Since I posted on how I find my sell targets or to find the high range, I figured I'd post how I dealt with a loser. ALD. I hated this stock... I broke many of my trading rules chasing this stock. I bought in the lower 4's, luckily got out around 4.20 before collapsing more. I decided I should buy more around 3. It can't go much lower, right? Well, it did, and went down rather quickly. But then I how to stop worrying and love the bomb.
In January, I bought 300 shares of ALD at 2.95. It gave a false breakout during the January rally and I was caught amongst some bad ALD news. I bought at consolidation around a fib line, volume looked good, everything seemed to be in its place. I was happy I made a good trade.
But the gap down a few days later killed me.
Well, I had a 50% loss in it so far. Should I sell it? Probably, however I am well-capitalized so I decided to hold on to it.
My goal: buy the bottom and either get out even or turn it into a winner.
How would you find bottoms using Fibonacci?
See this next picture, which shows how I measured the move.
What you would want to do is measure the gap from high to low by reversing the fibonacci so that 161.8 moves downward. My target buy price is now .60
Finally in Feburary my price target has been hit, my limit order filled, 1475 shares (the same $$ amount I originally put in) at .60, and my stop loss at .49 never triggered. It went to .58 but there was still a lot of support around my number so I didn't worry.
I now own 1775 shares at .99
At 1.30 I sell out with a profit of $537, or a 30% gain. I then put another limit order at .60 to buy 1775 shares (I like consistency), a total cost of $1065. My new stop loss is set at .54, which is never triggered.
So, I turn my 75% January loser into a 30% gain, and on the new swing trade I own 1775 shares at 1.89, which is a 300% return.
That's one way you can use fibonacci if you come across a loser, especially on gap downs where you have absolute no control over.
Be sure to use stop losses.
Aren't you worried at all about how badly Fibonacci failed the first time?
ReplyDeleteThe bad ALD trade was my fault. I knew they had debt problems and I knew a date was coming up regarding renegotiations..
ReplyDeleteFibonacci won't protect a company's fundies, so it I wouldn't say Fibonacci failed exactly
Then aren't you just setting up a non-falsifiable hypothesis? Any time Fib fails, you have some excuse to claim why it didn't really fail?
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ReplyDeleteDepends on how you look at fibonacci.
ReplyDeleteIf you look at Fibonacci as support/resistance levels only, then no, Fibonacci didn't fail.
If you think Fibonacci is some kind of magical magnet for prices to cling to and no matter which way you go, it works in your favor, then yes, Fibonacci failed.
I however adhere to the first definition.
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ReplyDeleteIf you look at Fibonacci as support/resistance levels only, then no, Fibonacci didn't fail.
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But it did fail the first time....the stock gapped down horrendously.
Also, you've set up a non-falsifiable hypothesis in the sense that you ignore all the levels of support that aren't at Fibonacci levels
Yes, that was my problem. I wasn't paying attention to how badly it failed at the support. That was a sign of how badly the stock was performing and a greater sign to get out of it.
ReplyDeleteI'm not setting up a hypothesis because I'm not trying to prove anything to you. I'm demonstrating how you use fibonacci to identify key support areas. When it fails, you look to the next level of support. You're also ignoring how fibonacci accurately predicted where ALD support would fall at .60.
Where on the chart would you find that? You wouldn't, so fibonacci gives you the support.
Fibonacci is support/resistance, not a price magnet.
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ReplyDeleteFibonacci is support/resistance, not a price magnet.
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Then you are forming a hypothesis...one that is testable to see if it can form predictions.
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You're also ignoring how fibonacci accurately predicted where ALD support would fall at .60.
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That's not the point. The point is whether a stock finds support at Fibonacci levels *more often than chance would dictate*. To put it in other terms, do stocks find support at Fib significantly more often than non-Fib levels? That is a hypothesis that is testable and falsifiable.
Look at my NVAX trade.
ReplyDeleteI don't even know what you're arguing against at this point
I did look at your NVAX trade. And your circled level is right around the $3 round mark....certainly not evidence that stocks find support at Fib levels more often than non-Fib levels.
ReplyDeleteSecond, you're claiming that Fib accurately predicts support and resistance levels. That's a testable claim. Let's put it this way. How would you test this hypothesis to see if it holds true or not?
