The “Halfway Back” Trade
12/23/2011 8:30 am EST
The "halfway back," or "ambush" trade keys off of two important Fibonacci retracement levels and works well in a variety of markets, says Hubert Senters, who relies on it himself.
We love to talk about specific trading strategies here at MoneyShow.com, and our guest today is Hubert Senters to talk about one in particular. Hubert, you’ve got something called the “halfway back” trade. What is that?
There are two different names for it: There is the “halfway back,” and it’s also called an “ambush trade.” I like the ambush trade, so I just call it that.
It’s a trade that I got from an ex-pit trader about a halfway back trade. You can either do it on a swing basis or you can do it on a day basis, and it works on a lot of different instruments. It does not work on everything, but it’s a really good entry tactic for stocks, bonds, equities, forex, (and) futures.
What you’re looking for first is a good parabolic move, a good thrust move in whatever you’re trading, and it doesn’t really matter what it is, but you’re looking for a good thrust move.
Once that takes place, you’re going to use your Fibonacci retracement tool. The only two lines you need on there is the 50% and the 61.8% retracement, and what you’re looking for once you get your nice thrust move from the beginning of the buying to the end of the buying, you are then looking for a retracement back to the 50% retracement, and you don’t want it to trade below the 61.8% retracement.
So I’ve got a buy stop one tick below the 50% retracement for the halfway back trade, or the ambush trade.
Now you mentioned it works on a lot of different securities. What about time frames; better on the 15-minute chart, hourly, daily…?
I use it a lot on swing trading and intraday. I like it on the Dow minis on a two-minute time frame, and you can use it on a one- or two-minute time frame on gold, but you can kind of fit it to make it work on just about anything.
And this parabolic move, do you want to see it accompanied by volume, too, or doesn’t it matter?
For me it doesn’t really matter. The hardest thing about this trade is the patience because when you see a market go up parabolically, you just want to chase it. You want to pursue it.
You just have to go “I can’t do it” and draw your line and then just wait for it to come back.
In order for it to come halfway back, believe it or not, that price action has to get a little bit negative. You get a little spooked because you’re saying “Man, it looks like it’s rolling over,” but you just have to step in there and do the trade even though you don’t want to.
And assuming you get in, then where are we talking about a profit target? All the way back up that top again?
About 75% from your entry, so you’re going to use a stop slightly below the 61% retracement and then your target is going to be that 75% extension to the high side.