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

 

EP Daily Candlestick X-Ray

 

El Paso (EP) Daily ~ Spectra-Trader Fibozachi Inflection Bands (FIBs)

 

EP Daily Spectra 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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