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:
 exhibited the smallest high-low range of the past 13 sessions; and
 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.
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