There's actually 3 trades on NVAX. 2.93, 2.64, and 2.36, all of which fell on support.
ReplyDeleteWhat you look for are volume increases on Fibonacci levels.. A good indication the "big boys" are looking at the same thing you are. The levels give you direction, so you know when to start looking for heavy buying, rather than staring at the volume all day long.
Testing the hypothesis would be very time consuming as you would need to test hundreds of charts. My plan is to continue posting my trades. This week I've had one trade go against me -- RF (Regions), because I was paying attention to volume only and not retracement levels.
Check out those NVAX charts again and see what I was looking at when I made the trade
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ReplyDeleteWhat you look for are volume increases on Fibonacci levels
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I knew you were going to say that. But you're also ignoring the volume increases that occurred at non-fib levels. There are numerous points on that chart that have volume surges in between the Fib levels.
With all due respect, Yngvai, but this is not what you're understanding.
ReplyDeleteWhen you have your fibs lined up correctly and you begin seeing huge buys at those levels, this is confirmation that a bounce is about to take place. While I was waiting on my trade points on NVAX, I ignored all volume increases until they arrived at my potential bounce areas. Basically it's just confirmation that the volume coming in will ensure a bounce.
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ReplyDeleteWith all due respect, Yngvai, but this is not what you're understanding.
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No, I'm perfectly understanding it. What you're not understanding is the concept of probability. If I divide any stock chart into roughly 4-5 equal areas (like Fib does), I'm going to see these "confirmed bounces" at these levels frequently based on chance alone. In fact, based on rough calculations, 1 out of every 4 of these "confirmed bounces" will meet one of these levels based on random chance. Thus, there's nothing impressive about the fact that you found support at Fib levels. That's fine if Fib works for you, but Fib does not predict support and resistance beyond what chance would dictate.
I understand the concept of probability just fine. I've taken my share of statistics classes in college: Stats I&II, Quantitative methods, as well as many computer programming classes requiring a statistics background: SQL, Database Administration, Differential Methods, etc . One fact about probability s that it lacks human interference. Do you believe that Hedge funds and/or retail traders with hundreds of thousands of dollars look at volume to place trades? They're the ones moving the price. Most of them use Fibonacci, so if you use the tools they use to match their buys, you in a sense have inside information of where they plan on making a buy, and once your fibs match up with theirs, you're able to ride their coattail so to speak.
ReplyDeleteLook again at NVAX. Not only did I manage to make 3 profitable trades using Fibonacci/Volume/%R together, but the very first support area was at the 23.6% level which I haven't mentioned.. and not sure if you noticed.
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ReplyDeleteMost of them use Fibonacci,
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Do you have evidence for this? I find this ironic because I just recently thumbed through a book where they interviewed some top professional traders and hedge fund managers and the interviewers specifically asked them about Fibonacci. 90% of them said they saw no value in it.
I don't have any hard evidence of that. I say this because of a friend/mentor of mine who worked at Goldman Sachs as a stock analyst is the person who got me into using Fibonacci retracements. He used/still uses Fibonacci heavily for intraday trading. He now runs a small hedge fund and mainly plays small cap bios and nanotechnology.
ReplyDeleteOne thing he told me that stuck with me is that "if your lines aren't matching up with key reversals, then you're using the wrong starting point." He said to move the fib level to match the first key reversal and the rest will fall into place, and so far he's been right.
So I'm of the belief that it works not because it's magic, but because people are looking at it.
Part of my trading strategy is to have confirmation with %R/volume at a fib level, and if I don't get it, I don't make the trade.
Any time I deviate from that strategy, I end up getting it wrong. The two recent ones were RF monday and BZH today. RF because it looked like a break out, BZH because I wanted something to do.
My other trade today was SRZ (using fibonacci) at 1.58, which was the low after the breakout.
Start at the gap, measure to the high, 50% is 1.58. I'm positive I wouldn't have known to buy it there if I wasn't using fibs as a guide.
If you think about it, buyers and sellers at an equilibrium would be 50%. Equal levels of pull and push.
And I can almost guarantee I still don't have you convinced, nor will I ever.