The sell set up I posted on 2 May has now reached it’s first profit objective.
The strategy involved a triangle set up, selling at around 1.3158. The first profit objective at around 1.2516 was reached on Friday. The strategy discussed in the original post took profit on half the position at that level.
There is an opportunity now to move the stop loss to a level that results in a profit on the 2nd half of the position as well. I’ve posted some thoughts below for readers following this set up
As users of Fibonacci analysis will be aware, you can end up with a forest of lines on your chart before too long. To help see the wood through the trees I’ve shown separate charts below to outline different aspects of the strategy.
The first chart shows a zoomed out view of the strategy at the time of entry
- Entry followed rejection of the triangle resistance for the 3rd time. Entering on the first close under the candle rejecting the trend line would have seen entry at around 1.3158
- The initial stop was behind the triangle resistance at around 1.3333
- The stop was moved to 1.3225 when the price broke below the triangle support (see post 11 May)
- The first target projected the height of the triangle from the point at which price broke below support
You can read full details of the original strategy via the link below:
I’ve outlined 2 approaches to strategy on the remaining half for the position
Strategy Alternative 1
This alternative follows on from the original strategy and is outlined on the chart below
The target for the 2nd half of the position is around 1.2100 as outlined on the first chart. However, now that price has moved below the major low from January, overlap back above that level would be a warning sign that the big picture impulsive downtrend is failing.
Because this strategy is aiming for a large downside move, the stop loss allows plenty of room to move i.e it seeks to allow the trend to run and leaves risk on the table to achieve this.
The dashed line represents a zone of resistance above the January lows. This gives plenty of room for price to move back past the January low but assumes a move right back past this zone of resistance would be a failure warning. The stop on the 2nd half of the position is moved down above that level
Strategy Alternative 2
The strategy outlined on the last chart below is an approach that may be taken by a shorter term trader.
Everything is the same as the first strategy except for the 2nd profit objective and the current stop loss.
This strategy is based on the assumption that many declines take the form of 5 swings or waves. Oncet the 5th wave is complete the trader would want to exit the position because a significant upward correction is possible. The bigger picture trader in strategy 1 would be prepared to ride out any such correction aiming for a much lower profit target
The chart below labels a potential 5 swing structure for the latest move down.
Overlap back through the low at “3” would indicate failure of the recent downswing. The stop on the 2nd half of the position is moved just behind that low.
The 2nd target is a Fibonacci cluster that assumes the 4/5 swing will be:
- 61.8% of the move from 0 to 3
- 261.8% of the correction from 3 back to 4