this automatically, she would sell the overnight high, the 127.2, the pivot and the 161.8%. So in this case she would be short at 152'23, and 152'28, 153, and 153'03. Short four contracts (assuming one sale at each level) at an average price of 153. With those four contracts she only needs a reversal of three ticks to make break-even, and when she makes twelve ticks she is happy enough with $1,125 profit.
I'll discuss more about this kind of strategy later in this blog.
Tuesday, October 3, 2017
Today I'm going to show the respective virtues of the retracement and extension Fibonacci tools. Here are two identical charts except that on one I have used my usual way of drawing the retracement tool, and on the other I have used the extension tool--sometimes called the projection tool.
This is my usual way of drawing Fibonacci, with the retracement tool. Next is the one with the extensions drawn. I used the swings born of increasing volume around 5:30 am Pacific Time. The first swing came between 5:30 and 6, and the second between 6:40 and 7:30 or so. Clearly they would not be useful for the early part of the trading day. This is a demonstration of their value in predicting levels (with the help of stochastics). They can be drawn using any swing high/low during the day and will normally identify opportunities. Observer here how the bottom number of the regular trading day was found to the tick! This is not a coincidence, though I'm not sure I know the complete explanation of this phenomenon.
I want to look at one other--perhaps illuminating--comparison:
Here is the ZB, the 30 year bond futures. On the left is the 15 minute chart and on the right is the five minute. The trader looking at the five minute chart would find nothing but frustration because the price seemed to be jiggling around with no clear direction, and the stochastic is even worse than the price. But looking at the fifteen minute chart gives one very nice clarity on a day like today--basically three trades if you're up at 5:30 PT, and two if you sleep in and just get the one at the overnight high around 152'23 and then again when it reverses around 152'15. The smoother stochastic in this case being much more advantageous.
Wednesday, October 4, 2017
Even on such a placid day as we saw today the system can still find profit in any market.
Two trades on the ES would have netted nine easy points. Below, the ZB presented a more challenging situation, though if one were to get in early--5 am PT--there was just about a full point to be had. After that it was best to wait for a solid trading range to be put in before taking any signals. The Stochastic is much less useful when there has been a dramatic move. I'm not a mathematician so I don't really understand it very well, but we can see that there was little to go by in that. However price and the fibs, and in this chart the extensions, were enough to judge the right moments.
Thursday, October 5, 2017
Today we saw a low volume but incessant rally. I'll take this opportunity to explain my strategy for compensating if a trader were to unwittingly sell the levels that I have outlined as the normal places where one can presume a change in direction is likely to take place, i.e. the 100, 127.2, and the 1681.8% Fib levels.
We can see that the overnight high was breached on the open so one would not be tempted to sell it, especially with the stochastic where it was. But the 127 looked pretty good so it would not have been completely silly to sell it, but it turned out to be a break even trade since it did go a point in the desired direction. The next, the 161.8, which would look good since it had the pivot level just above, but that number was the victim of a terrible slicing attack! It is at this point that the wise trader takes action to ameliorate the situation by buying a correlated product, normally the NQ. The 161.8 number is so often the failure level for rallies like this that a break through of this kind indicates that prices will probably go some bit higher. If the trader buys two NQ's for each one ES she could hedge the ES position if she didn't want to give up on the short. She would then have a fairly delta neutral stance, ready for anything that happens.
We can see that this strategy would have ameliorated any loss in the ES, and quite possibly have returned a positive result since the NQ was twice as strong percentage wise as the ES for the day.
We can see in this comparison of the two products that different fib levels gave support to each: the 161.8 for the NQ, and the 261.8 for the ES. But regardless of that difference the support was strong. We could see during the day that each was pulling the other, but they couldn't agree completely so little progress was made in either direction. Watch how the NQ tried to pull the ES up around noon(PT), but failed to have the desired effect. The ES stayed pretty much where it was until the end of the day.
The Stochastic, love it as I do, is pretty useless at times, and today it was very much un-enlightening.
