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To be comfortable in the fact that you know where the market is going in advance is a very powerful feeling. Be a power trader and know your market.
- John Novak | |
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Today's Featured Article
This article will cover how to take advantage of the full potential of trading Fibonacci areas, and when to confidently look for a reversal in the market and how to maximize your profits while keeping your risk very low. This information will help traders to trade on the correct side of the market, and trade the proper areas; the areas that are anticipated to hold.
In all the examples we will be using a larger chart will give us the area for the entries and the direction for trades; this chart size will depend upon your trading goals. Some of you may trade daily charts and some of you may be day trading in which you will us smaller charts such as tick charts or minute charts. No matter what market you trade, stocks, bonds, futures, or forex this method will work the same on any of them and on any timeframe. Below we will have many examples of higher and lower timeframes and the method applied to many markets.
The Areas and Macd will be indicative of the direction, and entry points. There are five rules that will be used as guidelines when looking for the reversal in the market at a key Fibonacci area. (Many examples will be posted below and remember, a picture is worth a thousand words but can also be worth millions of dollars too).
Here are the general guidelines for maximizing your trades potential. (See pictures below)
- The market MUST reach an area of "Blue" support, or "Red" resistance. To help identify the strongest areas, it is best that the area is on more than one time frame. The T-3 Fibs ProTrader automatically generates these multiple timeframes confluence lines; you may use a manual Fibonacci method if you wish.
- The Macd on the chart MUST show a "Strong" reaction off of the area, or areas. This is our validation that the Fibonacci area may hold.
- The small triggers MUST be crossed in the trade direction. It is best, if the small triggers are wide and spread apart. This is another sign of a "strong" reaction off the area.
- It is also necessary to see a "weak" condition in the Large Triggers on the large chart. Closing inside, or on the trade side of the Large Triggers will show the weakness in the overall trend.
- Upon pulling back to the area or areas that are anticipated to hold, the Macd MUST show a weak retracement. This is indicative that the area has an even greater potential to hold. Think BIG move off the Fibonacci support or resistance area, followed by a small retracement in the Macd, while pulling back to the entry area, and then another big move in the new trend direction.
At this point, look for the entry pattern a smaller time-frame chart if you wish to reduce your risk further and while looking to maximize profits, by holding for the next key area on the larger chart as your target areas. | |
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Let's look first at some day trading example then we will look at some longer-term chart examples and you will see the effectiveness of the method over and over on a wide variety of market and wide variety of timeframes.
The chart below is an ES mini (S&P mini) futures contract. Keeping in line with the 5 rules above this chart is labeled accordingly. Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5).
If you cannot view Example Chart #1, go here.
The following chart is an example of the exact same method being used on the QQQ market on an intra-day basis. The cyan labeling is a trend continuation trade, which we will discuss, in a later article. The important thing to note is how risk was very low at the initial point of entry (#3) and how much profit potential the market generated (#6).
If you cannot view Example Chart #2, go here.
Below you will see an intraday chart of Gold mini Futures, Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5). In this case almost 40 points in a gold contract.
If you cannot view Example Chart #3, go here. | |
Now we will look at a very large timeframe of Dow Jones Mini Futures that most traders will commonly refer to as swing or position trading. What you will recognize quickly is that the method for 2-4 day in length trades uses the exact same rules and setups just on a larger chart. Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5).
If you cannot view Example Chart #4,
go here.
The following chart is a US dollar versus British Pound forex chart. This large of a chart will generally yield 1-3 day trades that will generate huge potential returns with very small risk. Notice how little risk there is at the ENTRY POINT (#4) with stops just beyond the entry point. Also it is important to notice how much profit potential there is by allowing the trade to run all the way to the TARGET AREAS (#5). This one trade yielded almost 250 pips on a single trade!
If you cannot view Example Chart #5,
go here.
As you can see this one simple method can be very powerful if applied correctly to any market on any timeframe at key support and resistance areas.
So in order to maximize your profits and minimize your risk, define a key area that should hold and position yourself accordingly to take advantage of the potential. |
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About the Author
| John Novak
is President of Nexgen Software Services Inc. John is the developer of the T-3 Fibs ProTrader indicator package. He has been involved in the marketing and distribution of Technical analysis software for the last 13 years. He has devoted the last 10 years to the automation of a popular discretionary methodology that he taught in seminars for over 2 years to many successful traders that was centered on Fibonacci analysis of both time and price. With the help of his software programmers they have automated this entire Fibonacci process into a fully automatic program. He spends his days working on constant improvements in his analysis in predictive indicators for traders and spends
the day trading his own methods. | |
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