Trading By Tine Book - Part

3154B

30829 3B118

29407 2B69& 27985

27274

25851 25141 24430

-- L=30880 0=31025

Figure 33 Prices move up but fall short of my projection at 31825. That failure should alert me to trouble, but I am either too preoccupied, or have too wrong an anticipation (greed) to act upon what I am seeing. Prices then start to move down. That makes me nervous and so I start a new calculation. This new calculation is based upon a Fibonacci expansion calculation that follows the formula: .618 (B - A) + C.

In this case, A is 28750, is 30575, and is 30000. The result of the calculation is 311 25 rounded to the nearest tick.

Because I am nervous about this trade, 1 wilt be happy to get out at 311 25.

Now Ive shown the fallibility of human reasoning under an emotional strain, t have to ask myself, "Two bars against you and a gap down on day 3 and youre not out of there? How many times must you make stupid mistakes like that before you learn?"

I want to take a nnoment now to talk about Fibonacci expansions.

Nornnally I calculate all three of the above expansions. I want to know where prices might be going so that I can be on guard at the various expansion points.

Congestions, corrections, and retracements can be expected at any of these points. This is especially true where prices have met support or resistance at these points in the not too distant past.

Since most of the money to be made is made in the trends that connect congestion areas, Id just as soon be sitting on the sidelines in all but the most minor, short term congestions.

Ive shown these expansion calculations one at a time up until now, but if Fibonacci expansions are to be used as profit objectives, it pays to compute and keep track of all of them. You might even want to project a 1.500 expansion as well.

As you will see later on, most of the time I dont actively use these expansions, as 1 have a tendency to extricate myself from a trade based more upon what I see on the chart, as opposed to getting out at a fixed number.

But unless you are an experienced chart reader and interpreter, I would strongly advise getting your piece of the action based upon fixed expansion objectives.

If you are trading a small account and are trying to build it up so that you can trade more comfortably, then you should initially get out at the .618 expansion. Let that be your piece of the market.

Later, when your account is in better condition, you can enter multiple contracts. Exit one of them at the .618 expansion and let the other run until you exit at the 1.000 expansion.

In instances where you have a truly plush account, you can use all three profit objectives. Exit one trade at the .618, another at the 1.000, and for your final trade hang on until you see a 1.618 expansion or are taken out of the market by a penetration of a moving average, an , a \ /, or some other method of your choosing.

There are times when it is not possible to project a logical profit objective when trading the breakout of a trading range. This can happen when there is no logical A,B,C swing to project from.

If a market has been trading sideways, on a fairly even basis, with no prominent highs or lows, then you will not be able to make a projection.

In that event, it is important to have a method other than Fibonacci projections in order to facilitate your exit.

31540

30829 3B118

29407 28G% 27985

27274

25563

25851 L, 25141 24430

0=3115B = C=3ia25

Figure 35 In this trade I am lucky and get out at the projected objective. Im out on a blowoff day. Prices could easily have gone down and stayed there after the gap down opening.

Sometimes, even though you break a trading rule, you win. In this case I won getting out at the .618 expansion of 311 25. But in the greater sense I lost. I should have kept my discipline. I should have been out much earlier. This win is a hollow victory for me.