Friday, October 6, 2017
What I found most interesting today was the correlation between different products--in this case the bonds and gold futures. Naturally when there's worry in the market, and when the dollar is weak, money goes into things like those two. Today they traded, for a while at least, almost tick for tick in tandem. Gold turned out to be the stronger of the two and did not give back some of its gains as did the bonds, but the most important part for me was the at about the open of the regular hours. Counting on the correlation in this case I would have taken the trade in bonds even though there was not a Fib number to go by. There was in the gold and the stochastic looked similar so each was off to the races:
The ES on the other hand had little to offer. Two trades were possible, but I think it's interesting to note in this case how much clearer the fifteen minute chart is than the five. It's not always so, and that's the reason that it's good to have these two visible at any time.
Monday, October 9, 2017
Not a lot of activity today, but enough to make good profit. In the ES there were three trades. The last one is of interest because it relied on extensions to fill in areas in which there were gaps in the retracements. The 161.8% extension levels turned out to be perfect near the end of the day.
Three in the ZB as well. The pivot figured importantly in two of the three.
Four in gold today, also involving the pivot. The "pivot points", or "trader's pivots" as they are known cannot be over-emphasized in their importance. They are easily as important as the Fib numbers, a fact that is unknown even to people who think of themselves as "traders".
Tuesday, October 10, 2017
We'll deal with two things today, both of which have been dealt with before. First is hedging with correlated products, and then the use of extensions--which is a matter of which many "experts" in Fibonacci have no clue about.
These two charts are those of Silver and Gold futures today. It will be obvious that the two are quite well correlated; we can see that the turning points are at just about the same time if not at the same Fibonacci levels, or the levels of the pivots. The point is that they move together. This fact can be very useful for those that might not believe their eyes when looking at just one product and trying to decide whether or not to pull the trigger since we can see that if both silver and gold are doing the same thing our belief in what's happening is enhanced. We can pull the trigger on gold if we see that silver is doing just what we thought gold would do.
But another use is for hedging, should one be insecure about a position taken. Say you have decided to sell a level which--perhaps upon my recommendation--you expected a turn in price. It's often the case that the 100%, or the 127.2%. etc. and you could be forgiven for taking a position on one of those bases. But, say it's not going as expected. Sometimes it's hard to reverse one's position on the spur of the moment when he has thoughtfully decided to think that it will do a certain thing. In that case the other possibility is to take the opposite position in a correlated project. I commented earlier on this in the case of the ES vs. the NQ. The products Silver and Gold are correlated so that if one were to short the gold contract and it starts to rally against his position there is the option of buying a position in the other part of the correlation, silver. One has to take into consideration the mathematical relationship between the two, i.e. how many contracts would I have to buy in order to hedge the other product? I won't deal with that right now. I just want to point out the possibility.
The other thing I wanted to deal with is the use of extensions. I have gone into this before, but so many don't know how to use this tool that is a part of every trading platform that I thought it should be gone into. No doubt I will do it again. In the above silver chart I drew the three points from which the extensions are drawn (the triangles). Observe, please, how often the price reverses exactly at the levels defined by the extensions. When watching the chart evolve you can watch the Fibonacci levels to get an idea what price to enter into your DOM when the price action combined with the Stochastic seem to be telling you. Of course you can't put in orders willy-nilly just because the levels are there but just the fact that they are there can give you the confidence that you will get a good entry.
On the gold chart below I have put arrows points where price meets the extension levels quite exactly, ignoring those where it was a near miss. This is particularly important with a product like silver in which you'll often see lots of back-and-forthing between the overnight retracement levels that are my normal tool.
Wednesday, October 11, 2017
I'm getting a little tired of showing how my system would make money. It's pretty obvious if you have followed this blog, and it is not even the best evidence of potential success. But I will go into some issues that I find interesting. Today I'll go into time-frames a little, and then into possible disasters for the unwary.
