100% was the cutoff when I was doing it intraday. The leverage is so high that you have to do it that way.
As I mentioned in this journal, for my current SPY position I wasn’t planning on closing it out if it went below that line, and then when that happened, I didn’t close it out. In fact, my next add position is below the 100% line.
It depends on how you want to size your positions, your account size, your timeframe, etc.
I hope you guys all got the sarcasm in that previous post.
There is only one way to trade with Fibonaccis, and it is the way I am doing it. It has nothing to do with predictive power, magic percentages, or sea shells. Sorry to burst your bubble.
Nonsense. “Stopping when you hit a weekly goal” is a psychological game that is actually detrimental to your success.
How do you know that the remaining days in the week will be losers if the previous days in the week were winners?
Winning and losing days are randomly distributed. You could have a string of winners or losers in a row and there’s no way to know ahead of time. Therefore you don’t know ahead of time if it’s going to be a winner or a loser, and therefore there’s no reason to stop trading when you hit a “weekly goal” unless you just don’t feel like trading anymore.
What if you make $1,000 by Wednesday. How do you know you would lose it all on Thursday? How do you know you wouldn’t make $2,000 on Thursday? You don’t. If you do, I would like to invest a significant amount of money with you.
Unless you have some way to know if your future trades are going to be winners or losers, then how do you know if you’re going to “lose everything you gained”?
Look, there are 5 days in a week. You have no idea which days are going to be winners and which days are going to be losers. there’s nothing magical about starting on Monday and stopping on Friday. Trade the days you want. You have the same chance of making money on any day that you trade as you do on any other day you trade. There’s no “stopping when you hit a weekly profit level.” Trade whenever you feel like trading.
It’s taboo cuz most people can’t do it. As long as you have clearly defined stop limits before you ever enter the trade and you know how much you can lose, it’s not bad. People get into trouble when they KEEP averaging down and blow their account. As long as you fully understand the nature of what you’re doing, and the risks that come with it, then it’s ok.
You run into other problems besides PDT rule if you’re trying to do this with a small account. Trading the S&P for example, you can buy 1 contract with $500 margin. Yet say you’re trading SPY, and say for simplicity’s sake it’s at $100 per share. If you wanted to buy 100 shares you already need $10k right there, and that 100 shares would only get you $30 on a 30 cent price retracement. Minus commissions. And if you’re scaling into that 100 shares, you’re going to may multiple commissions which will almost assuredly be more than the $30 profit you make. (Day) Trading stocks requires a much, much larger account size and you still don’t get the margin that you do with futures.
I swing trade stocks with a similar strategy to this. The one thing I like much better about stocks is that you can use selective position sizes (eg. you’re not locked into a minimum size of one contract with its tick sizes) which makes hedging a lot more comfortable. I don’t usually hedge with equal sized positions in either direction because I have a bullish bias over time when it comes to the stock market. Using 2x ETFs makes this even more accessible if you’re not worried about decay over time. I think I mentioned before, the majority of my wealth, including my entire futures trading account, comes from heavily averaging down into the weighted ETFs during the huge drop at the end of 2008. I modified the rules a little during that time, however.
as with any trading, the wider the range that you are trading the less important slippage is.
If you’re scalping for a few ticks, slippage will ruin you.
If you’re swing trading for 10-50 points, who cares about a tick or two of slippage.
That being said…
The percentage between winners and losers is always the same regardless of the spread of the fib lines.
Remember that if it gets to 62% it has less room to go to get to the 100% than to get to the starting point.
I cannot predict price, I don’t know where it will go. That’s why I average down. If it gets to 62% it probably will go to 100%, but if it doesn’t, I make a lot more money.
Combine with hedging the other way and you can make money regardless of which way price goes. Well, sometimes your wins are reduced a bit, sometimes your big loses are reduced by a lot, and sometimes both sides win, which is awesome. Imagine as price is drawing down to the first 3 fib lines and you’re averaging down, you’re closing out trades for profit on the other side (in another account). I do this more on swing trades with index ETFs in my Scottrade account because I can get more control of position sizes than with futures, but like I said, more on this later when I have more time.
If fibs are magical, then price will always reverse at a fib number and I’ll make a million dollars. lol.
But I usually make money anyway due to the nature of price action. It really has nothing to do with fibs. I just happen to use them for my entries in this system. If price reverses at a fib, awesome. If not, awesome.
Hedging your trades by being long and short at the same time.
I will get into that later. It involves using another account and taking the opposite position. I originally was doing it long term with stocks. Depending on how one hedges, here are a few possible results:
– A “winner” is slightly reduced
– A “loser” is slightly reduced
– Both long and short trades close for a profit on both sides
There are a few more possibilities, too, but I’ll discuss those later.
I could write a book on hedging. There are so many possibilities that most people don’t even think of.
I find that scaling in (averaging down) is necessary for people (like me) who cannot predict price direction. Trust me, if I could predict direction, my strategy and money management would be a lot different.
Scaling in is superior for people who can’t predict price direction (which is me) and who are trading strategies that lend themselves to scaling.
If I could predict price movement, I would go all in with my entire position right away.
I’m not a person to claim to be able to predict price.
All I’m saying is if price reverses at Fib levels, the method I have laid out here will be wildly profitable. It can reverse at any of them.