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Ideal Trade Setup - El Paso (EP) Daily Exhaustion - Candlesticks & Volatility
Today's perfect doji on the daily chart of El Paso (EP) illustrates a specific type of trade setup that we at Fibozachi scan
for. After a 3-day move (with back-to-back opening gaps) from 9.91 up
to 11.14, El Paso opened and closed today's session at 11.02 with a
high of 11.13, a penny short of yesterday's high (registering a
"Tweezer Top" candlestick pattern).
Today's trading range also registered an NR/ID-13 day (NR ~ narrow range, ID ~ inside day), meaning that today's session:
[1] exhibited the smallest high-low range of the past 13 sessions; and
[2] was engulfed by the previous bar.
Upon closer inspection, today's daily range for EP was the tightest
(smallest high-low range) in several months. The tenor of 'this' price
action is symptomatic of short-term exhaustion, typically resulting in
an immediate correction over the next few sessions (1-3).
~ This is an ideal trade setup because of the anticipated Risk / Reward offered ~
Profit Target: move back down to 10.59 to fill the recent gap. If this profit
target is hit, it equates to a 43 cent move (roughly 4% gain).
Stop-Loss: a move above 11.13 - 11.14, (intra-day highs of the past two
sessions). If this stop-loss is hit, it equates to a 13 cent move
(roughly 1% loss).
On
this expected setup the pre-defined (anticipated) risk/reward ratio is
over 4:1 ... which means that one need be 'correct' c. 25% of the time
to break-even (save commissions + slippage). Trading is nothing if not
a probabilistic endeavor and we like those odds.
El Paso (EP) Daily ~ Candlestick X-Ray
El Paso (EP) Daily ~ Spectra-Trader & Fibozachi Inflection Bands (FIBs)
Disclosure: no position in the
securities mentioned at the time of publication. During any given
session, we may trade any of these instruments bi-directionally.
For similar technical market calls and insights into the idiosyncratic machinations of financial markets ~ check out fibozachi.com.
There, you can view a body of our analytic work as well as detailed
explanations of the unique design development and technical
methodologies within the proprietary technical indicator packages that
we employ daily to perform a comprehensive technical analysis of
financial instruments (stocks, options, ETFs, bonds, futures, FOREX, etc.) across interval periods of time, tick and volume.
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you should really have a cloud cover after the cross before shorting.
I would say that now would seem the best time to enter your trade.
The trade setup was ideal, although the expectation of a sell-off proved to be incorrect.
However, since EP opened higher and never traded below yesterday's low, the trade was never actually executed.
EP has now come into the 610 EMA, which previously halted price and marked an important turning point back on 1/21/10.
I think you got it ass backwards. EP is at 11.22
So much for the ideal trade setup. Back to scanning....
Sorry for the off topic comment.
Just read on Jesses Cafe - Brition is going to offer 3 years bonds, based on US Dollars, instead of British Pound.
Ive seen a few posts, about a possible bear raid on the British Pound. Just thought it was bizzar, British Bonds, based sold in US Dollars.
Id guess, this should strengthe the US Dollar. Gold and commodities might trade lower, in the short term?
Bizzar times we live in.
Sorry for the interuption.
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fibozachi.com is cool. Wish I understood technicals.
A parabolic curve is easy. Island reversal is not difficult. Most goes over my head - but still an very interesting read,
What's the win percentage on this setup?
we employ a series of short-term divergences that range from stochastics, rsi & swing index to proprietary indicators that track price, volume, range, symmetry & volatility.
the setup we're looking for is when price moves & closes higher in the face of deteriorating technical measures of trend, momentum, etc.
the specific win % is a bit tricky to pin for ya simply bc it will a direct function of how well each of us enters & exits ... gun to head, w/o being specific to EP or getting into interval periods n cyclicality the bottom line win % is c. 60 %. so, from a systematically repeatable perspective, a no-brainer so long as you are able to specifically quantify your risk parameters and efficiently manage the position.
in terms of 'ideal trade setups', we're really looking to do 5 things ~ Identify, Isolate, Time, Execute & Manage the position.
as per the brief outline above: we've identified the setup, isolated the position (individual issue), loosely measured time and are left to monitor price action to determine whether the setup remains valid and continues to prep itself before executing entry. while timing an appropriate entry is essential, capital is ultimately made (or lost) on the exit. and while an anticipated 4:1 R:R ratio with c. 60% expected probability is extremely appealing ... its not so much the profit potential that makes this setup enticing but rather its relatively tight stop-loss. bottom line: healthy implied R is great but an extremely well-managed (and extremely tightly defined) risk profile is paramount.