First let's look at the ES today. You want to see boredom in action? Well, here it is. The classic tulip bubble has everyone getting increasingly excited over something over a short period with the result of the seventeenth century wherein the explosion of prices happens in a very short time. Today's bubble is being inflated in slow-motion, typified by days like today. We saw a slow slow rise in prices over the day starting around five o'clock in the morning (Pacific Time). and rising pretty much all day. The best way to deal with this is to look at a longer time-frame, say fifteen or thirty minutes. On the fifteen it's possible to see the rise when one might have tried to take counter-trend trades during the day which would have been pretty fruitless. One way to have a good sense of this is to look at the A/D chart during the day:
It's easy to see that there was little movement in any direction, but it stayed above zero all day long. The chart of the ES, below, is perfectly consistent.
This chart could be interesting in that I have added indicators: the Keltner channel, and the eight period exponential moving average. The middle of the channel is a twenty period moving average which can be extremely useful on trending days like this one as a level of support the breach of which could mean a change of trend. On days like this the best strategy is go buy at the earliest time you can when the twenty period MA intersects one of the Fib levels. (No, I haven't abandoned the Fibs!)
Here is another fifteen minute chart which shows what I think is an interesting facet of the Stochastic oscillator. The is a chart of gold futures.
We had a nice trendy day in gold today. An hour or so before the open gold tested the overnight high and started to reverse. After about six hours a late day rally started from the -127.2% Fib level, bouncing, failing, and then taking off for the next two hours. What I found most interesting were the two patterns of the %k line (red) just as the sell-off began, and then as it reversed. There is the "M" pattern as the sell-off started, and the pronounced "W" as the rally started. These charts show that the fifteen minute charts are often better for catching trendy behavior.
I'll have other charts to share a little later.
Thursday, October 12, 2017
On this chart of the ES today we can see eight trades, and if one were to take all of them he might get twenty points out of the day.
On the other hand, he might want to be less active for some reason (maybe he has other things to do), and in this case he might want to go by a longer time frame. Fifteen minutes, say:
This use of the stochastic is another instance of what I posted just yesterday. You can see it in the longer time-frame when not in the shorter: the "W" buy pattern in the morning, and the "M" pattern signalling a reversal in the mid-day. One could in this case take just two trades and adjust the stop-loss during the trade to lock in profits. The result would be less profit, but you can take time to watch other markets.
I'll put in just one more to show how one can, and should, watch as many products as he can, just to get a feel for what may happen.
The different markets do affect one another, and this is a way to keep an eye on developments.
It's Saturday, a day of reflection. I am thinking that posting charts to show that money could be made with my system is fairly pointless now: It's well-proven from what I have put here so far. I think the best thing to do from here on is to try to organize the material in such a way that it can be useful for someone to learn the system thoroughly. I discovered the usefulness of Fibonacci when I was still losing money, trying to find my own way in the labyrinth of price action. I could see that there was a simplicity that I could apprehend but still not use. It was only when I had lost everything that I could begin to see what I had been missing when I still had money to risk, and had been too nervous to see: that Fibonacci was the key to everything--or at least one of the keys, my key. Someone else can certainly have their own key, but for anyone who has the intuition that this might be useful for them I will go through the whole thing.
This is just one more chart, another example of the hundreds I have pictured here and elsewhere, but it shows as well as any why I use each of the tools I do, the Stochastic oscillator, the trader pivots, and the Fibonacci tools. It also shows why I draw my Fibonacci levels using the high and low of the overnight session, which means all of the time between the previous close and today's open. This is not the same as the way others draw theirs. I believe my way is best. These are usually drawn between midnight and 5 a.m. Pacific Time, but the high could happen right at the opening time. On this chart the low was about four thirty and the high was about four thirty. It was an extraordinary day for the Bonds, (ZB) very unusual for such a move to happen any time in this fairly slow-moving product. You can be sure there was some exciting news overnight--I'd say right about five-thirty! All of the long bar you can see at 5:30 happened in two minutes. You might think that such excitement would lead to some random fizzling out at an unpredictable place on the chart, but no, it ended precisely at the 261.8% Fibonacci projection from the levels that had been drawn at 4:30, an hour before. Much can be learned from this one example. We shall be examining it further.
