My FIB Method (Part 4) Entries and Exits
If you have seen my previous 3 FIB Method posts you would know that I use fibs to define trend, identify key areas of resistance and support as well as predict price movement. In this post I have tried to detail how I use fibs to trigger entries and define risk. Most of method in this section is based around the 618 FIB (golden ratio). In the simplest terms... if you enter long/ short at the 618 in a retracement you are given an automatic 1.6 risk to reward setup if your stop is place below the 1.0 point and your 1st target is at the 0 point of the fib measurement. (See inset diagram on the left). Knowing this a trader can pinpoint areas on a chart that offer excellent entry points with controlled risk. The PENN chart shows three different entries all based on FIBs using common chart patterns. Although the patterns are easy to find and recognize newer traders will quickly discover that choosing an entry and planning stops can be extremely difficult. The FIBs help me make consistent entries and exits based on specific criteria. It allows me to stick to a process that is repeatable and consistently profitable over a series of trades. I outlined the three PENN trades drawn on the chart below.
1. Base break out/Bottom reversal Trade
For reversals I look to enter a long trade after the downward trend line is broken. The entry would be the 618 pull back into the trendline. T1 would be the top pivot. Stop would be below the lower pivot.
2. Flag pullback/Trend Continuation Trade.
In an up trend I would look for an entry on a pull back. I would wait for tight consolidation then a break of the upper trendline higher. I would then enter on a pull back to the breakout point at the 618. T1 would be the Pivot high and the stop would be the lower pivot.
3. ATH breakout from Consolidation.
PENN made a new all time high and has entered an period of consolidation. I draw a FIB from the top to the bottom of the consolidation and define the area between the ATH and 236fib or 382fib.(this case the 236fib) with a box. One entry would be a break of the all time. T1 for the ATH breakout would be a 1.27 extension. The stop would be a close below the 236 box. An alternative entry would be a pull back trade from the ATH within the 236 box. I measure the from the most recent high to the most recent low pivot and enter at the 618. T1 would be the ATH. The stop would be below the most recent pivot low.
Study the chart as it may be easier to understand than my written description. Please note this is a daily chart so the setups would be swings as they would take a few days to play out. All these patterns can be played exactly the same way on the the lower time frames. I personally focus on the 15M and 30M charts for intraday trades. If you follow my trades you will notice that I am trying to provide more detail on entries and exits on multiple time frames.
This is just one more piece of the the entire process I use to trade. It is not meant to be a stand alone system. I have rules regarding the types of instruments I trade and when and this does not include any information on position sizing. Every trader must develop their own specific trading plan that suites their risk profile and trading style.
Feel free to comment or DM me with any questions. I love to talk charts.
PS.. My next post will go further into how I trade lower time frame reversals and breakouts in zones that I have identified on high time frames.
1. Base break out/Bottom reversal Trade
For reversals I look to enter a long trade after the downward trend line is broken. The entry would be the 618 pull back into the trendline. T1 would be the top pivot. Stop would be below the lower pivot.
2. Flag pullback/Trend Continuation Trade.
In an up trend I would look for an entry on a pull back. I would wait for tight consolidation then a break of the upper trendline higher. I would then enter on a pull back to the breakout point at the 618. T1 would be the Pivot high and the stop would be the lower pivot.
3. ATH breakout from Consolidation.
PENN made a new all time high and has entered an period of consolidation. I draw a FIB from the top to the bottom of the consolidation and define the area between the ATH and 236fib or 382fib.(this case the 236fib) with a box. One entry would be a break of the all time. T1 for the ATH breakout would be a 1.27 extension. The stop would be a close below the 236 box. An alternative entry would be a pull back trade from the ATH within the 236 box. I measure the from the most recent high to the most recent low pivot and enter at the 618. T1 would be the ATH. The stop would be below the most recent pivot low.
Study the chart as it may be easier to understand than my written description. Please note this is a daily chart so the setups would be swings as they would take a few days to play out. All these patterns can be played exactly the same way on the the lower time frames. I personally focus on the 15M and 30M charts for intraday trades. If you follow my trades you will notice that I am trying to provide more detail on entries and exits on multiple time frames.
This is just one more piece of the the entire process I use to trade. It is not meant to be a stand alone system. I have rules regarding the types of instruments I trade and when and this does not include any information on position sizing. Every trader must develop their own specific trading plan that suites their risk profile and trading style.
Feel free to comment or DM me with any questions. I love to talk charts.
PS.. My next post will go further into how I trade lower time frame reversals and breakouts in zones that I have identified on high time frames.
Comment:
Here's some common patterns with a 618 entry.
