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Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Jun 21, 2011.
Please use this thread for questions, answers, and comments on this lesson.
Chapt 10, Part IX
Thanks for your Fib lessons. Would like to mention that I have found that using Fib 100 channels are even more usefull when trading on the longer timeframes.
I write in this forum for the first time, but I must say that I read your weekly analysis and daily update with regularity for a couple of weeks.
I think that Forex Military School is an unique project between forex education sites with a high quality level incomparable with others poor education tutorials.
After I read the last lesson "Using Fibonacci for placing orders", I have a question about a subtle and very useful remark you mentioned in your lesson:
"If the market shows that a possible extension target is above Fib resistance area, then we should place stop orders not just above this resistance level, but above the target of extension."
Regarding this remark I have a diferent example on NZD/USD pair.
On H4 chart it has just formed a bearish butterfly. If I anticipate such a pattern and I have such Agreement between 1.272 Fibo rezistence level and 1.618 extension target, but the extension target is below (and not above) Fibo rezistence level, how should I proceed: I place sell limit order below extension target or I place the entry order below Fibo rezistence level and above extension targhet.
In lesson, your remark was regarding placing stopp loss, but the question is the same even if it is about placing an entry order or a stopp loss order (if I was in a long position I must place SL only above extension target or above 1.272 Fibo rezistence. In the atached chart, of course it is not the case of placing an entry order because the price is very close to 1.272 Fibo level and I can wait until market touch this level and enter with market sell order, but my question is in general for this kind of situations: Agreement in which extension target is acomplished before the price touching the Fibo retracement level. In this situations placing entry orders must take into consideration touching Fibo retracement level also, or only extension target acomplished?
By the way, do you realy think that it is a high probability trade to enter short on NZD/USD on Monday after it is touching 1.272 Fibo rezistence (and placing stop loss above 1.618 Fibo resistence on 1.8510) or it is better to wait untill the pair touching 1.618 Fibo rezistence at 1.85 and only after that to enter short. (taking in consideration the daily trend is bulish and my enter would be against the trend).
Thank you in advance for your answer and for unique service you give us with this excelent trading course.
Very good questions, but they demand extended answer. Trading harmonic patterns, such as Butterfy is a separate and huge topic to discuss just in answer to your post. Soon FPA will release large chapter, that is dedicated to harmonic patterns trading. I can try to give you answer in general:
1. When we have no position, we want to enter the market in favorable place, right? Hence we should place entry order so, that increase the probability of filling. In your scenario, you should place entry order before 1.272 and stop order above 1.618 of AB=CD.
Of cause you can track the price action in real time, and probably will have a chance to enter better. But this is general approach.
2. Second question is - how tight these 1.272 and 1.618 targets? If they tight, you may treat this as single area, just a one level and place entry order a bit ahead of it, while stop - beyond it.
3. Butterfly could also have a 1.618 target. So, harmonic trading is a bit different topic, but usually recommended to place stop beyond 1.618 Butterfly target if you try to enter from 1.272.
4. Personally, I prefer to see, when market hits Fib extension target, before enter in opposite direction. If market has not reached it for some pips, usually it return later and hit it. I feel uncomfortable to enter short, if some Fib target just above me.
Conclusion: personally, I'll try to enter from 1.272 with stop above 1.618. BTW, check out, where 1.272 Fib extension stands... may be it tighter to 1.272 of Butterfly target...
The one exception is if this stop is too far for you. Then wait and track the market with better enter and tighter stop...
You should wait for chapter, dedicated to harmonic patterns, so you will understand all these stuff much better.
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