Monday, October 16, 2017
A new week starts off with a whimper, but it's still crawling to new highs nearly every day. When will it end? The fifty dollar question.
Let's look at just one chart today. It contains so much of what I teach that I could go on much too long about it. But my system is deliberately simple, and so many words would make it seem too complex.
The thing that I found so intriguing (I always find it so, no matter how often I see it) is the way that the price turned exactly at the 127.2% Fib retracement level on both sides of the overnight action. It stopped at that level above the Globex high to the tick on the open, falling to the low of the day which was also the 127.% level below the Globex! Also to the tick. This is not coincidence. There are forces at work here, maybe malevolent, maybe not, but my belief is that computers are being programmed to put in large orders at these levels. It happens much too often to be accidental.
We can see as well that price stopped four times at the overnight low, bounced finally to the 61.8% line after all those bounces, then down to the aforementioned 127.2. After that buying opportunity it rose pretty much all day except for a nodding reaction at the 50% (not a fib level, but important anyway). It then went down one step to the 23.6% and then on to stop at the overnight high. You can't make this stuff up.
I like to use the two chart set-up, the fifteen minute and the five. I find the %d line (blue) to be useful on the fifteen minute chart but just confusing on the five. For the latter I use just the %k (red) to identify overbought/oversold levels, i.e. areas where price is in one of the extreme areas of the average range of the last fourteen periods of price activity. You can see that this day was ideal for this system--not that there is any day that it cannot be used--but today was a day of congestion, and that is perfect for this method of analysis. Not only is price perfectly contained by the Globex and the fibs, but the Stochastic oscillates in such a way that you could actually just buy and sell according to it; every time it reached an upper level it bounced right down to the oversold part of the pane, and then back up!
So you could use the charts in a couple of different ways: You could trade the five minute chart, taking all of the overbought and oversold level trades at their respective fib levels. This would be the most profitable way, and the most work-intensive way. Another way would be to take the trades indicated by the blue line; that would make about half as much money as the other, but you would have time to have breakfast and read the paper all while trading. For retirees, this could be just the thing. The third way would be to trade the five minute chart but only take the trades that you would judge by the fifteen minute chart would give you the highest probability for success, and for being able to hold through the rough patches, like that little bar at 11 a.m. which could have been a reversal, but was not. According to this method you would take only short trades from the open until a little after nine o'clock when the %d line was coming down, and only long trades after nine or so when the line was moving steadily higher.
Tuesday, October 17, 2017
Just one chart for today. I'm concentrating on the Stochastic oscillator today. In the chart below you can see the problem with the %k line on the five minute time-frame. When the price found a low at the 127 and the stochastic dipped into the nether regions of its pane, we know it's a buy. (My theory is that one should bet all she has on the 127, then bet the rest on the 161!) As it turned out the bet on the 127 was a good one, making sixteen cents ($160 per contract), but the overnight low could not be overcome so easily. That is one of the strongest of the levels on any chart. So then price dropped to the 161 level, overshot a bit, but came back quickly so that a purchase there would have worked out nicely. Then, as I'll go into tomorrow, we can expect prior support to be resistance, and sure enough there is a battle at the 127. We can see here that the price does not reverse direction but merely spends thirty minutes deciding what to do. The %k line is staying in the top of the pane!
