Friday, December 8, 2006
It's often a treat to open my email and see a great question from a serious trading student.
This is a good example, a well thought out question, and a good opportunity for readers to learn some advanced techniques.
First, here is the original email from Harry, with my reply below.
> Hi Neal
>
> Thanks for the course Trading The Trend that I purchased from you
> back in September. Some great material in there.
>
> Neal, I have been trading full time for 3 years now and have tried various
> approaches and my preferred method of trading has settled down to using
> fibonacci. I have been studying and practicing fibonacci for the last 12
> months.
>
> I will outline my strategy below and have also attached 3 charts
> of the same instrument with different time frames. I use a 1hr, 4hr
> and daily chart and use only the 38 and 62% retracement levels.
Click for ETI Daily chart (opens new pop-up window)
Click for ETI 4 hour chart (opens new pop-up window)
Click for ETI 1hr chart (opens new pop-up window)
>
> 1) Find a strong trend in the two higher time frames (for me that
> is the 4hr chart and daily chart) and check to see no obvious divergences
>
> 2) Identify support/resistance at fib levels or clusters (38% and 62%
> retracements) on the smaller time frame, which for me is the 1 hour chart.
> If supp/res is found for 2 periods then I attempt to trade towards the end
> of period 3.
>
> 3) Place stops
>
> 4) Perform price target analysis - I do this by using fib-extensions
>
> The problem that I have is that I find step 2 to be a bit clumsy. For
> example sometimes we will only see 1 touch on the cluster or retracement
> level so therefore the 2 period idea doesn't work. On the other hand
> it may support or resist at these fib levels for 3,4,5 or more periods, in which
> case you have gone in too early. Can you suggest a better approach to
> step 2 please. I believe you mention in the course below that you have
> some special triggers to help time the entry into trades. If it is a course or
> separate product that you sell with regards to this, I would more than happy to
> buy it.
>
> Thanks in advance for your help and support. It is a real inspiration to
> learn from you.
>
> Harry
Hello Harry,
Thanks for your comments about my advanced seminars. For readers of this web page, the seminars are available here (click).
I'll answer your questions, and will comment on your email, sequentially in the same order that you wrote.
We should clarify for readers that you are concentrating on the chart towards the end of September. So we should look at your charts as though the future beyond September did not exist.
You are right about that trend, and now that we know what happened after September, the trend did prove to be valid and strong.
The SK support (clusters) on your hourly chart also proved valid. I don't understand why you limit your trade to the 3rd period. That's fine if it works for you, but that's not what I do. Some of your problem is your entry technique, so you may want to reevaluate the 3 period limitation.
If you need help with stop placement, be sure to see my video seminar called Money Management and stop placement, available here (click).
Also, for help with your target analysis technique, study my seminar called Let your profits run, available here (click).
OK now to your specific questions.. Novice traders may find this information way over their heads, I apologize in advance. Please come back to this in the future. Experienced traders will find it very revealing.
Because every chart and every day can be different, your entry should have some flexibility. Restricting yourself to entry on the 3rd period is limiting, and may not help your overall performance. If fact there is no one-size-fits-all "magic bullet" indicator. You sometimes have to use a faster entry, sometimes slower. A 30 minute chart would prove more beneficial in a thrusing market, a 4-hour chart could be better in a slower market. Trading, as any worthwhile profession, involves some skill..
Some indicators and techniques are better than others though, read on..
You don't want to enter too early, or you'll be taking a greater risk and enduring greater frustration before the trade moves. There is a “3 period rule” concept, to help you get out of a trade if you enter too early. Perhaps you developed your 3rd period entry from that concept?
On the other hand, you don't want to enter too late, or the market will get away from you.
You need an effective way to trigger your entry, to control your risk and improve your chances of success. My seminar called “Trading the trend” shows how to fine-tune your entry to do just that. The seminar shows you how to do this with MACD and Stochastic.
I developed my own proprietary indicator for this purpose. The TRSI formula is available to traders who have bought my “Trading the Trend” seminar. I even have the formula in Esignal format. Since you have my “Trend” seminar and Esignal, I'm sending the formula files to you. That information is proprietary, please do not distribute it. Once you have installed the TRSI, look at the crossing of the gray line over the blue line. That's often a great entry trigger, particularly if the TRSI is near the 40 or 60 levels, and the price chart has SK support/resistance.
That's enough for now, let's get the weekend started..
-Neal.
Posted by FibMaster @ 11:40 AM PST [Link]
