Last Friday, I posted details of a potential reversal in the S&P 500.
The market did peak on cue very close to the Fib cluster outlined and the set up was triggered on Monday.
Traders will have many ways of trading this reversal but I’ve outlined one approach to strategy in the chart below
This strategy involves entering on the first close below the candle making the peak at the Fib zone. To cut down the clutter, I haven’t shown the entry cluster on this chart. You can see it in my 18 Feb post
The initial stop is just behind that peak at 1345
The profit targets represent a departure from the approach I have outlined in other posts on the Gartley set up. Since this is such a big picture set up, shooting for an initial target half way between X and B seems a massive call indeed. Instead, the initial target is framed around the 5 swing advance from the low at B.
This strategy suggests a scaled approach to the profit objectives, buying back half the position at the first objective at 1198.
The first objective represents a 50% retracement of the 5 swing advance from B. There is a cluster of significant projections at around this price. It also represents a 23.6% retracement of the whole move up from X as well as the support represented by the old resistance at A.
The actual 1198 objective applies a bit of a price filter above these levels so that profit is taken just above this pretty obvious support zone that will no doubt be in a lot of traders minds.
This strategy leaves the 2nd objective flexible at this stage. If a major downswing develops then this 2nd objective will use the structure of the down swing to project a more aggressive target.
The stop is also moved down in some circumstances. Rather than complicating things now I’ll outline how this can work if the downtrend does continue to develop.