This is the problem with indicators which, as we all know, only show you what you, with your practiced eye, can see for yourself. I, however, do use them, but not to tell me what to do, but rather what not to do. In this case I would not buy the CL at this point. I would only buy it when the stochastic is low. The problem here is "should I sell here, when it reaches one of the fib levels with the %k high in its pane?" That is one of the dictates of the system, right? The indicator even dips below the 75 level which is what I would normally take as a sell signal. But there is no other signal. Price is staying right along the 127, which seems to be acting as support. We know that when that happens price will usually go higher. There is very low volume, one little selling spike at 9:45 which did not move the price down at all. This is when we look at the fifteen minute time-frame to get more perspective on the situation. We see there that the %d line (blue) is still moving steadily upwards even though the %k line is also topping out steadily in that one, too. We might want to keep stops fairly tight in order to keep profits. Then we see, finally, at about 10:15 it starts moving higher, and we are happy to have stuck it out. Another sixteen cents in the bag. There is still no signal to exit the trade, but look out, there is the overnight low just overhead. That is one of the four strongest S/R levels in the world. We're thinking the price cannot possibly get through that one. If we have a really tight stop we will be out of the trade. But we have a feeling that this rally could continue. It could even go as far as the daily pivot (the pink dotted line). Sure enough price backs off at the overnight low--$51.67--but quickly rebounds and powers through, hardly even acknowledging the the next two fib levels. There is another volume spike when it hits the pivot but it still keeps going. Finally we see that the %d line has finally reached the overbought zone on the fifteen minute chart, and we know that it's time to take profit.
This has been the necessary caveat to the whole idea of indicators. It's not that they are not useful. Mathematics is good to have around for a right-brain type like myself who makes decisions pretty much on the basis of pattern recognition. But all the indicators, as everyone says, are backward looking. And though it's good to know your history when you're making a decision about the future, that knowledge is not enough. History does not repeat exactly. The Fibonacci calculator is the only forward looking "indicator" that there is.
Today's lesson is about the well-known phenomenon of support becoming resistance and vice-versa.
The yellow rectangles illustrate prior support becoming resistance. There were no instances of the other side today.
There was another good trade in oil today. Just one very good one, and some small possibilities later.
Thursday, October 19, 2017
Quite a dramatic day today with a sell-off in Asia that brought our market down overnight, then a long recovery back to unchanged. The ovals in the oscillator mark opportunities to get in on it.
Here though is a different time-frame which can be useful when you have a slow moving product like the ZB often is. This is 134 ticks, but of course it can be changed according to the speed of movement of the item being traded. You do have to keep your attention on this if you use it.
The fib levels work as usual of course, but I find sometimes that with quick time-frame like this I don't want to have to look down at the lower pane to see where the oscillator is. I need to watch the price action closely, so in order to make the stochastics unnecessary I set up a different set of indicators: the Keltner channel and an eight period exponential moving average. The MA acts as a proxy for the stochastic:
Friday, October 20, 2017
The ES continued it's climb to 10,000, but I thought I would look at a couple of things in the ZB. Continuing the theme from yesterday, I'm going to use the tick chart along with the 5 minute. For this presentation I have enlarged both the five and the tick charts so that we can look at them individually. The five minute is also different in that it is a candlestick chart and the tick is a bar chart. I did this because I think the colorful chart is clearer to show how the extension tool is used to refine possible entries, especially when the day's range is large and the distance between the full-day levels is too wide. Today, for instance, there was a depth of thirteen ticks between the 127.2 and the 161.8 levels. It may not sound like much, but holding one contract for that distance would be worth more than four hundred dollars.
It seems we need more numbers in that area! The extension tool is the way to find them. You can use this three-pointed tool to project to targets, or to support and resistance areas. You do that by using the tool on any important looking high/low swing. You can go crazy with this, but I delete them after their usefulness is past. In the chart below I have color-coded the swings by the triangles. We see that the yellow swing didn't yield a lot, but the red one nailed the low of the day with only one tick to spare.
Below is the tick chart with the same levels drawn. And one can choose which he likes, or have both on at once. We see that the stochastic signal at the moment that price hit the 61.8% level just as at the same moment on the tick chart the setup was equally clear. There was indeed a whipsaw a few bars earlier (at 151'29) that could have fooled someone, and she would have been stopped out if she were trying to keep too tight a ship. Wider stops would be necessary, or liquidity allowing one can double down on the entry with another buy at 151'26. With the two contracts the break-even comes faster and the profit can grow considerably. That is a theme for another time. But in this instance she would have had almost an hour from the time she drew the extensions to stalk her entry.
A slight sell-off today (less than one half a percent) but there was a good opportunity to show the phenomenon of support becoming resistance, and I always like to show those. I have drawn yellow rectangles across these two numbers.
