Home II Subscribe II Sitemap II Daily Updates II Forum II Privacy policy II Contact Us II  Member Login  

Entering a market on Retracements

2-8-2004

Question:

I’ve noticed that on occasion you will not enter a market until after it has retraced to the 62% or the 38% retracement levels. I was wondering if this method was one that has a good track record?

Answer:

You can use retracement levels to trade from with the same reliability as using the resistance formed by price levels, as they are just another form of resistance. Many times the market will range between retracement levels (ie. between the 50% and 62%) in which case you could use these levels to bracket the market and trade it as a breakout from a channel when the market finally commits to a direction.

Many times when you calculate a market's retracement levels you will notice that the market has already hit these "imaginary" lines several times. To me, these hits help to reinforce the validity of the retracements I have calculated and give me confidence to trade from them.

It can be a valid trade to take a position above/below the 62% (or 38%) retracement level; however I would avoid trading this strategy off of the 50% retracement (especially on the market's first approach to the 50%) as this retracement level tends to be a little more unpredictable, even if the market manages to exceed the retracement line it might whipsaw and head the other direction. In this case it is wiser to wait for a strong close above/below the 50% level to make sure that the market has committed to a direction and is not merely chopping around.

-Erich

Back to the Article Index

There are approximately
70 more articles
available in the Members Section!

Click here to Subscribe 

 To see Erich and Tom in action, in precise minute detail,
Test Drive the Premier Support and Resistance publication for free:

---

U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.