Trading What I See

Today was a duplicate of yesterday’s range, the difference being that today I liked some of the setups. I’m always looking for Fibonacci clusters, or Fibs matching some other obvious levels, and today that happened often.

As soon as the market makes a reversal I draw in the Fibonacci retracement levels, so I already had a line at point “A” before the market opened. That’s a 62% retracement of yesterday’s rise to point “X,” shown with the blue arrow.

And as soon as we exceed a previous pivot (point “a”) I’ll draw a Fibonacci extension. Here it is multiplying the “X” to “a” distance by .618, 1.0, and 1.618 and subtracting these distances from point “b.” Fifteen minutes before we got there, I had identified level “A” as a possible turning point.

What you can’t see on this chart is the divergence on a faster Stochastic oscillator at that 7:00 bottom. Two Fib levels at close to Thursday’s low (red line) and a divergence equal a trade. In this case, a four point move is large enough to get some profit.

Point “B” is a danger point for a number of reasons. It’s at yesterday’s close, at a Fibonacci retracement of 62% of the X-A move, and the Stochastic is overbought. And if you draw a trendline and its parallel (magenta) you’ll have four reasons that a resumption of the down move is not surprising.

There were several Fibonacci levels where we could have reversed between “B” and “C”, but in each case we went right through them without a bounce. We also did not penetrate the blue moving average that I often use for a trailing stop. But as we approached yesterday’s low (always a critical point) there was a very clear divergence for either an exit or a reversal.

On a longer term chart (15 minute) this created a Wyckoff “Spring” setup. I like these because they often catch almost the exact bottoms of reversals, and they allow very close stops.

If you didn’t catch the bottom, the move up from “C” wasn’t very forgiving. Normally the first pullbacks are 50% or greater, and in this case the most we got was 38%. Once again the blue moving average provided a safety net until we got the divergence upon a return to yesterday’s close. To me that was an exit signal, with no additional entry through the close.

Compare today’s movements with yesterday — it covers almost exactly the same area, but today there were some clear action signals. And this is a great example of how important watching the previous day’s high, low, and close can be.