The principle is that in a down-trending market once a level of support has been broken the price will very often return to that level where it will then be rejected. In this chart the overnight low was broken about 8:15, found support at the 127 (magic 127), and rumbled along for an hour trying to get back above before finally giving way. The same thing happened at the 127 at 10:30 (no rectangle there), then again at the 161 (and daily pivot) before giving up another five points.
This illustrates the possibility of putting orders in early when the phenomenon occurs at important levels, i.e. overnight high and low, the 127.2 and the 161.8. The pivot points are also important.
Tuesday, October 24, 2017
Nothing worth writing about.
Wednesday, October 25, 2017
Today we saw some more evidence of restlessness with the constant uptrend, though in the end the bidders stepped in again, terrified of giving up their gains. It was a day that anyone who can trade gives thanks to whatever god she worships, maybe Janet Yellen. The ES started with a 24 point decline that lasted for the first three hours of the trading day, and then, the dip buyers came in when the price reached the -423.6% fib level, the most extreme comprised by the retracement tool. I'm told that even if the buying reaction had not set in as it did the S&P would still not have been seriously affected since even at the worst we saw less than a 1% move in this product, which is nothing in a normal world. Of course the world has not been normal for a while--and it still isn't. This is good for my system of trading which relies on targeting points of change; if the market were to go in one direction it would be more difficult--though far from impossible. Here is what the day looked like for the ES.
It doesn't really look like much, does it? The thing I wanted to talk about today--which I have mentioned before--is the use of the extension tool to supplement the base fibs from the overnight high and low, to further refine the process of finding those entry points for trades. Each high/low/high swing of any importance will generate these extensions (or projections) of price levels to come. Especially when a direction is found it will proceed in the up and down, back and forth way that is the inherent manner of price movement. Someone may object that there are finally too many lines on the chart, that it's a distraction. This is possible, and you can take off levels when they seem no longer relevant, but one should be careful in this regard. The relevance sometimes remains longer than one would suppose. Look, for example, at the trend change when the market bottoms at 9:30 or so: it goes up for a half hour, then pulls back about 38% then goes on. I have used that change of direction to draw an extension to try to define areas where the price might pull back again. (These lines are in green). You can see that I'm not the only one looking at these numbers; the price moved up exactly to the 127.2% level (the magic 127!) before reversing down to another well-defined level presenting the trader with another buying opportunity. That number was, coincidentally, the exact same as one the levels generated by the second computation of the extensions from four hours earlier! But to leave those lines on the chart would really have made a mess that you couldn't see through.
This one-minute chart might make it even clearer how this works.
Thursday, October 26, 2017
Index products were quite dull today the real action being in the Euro (6E). I'm going to use charts of the 6E, both one minute and five to show how the extension tool can be used to refine analysis of the price action. This enhancement of the technique is especially important in products like the Euro because of the tiny tick value of the thing (.00005 = $6.50). It moves to quickly to put in orders without being quite precise; being only a little wrong can cost money.
Of course this is not to gainsay my original thesis that the overnight high/low is the most important fib analysis. But sometimes you need more precision. You can see in this shot of the 5 and 1 minute charts how there was a bounce at the 127 (the magic 127) but that it was minor and that there was another swing exactly between the 127 and the 161.
I'm not sure that this comes out very clearly. The chart can be clicked and enlarged and examined in detail. You'll see that the big four and pivot points are not the only Fibonacci techniques of analyzing price action. The next chart is the Bonds, five-minute, and shows the same thing.
This may be hard to see. The triangles represent the three-point extensions (projections) and are color-coded to show their results.
Friday, October 27, 2017
As a continuation of the theme of extensions I'll show another chart, this from today, Friday. It's the 5 and 1 minute combo showing the projection from a move up and a pullback to find the probable end of the next move up. The right side (one minute in the Heikin-Ashi style) shows how perfectly accurate these projections can be.
This is just one more example of course.
