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Hello RealTraders,
This response is a reply to Linda's questions, it is a bit detailed and
dense, and requires some knowledge of Fibonacci techniques etc. If you
prefer to skim the high points, here is what is discussed:
1) Know your trading time-frame.
2) Have a dependable definition of trend (know the direction of trend in
your time-frame).
3) For more advanced traders, know how to anticipate trend change. Else
just wait for price to confirm a trend change.
4) Use Fibonacci techniques to determine "safe" entry points (as safe as
reasonable!).
5) Use Fibonacci techniques to determine "safe" disaster-stop points (as
safe as reasonable!).
6) Use Fibonacci techniques to determine profit objectives.
7) If your stops are placed too close, you are lacking confidence, this is
not a successful strategy.
If this is all "hooey" to you, press the delete button now, so you can
maintain your current perspectives safely <g>.
Apologies if this is not clearly written, I'm doing it in a hurry. I do try
to refrain from posting to the list unless I can contribute some value,
this is the best I can do right now.
I'm a rabid fan of DiNapoli techniques, but will not try to detail all of
those techniques, you can research them at http://www.fibtrader.com
Now, into the thick of it!
Linda, I recognize your name from the DiNapoli forums at
http://www.fibtrader.com/forums/
so I hope you have the "Trading With DiNapoli Levels" book. Answers to many
of your questions are in that book, I apply many of these concepts in my
trading, so will try to help.. If you have the book, I'll help you in
detail on the above forums, post some questions to me there. Of course, no
system/methodology is perfect for everyone, so the following are my
suggestions based on what's good for me. These concepts are explained in
the above book.
I'll try to respond in the same sequence as your questions were written.
(Phew! You are covering a lot of ground.)
First congratulations on getting back into trading! Staying away from the
markets can be the most important way to learn, sometimes..
Time-frame is very important. Know what time-frame you are trading in, and
then combine Fibonacci input from multiple time-frames while not getting
confused about your own time-frame ;-) It is so easy to get frightened by
short-term action and then exit your long-term trade at exactly the wrong
time..
Yes, longer time-frames require more risk (stop-losses further away, more
average range per bar on the chart), but more profit-per trade too
(hopefully). So while the frenetic activity of Intraday trading is wearing,
so are the increased risk and demands on your patience when trading
longer-term. Finding the time-frame that suits you and then sticking to it
is vital.
Yes, DELL is retracing! Your item 1) says "It will bounce off the
retracement and resume the uptrend.". This presumes we have a good
definition of trend, and that we know what time-frame we are trading. Based
on the weekly chart we definitely have an up-trend (per DiNapoli
definitions) with a retracement. Also, this weekly chart shows a "classic"
oversold Stochastic while MACD holds the uptrend.
So the short-term traders are selling into the hands of longer-term buyers
(provided this recent support holds). This looks like a classic (DiNapoli)
Bread-and-Butter trade setup, but it's a bit too early to tell. Whether
DELL continues to hold the recent Fibonacci support level will make all the
difference.
Based on the daily chart we have a very profitable Down-Trend (shorting on
rallies). Depending on the indicators you use, the down-trend on the daily
chart was very obvious by Feb 8th 1999, and the high of that day was a
"perfect" Fibonacci sell-point.
Your item 2) says "It will start a new trend and go lower. At this moment
it is oversold, so that gives me two choices."
So you must be looking at the weekly chart noticing the uptrend and waiting
for a downtrend to appear.
Generally, there are key principles to TREND TRADING, you must trade in the
direction of the confirmed trend, or you must anticipate a new direction
before the new trend is established. Trading in the same direction of the
trend is easier if you have a sound definition of a trend. Anticipating a
change in trend requires leading indicators (which show a probable change
of direction before price actually changes direction). DiNapoli's Fibonacci
techniques are good for this as are his 9 patterns (see "Trading With
DiNapoli Levels" page 71) for determining a change of trend before it happens.
This brings us to your next statement: "So next I need a signal that it is
indeed going up. Then I set my stop at the low of this retracement."
The going up part is obvious, you need any/some of the following A)
Confirmed price support at a Fibonacci support-area (preferably at
Confluence), or B) a directional indicator which anticipates a change of
trend (Double RePo, RailRoad Track, Bread & Butter signal etc), or C) price
confirms the trend upwards (using a predefined trend indicator, such as
MACD or displaced moving average).
So far so good, but I take issue with your idea about placing your stop "at
the low of this retracement". There are better ways to determine a "safe"
stop-placement area, again using Fibonacci techniques. It's just my opinion
(based on my perception of my experience) that placing a stop just below a
retracement is an unsuccessful technique. I feel strongly about this, but
others will contradict me, so whatever works for you… A safer Fibonacci
stop level will be further away, but you needn't wait until DELL actually
hits your stop to get out, that would be a "disaster-stop". You would only
need a "closer" stop if you really didn't have confidence in your
techniques. Think about the preceding sentence, it's an important concept.
If you don't have confidence, perhaps you should change techniques or find
a different trade?
I think I've answered most of your questions, and now the next one too:
Yes, generally speaking, you are on the right track.
It's been fun,
Thanks,
-Neal.
-----------------
Neal on the 'net.
Trade well. Train hard.
http://www.halcyon.com/neal/
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