Tonights lesson is on the lines of retracement.
This really is an easy one folks.
The lines of retracement, the 61.8% the 50% and the 38.2% simply act as
invisible barricades to price movement. Invisible of course till we draw
them in. It is just soo cool to draw in those lines and then look at the
chart here all of the Methods hits occur on those lines.
A price below the 38.2 traveling up usually has a hard time passing
through. Then the 50% catches it and finally the 61.8% catches it.
Often youll see that a market often channels in a range *caught*
in-between these lines bouncing first off one then another. This is
simple to trade using a buy above and sell below the two lines that
caused the channel.
These lines also foretell of where we should either exit or move stops
up. The more I use these lines the more impressed I am at their affect
on the markets.
The lines of retracement could/should be drawn on the daily and weekly
charts. For short term trading we draw the lines on our daily chart from
the high to the low of the LAST decent sized trend. For longer term
trades we use the primary highs and lows and for a long term trade we
use the weekly retracement levels.
Sooner or later the market will retrace to these levels. Our job is to
have the ability to take and hold a position, enduring the markets
correction and usual drawdown untill these levels are reached.
I have learned over time not to take a position just below a retracement
level if going long or above one of these levels if going short. Yes
folks, they are THAT powerful.
All we can do is base our trading on what markets tend to do and that is what inspired my Methods in the first place.But you must keep in mind this is what markets (TEND) to do. Sometimes they bust through these levels like they are non existent just as they
sometimes do hard support or resistance. All we can do is base our trading on what markets tend to do and that is what inspired my Methods in the first place.
To dredge the most profit out of a trade keep these lines in mind for
possible exit prices and exit BEFORE the market price touches them as
the market prices tend to bounce off, pause, reverse or build momentum
to push on through.