Trading Lesson: Retracements Not Limited to Fibonacci

11/08/2017 4:11 am EST

Focus: STOCKS

Jeff Greenblatt

Director, Lucas Wave International, LLC

You may never attempt to trade a 1-minute Emini. I’m here to tell you there are so many hidden tendencies if you get the revelation it will benefit you on whatever chart you do trade, says Jeff Greenblatt, editor of The Fibonacci Forecaster on Wednesday.

How many are familiar with the works of psychologist Mihalyi Csikszentmihalyi? He’s the guy who did 30 years of research from people of many walks of life and figured out how to get into a flow state. He’s the guy who wrote Flow as well as Creativity. His research shows the key to getting into “flow” is to be creative. The key to creativity is the ability to think outside the box and do it with endurance and persistence.

In our trading world, most of us are only familiar with Fibonacci retracements. Most software packages are only equipped with the traditional 38, 50, 61 and 78% variety.

What happens if there is a retracement that materializes outside this box? For traders looking for a retracement level, they are left hanging and chances are they will miss the move. I’ve introduced this topic before but today I’m going to take it one step deeper.

As always, my laboratory has been the 1-minute YM. I’ve developed an entire methodology based on this 1-minute chart. The moral to the story is you may never attempt to trade a 1-minute Emini but I’m here to tell you there are so many hidden tendencies if you get the revelation it will benefit you on whatever chart you do trade. This example is designed to get us into a flow state with the 1-minute YM.

Our chart of the week starts in the lower left corner at 471 which is 23471. It peaks at 490 and the first leg drops to 472, a move of 18 points. The rise is 13 points to 485. The highest probability outcome as traders whether we are long or short is not to pick the top or bottom but to catch the secondary pivot.

chart

Why? I could tell you Bernard Baruch, the Warren Buffet of the 1930s when a billion dollars really was a billion, famously said he didn’t want the first or last ten percent of the move but the meat which was the middle eighty percent.

But if you don’t care about Baruch or Buffet, simply put, the secondary pivot usually leads to the best part of the move. Our goal as traders is to find a winner and let it run. We have a greater chance of doing that if we can catch the 3rd or C wave, as the Elliott people call it. Traders will get stopped out. The idea isn’t to be right all the time but to catch good moves so we overcome the small losses.

In this case we have a virtual double bottom at 471 and 472. The rise of 13 points turns out to be a 72% retracement. Here’s what most people miss. The market telegraphed a vibration (a number that can repeat over and over in a sequence) at support levels. It can be no coincidence the retracement level vibrates at the same number as support.


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How many are familiar with the 72% retracement? Nobody, because it doesn’t exist. Virtually any number can turn into a retracement. This is a prime example of what Mr. C was talking about when he showed us how to get into a flow state.

For whatever reason, this market is flowing with 72s. It doesn’t matter what that reason is because the market is always right. When you see three examples of a similar number within an hour, that’s not an accident. The idea is to start looking for such tendencies. Today it is 72, tomorrow it could be 47 or 84. But if you don’t recognize these tendencies are real, you’ll never know what to look for.

Finally, in your learning curve of getting used to this kind of thing, it’s important to especially tune in and be alert at key support or resistance levels. In this case the bounce comes to a resistance level just below the high. Go slow, be easy on yourself and it’s important to realize the neuropaths in your brain will need to grow as you recognize these tendencies.

In other words, as you learn anything new, its highly recommended you try this out on a simulator until you are confident you know what you are doing.

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