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.
PENN trade ideas
PENN broke the box.Revisiting another trade setup that I posted a week ago. It has now broken the box. If you have not already entered from my original trade plan look to enter after price shows it will hold the top of the box and move up. Targets are the fib extension and risk is a close below the box. See previous post.
RectanglePENN appears to be trading in a rather large rectangle channel....
A rectangle is usually a continuation pattern and Penn was in an uptrend before getting stuck inside this channel, but there is no way to know which way price will break...often these are periods of consolidation where the bulls and the bears are fighting against one another..
Price forms resistance at the top of the channle and support at the bottom of the channel. Rectangles can last several weeks to several months...other patterns can form inside of the rectangle...2 touches of each trendline, preferably 3 on one trendline and 2 on the other are required to have a valid pattern..
It is preferable for most traders to make a lot of money trading and not just making a lot of trades...Having a plan that you can hand to another trader and they can execute the same trade can help many...we need targets so we know when to get out and the security may go higher (or lower) than we anticipated....but sticking to your plan means you can accept the targets you "planned". Sometimes we have no control over what happens like overbought conditions etc...Leaving the market early with a profit surpasses leaving later with a loss (o:
$PENN Bearish Swing Trade PlanGreen Line - Entry Target
Red Line - Exit Target
Pink Line - Stop-Loss
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PENN National GamingBeen relooking at more stocks with log scale and seeing if I can get a clearer count from it. PENN has promise and can see $100+ to finish this larger wave 1. Wave 4 not confirmed yet, but possible bottom has formed. More bullish over $68. Over ~77 to confirm wave 4 is in. Can see possibility of correcting to ~$45 - $34 for wave 4 which would be a great buying opportunity.
Will Covid Kill PENN's Rally? I think soU.S. just hit 160K new covid cases and there's no sign of slowing down. In fact, it's exponential growth (more than 100%) in November alone. That alone should cause the rally to pause and retreat to support, but the economic data has been promising and DKNG's just raised their guidance with one caveat - "As long as there are no disruptions to sports due to Covid". That being said we've already seen a number of games rescheduled in the NFL and what would happen if the playoffs were to be canceled? Or the season is postponed... until when? Spring?
Things to consider in the weeks ahead...
1. Exponential Covid Case Growth and Overrun Hospitals nationwide.
2. Covid has already disrupted the NFL, College Football, etc.
3. Thanksgiving may be a super spreader event which dramatically accelerates us to 250K plus new cases daily
4. Black Friday shopping? That'll be worse than Thanksgiving
5. It's going to be a long winter and we're just getting started
If sports make it through November then it could be smooth sailing from here - maintaining the blue line support. However, if $H%T hits the fan look for support at the redline. At these levels, I'm bearish but it's close to a breakout so who knows.
PENN BreakdownPENN looking like it topped and formed a double top on the way down. I am expecting this to have a relief bounce next week, before getting soundly rejected and breaking down further.
Price expectation is the start of the breakout (in red) if the orange line does not hold.
Previous idea on the breakout: