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Two entry point

price gapped up nicely but couldn’t move forward .The consolidation was two hours long, volume wasn’t impressive in the breakout. After the breakout price started move forward.Again price started to consolidate and gave us another low risk entry point. Second breakout was more powerful and it pushed the price to our second exit level.

Fibonacci, Fractals and Financial Markets

Fibonacci Numbers and Nature

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Fibonacci Extensions Magic 2

Fibonacci sequence are invented by Leonardo Fibonacci who was an Italian mathematician.The Fibonacci sequence is a series of numbers that takes the previous number and adds it to the current number to get the next number in the sequence. For example: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 etc.The levels for Fibonacci extensions are calculated by taking the standard Fibonacci levels and adding them to 100%. Therefore, the standard Fibonacci extension levels are as follows: 138.2%, 150%, 161.8%, 231.8%, 261.8%, 361.8% and 423.6%. Fibonacci extensions can be applied to both downtrend and uptrend.

Why Fibonacci numbers work:

The world's largest equity or forex traders, Banks, and Institutions use them to determine when to exit or lessen their positions. When they take their profit at extensions numbers we will see market will react sharply as they are the major part of the market.

I use 161.8%, 261.8% and 423.6% Fibonacci extension levels. Fibonacci extensions combination with round number, moving average and candlestick pattern determine appropriate target prices. I usually close quarter of my position at 161% level, another quarter at 261% and close my position at 423%. This numbers work on any time frames and on any instruments. Any one can learn it and imply on their trading strategy very easily. Most of the trading software provides Fibonacci tools. Some time they work so accurately is unbelievable, but they are not foolproof. If you stick to 15 minutes chart and 161%, 262% and 423% extesions,you will see better result.I also use trend line to determin the short trend if it is trending market.In a strong trending market 423% extension target can easily get hit but in a side ways movement ,traders should be cautious

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Hot set-up

The stock was consolidating previous day and formed a doji in the daily chart. Price opened below 10 MA and hold very nicely. Enter a full position just below the narrow range bar. Stop-loss above the NR bar. Exit a quarter of the position at 261%, another quarter at 423% and exit rest at the end of the day. Risk:Reward=1:14.(Risk was only 16c)

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Hot set-up

Not very impressive open but bear was strong enough to push the price down to previous days low.As we know previous day high/low play a important rule in day trading.This kind of set-ups become very effective when price open close to previousdays high or low.

Trading breakout without consolidation is always risky

Fibonacci Extensions magic

Fibonacci extension levels I use are 161.8%, 261.8% and 423.6%.Fibonacci extensions in combination with round number, moving average and candlestick pattern determine appropriate target prices. How accurate this extensions work is unbelievable. In the chart above we can see how price reacted when it approached 261%.

Risk and reward ratio

I made three test,where the capital,commission,trade no,probablity, risk per catital are the same but increased reward in second test by 100% and 200% in third test.


