Some days it’s better to be lucky than smart. I was away from my computer all day, and reviewing the charts this evening I can see all sorts of places where I would have had trouble. Just because there are nice Fibonacci relationships doesn’t always translate into nice trades.
We opened with a gap just below yesterday’s low, and dropped to the reversal zone at the 127% retracement of the previous rally. As I mention often, once we’ve entirely retraced a move, there is a zone from 127% to 162% where reversals often occur. And today they did. At both of them.
This is a 5 minute chart to include yesterday’s action, but remember that I trade a 3 minute timeframe. The divergent bottoms you see on this chart did not exist on my trading chart, so I can’t use them as a reason for trades.
I would probably have entered just after the first bottom, as we broke back into yesterday’s range. It could be called a Spring, or even a Larry Williams Oops! pattern. And if I was lucky, I might have gotten out at breakeven.
The next bottom I would have missed. That was a nice 10+ point rally, but since there was no divergence on the bottom, I would be waiting for at least a 32% retracement which never happened. Notice that the rally ended at an 89% retracement, just as it did yesterday.
The important point is that today didn’t fit my trading model very well. Although this can be frustrating, if you look back over the last several weeks you’ll find day after day when Fibonacci, trendlines, channels, and patterns were extremely accurate and profitable.
The mistake too many inexperienced traders make is to keep adjusting their trading rules to match what the market did yesterday. Today I would probably have had two losing trades (the second at the 38% pullback during lunch.) But in each case it would have been a minor loss or breakeven trade.
As much as I believe in Fibs and the other techniques I show on this site, it is still money management that I consider the most important aspect of my trading. If I can keep from losing very much money when the market insists on changing the rules for a day or two, I’ll still come out ahead. Especially with a little luck like I had today.