Monday, October 30, 2017
I thought today was for sure our long-overdue crash-day! But then I looked at the Nasdaq chart and saw that, far from crashing, it was going crazy to the upside! Apple was up over 2%, and I'm told that that was the reason for the discontinuity of the NQ and the ES. It was only when I looked at the extensions on the one-minute chart that I saw that the likelihood of a crash was not there.
I hope it's visible on the right side of these two charts. I could see three swing high/low/high's between 7:43 and 9:44 (PT), the first two of which gave a good targets for reversals, the first one (pink) was exactly at the 261.8% projection, and the second was at the 61.8% of the second (red) extension, nearly at the precise tick. (You don't have to be putting in orders anticipating the place that the move would stop; just wait for a good signal when the fib number is hit. The Heikin-Ashi is useful enough for that, in combination with the Stochastic.) We can see that in the excitement of the time the overnight fibs were temporarily irrelevant, but the extensions were right on. The overnights did come into normal play as the day wore on and the human interference with the work of the computers subsided.
Tuesday, October 31, 2017
A placid day waiting for the FOMC decision tomorrow. A few things, though, are still active, such as gold, silver, the currencies, etc. I have decided to show one chart of silver today. It's a good product because it doesn't have to move very much to get a profit since you get $6.25 for every $0.00005 that it moves. In the following chart I would like the bounce off of the bottom @161.8% rather than hoping that I would have caught the large move down earlier in the day. These bounces are predictable to a great extent; the only problem is in avoiding a misplaced order, in this case, at the magic 127.2% which is very tempting because it is so reliable. It is however not perfect, so it is a better idea to look for some small confirmation that the bounce has found its home.
That's where the one-minute side comes in. You can see pretty clearly--this is where the Heikin-Ashi is useful--that it is not stopping at the 127. It is pretty exact at the next level, and this small bounce up to the 127 is still worth a couple of hundred dollars per contract! Then you can in the left panel how the price bounced off the pivot, just as one would think it would, which would be worth another two or three hundred dollars.
Wednesday, November 1, 3017
And so ends this blog. I believe I have shown conclusively that my "system" works extremely well and is a safe way to trade profitably in the futures markets, and that I have shown that I can deal with any unforeseen events without danger of undue loss. If anyone ever sees this I can be reached at phealyhill@gmail.com
It's Thursday, November 9, and I couldn't stop myself from posting a couple of charts. Nothing new in them really, but it does show the remarkable tenacity with which the market resists going down. We all wait for the day that it can't dig its heels in far enough to stop the slide which many see as inevitable.
It looked pretty bad early on, but when it reached the 161.8% it stopped on that dime and worked its way higher for the rest of the day; a twenty handle comeback.
I always like to show how the extension tool works just as well, and sometimes better than the retracement tool. Sometimes, in fact, entries can be found that are even more precise with that tool than the other.
Friday, November 10, 2017
I know I said I would stop, but this chart encapsulates all of my thinking on how to make profits by day-trading in such a simple and straightforward way that I couldn't hold back. Here's the chart:
Using a slightly larger time-frame than I was, everything becomes clearer. This is a fifteen minute chart (left) and on the right a one hour chart for context. It's easy to see in these that there was a sell-off in the Asian session, and then some rallying in Europe, and by the time the US session opens we are in a clear uptrend--even though it doesn't get back to the overnight high of 2585.50. The idea here is to use the uptrend and the Fibonacci numbers to enter orders below the current market price, in the lower part of the Keltner channel from which it is highly probable that a bounce will occur. How much of course, is not known. Some heat will have to be taken to be sure, but there is not a lot of chance that this chart will go against us to a significant degree; the longer the time-frame the harder a quick turn is. It's a bit like a battleship: you can't turn it on a dime.
I'll show later how the same principle applies to markets that are selling off. This is good for all trending markets.
Tuesday, November 14, 2017
Oil futures have been pretty wild the last couple of days, and it's not even Wednesday, yet!
A picture perfect setup late in the day when we saw a bounce off the 261.8% level, resistance which had been support.
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