Starting Capital: $5000
Commission: $7 per trade
No of trade: 10
Probability of success: 70%
Percent of capital risk 1%
R: R= 1:1
Test: 1
Results:
Trade 1: Market goes your way...
Risk $49.93 / Gain $49.93 / Commissions $7.00
Net Gain $42.93
Capital: $5,042.93
Trade 2: Market goes your way...
Risk $50.36 / Gain $50.36 / Commissions $7.00
Net Gain $43.36
Capital: $5,086.29
Trade 3: Market goes your way...
Risk $50.79 / Gain $50.79 / Commissions $7.00
Net Gain $43.79
Capital: $5,130.08
Trade 4: Market goes your way...
Risk $51.23 / Gain $51.23 / Commissions $7.00
Net Gain $44.23
Capital: $5,174.31
Trade 5: Market moves against you...
Risk $51.67 / Lose $51.67 / Commissions $7.00
Net Loss $58.67
Capital: $5,115.64
Trade 6: Market goes your way...
Risk $51.09 / Gain $51.09 / Commissions $7.00
Net Gain $44.09
Capital: $5,159.73
Trade 7: Market goes your way...
Risk $51.53 / Gain $51.53 / Commissions $7.00
Net Gain $44.53
Capital: $5,204.25
Trade 8: Market moves against you...
Risk $51.97 / Lose $51.97 / Commissions $7.00
Net Loss $58.97
Capital: $5,145.28
Trade 9: Market moves against you...
Risk $51.38 / Lose $51.38 / Commissions $7.00
Net Loss $58.38
Capital: $5,086.90
Trade 10: Market goes your way...
Risk $50.80 / Gain $50.80 / Commissions $7.00
Net Gain $43.80
Capital: $5,130.70
After 10 Trades: $5,130.70
Test: 2
Starting Capital: $5000
Commission: $7 per trade
No of trade: 10
Probability of success: 70%
Percent of capital risk 1%
R: R= 1:2
Results:
Trade 1: Market goes your way...
Risk $49.93 / Gain $99.86 / Commissions $7.00
Net Gain $92.86
Capital: $5,092.86
Trade 2: Market goes your way...
Risk $50.86 / Gain $101.72 / Commissions $7.00
Net Gain $94.72
Capital: $5,187.58
Trade 3: Market moves against you...
Risk $51.81 / Lose $51.81 / Commissions $7.00
Net Loss $58.81
Capital: $5,128.77
Trade 4: Market goes your way...
Risk $51.22 / Gain $102.44 / Commissions $7.00
Net Gain $95.44
Capital: $5,224.21
Trade 5: Market goes your way...
Risk $52.17 / Gain $104.34 / Commissions $7.00
Net Gain $97.34
Capital: $5,321.55
Trade 6: Market moves against you...
Risk $53.15 / Lose $53.15 / Commissions $7.00
Net Loss $60.15
Capital: $5,261.41
Trade 7: Market goes your way...
Risk $52.54 / Gain $105.09 / Commissions $7.00
Net Gain $98.09
Capital: $5,359.49
Trade 8: Market goes your way...
Risk $53.52 / Gain $107.05 / Commissions $7.00
Net Gain $100.05
Capital: $5,459.54
Trade 9: Market goes your way...
Risk $54.53 / Gain $109.05 / Commissions $7.00
Net Gain $102.05
Capital: $5,561.59
Trade 10: Market goes your way...
Risk $55.55 / Gain $111.09 / Commissions $7.00
Net Gain $104.09
Capital: $5,665.69

After 10 Trades: $5 665.69
Test: 3
Starting Capital: $5000
Commission: $7 per trade
No of trade: 10
Probability of success: 70%
Percent of capital risk 1%
R: R= 1:3
Results:
Trade 1: Market goes your way...
Risk $49.93 / Gain $149.79 / Commissions $7.00
Net Gain $142.79
Capital: $5,142.79
Trade 2: Market goes your way...
Risk $51.36 / Gain $154.07 / Commissions $7.00
Net Gain $147.07
Capital: $5,289.86
Trade 3: Market goes your way...
Risk $52.83 / Gain $158.49 / Commissions $7.00
Net Gain $151.49
Capital: $5,441.35
Trade 4: Market goes your way...
Risk $54.34 / Gain $163.03 / Commissions $7.00
Net Gain $156.03
Capital: $5,597.38
Trade 5: Market moves against you...
Risk $55.90 / Lose $55.90 / Commissions $7.00
Net Loss $62.90
Capital: $5,534.48
Trade 6: Market goes your way...
Risk $55.27 / Gain $165.82 / Commissions $7.00
Net Gain $158.82
Capital: $5,693.30
Trade 7: Market goes your way...
Risk $56.86 / Gain $170.59 / Commissions $7.00
Net Gain $163.59
Capital: $5,856.89
Trade 8: Market goes your way...
Risk $58.50 / Gain $175.50 / Commissions $7.00
Net Gain $168.50
Capital: $6,025.39
Trade 9: Market moves against you...
Risk $60.18 / Lose $60.18 / Commissions $7.00
Net Loss $67.18
Capital: $5,958.20
Trade 10: Market moves against you...
Risk $59.51 / Lose $59.51 / Commissions $7.00
Net Loss $66.51
Capital: $5,891.69
After 10 Trades: $5 891.69

http://www.valtinho.com/invest/risk_management_simulator.html#trade10

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