"The only way to trade with Fibonaccis" journal

The dividend was paid yesterday and my estimate was off by 29 cents, so the actual numbers are:

SPY: $31,115.00 (closed)
hedge: -$3,281 (closed)

$27,834.00 (SPY gain + hedge loss)
$1,223.60 (realized)
$2,931.69 (realized)
$1,129.72 (dividend)
$3,562.22 (dividend)
$5,221.55 (realized)
------------------------
$41,902.78 (total for trade)
 
Equity markets have an upward bias over time. The strategy he's using is basically to take a long position and resolve not to close it unless / until it's profitable, and add to the position if it moves down.

This strategy will generally work, with some caveats.

1. There's no telling how long it will take until your trade is in the money. It can be a long wait sometimes.

2. Your risk:reward ratio might be really skewed, as you can experience drawdowns that are much larger than any profit that you allow to develop.

3. Sometimes you'll enter a position at the absolute top and the trade will be a loser for decades (e.g., Nikkei 1989, NASDAQ 1999). If all your capital is tied up in this trade, and you keep adding to it, you are basically sunk as it may not produce a profit in your lifetime.

This is an approach for traders with extreme patience and no immediate need to use their capital. The risks are perhaps higher than the OP realizes but it is not the riskiest strategy out there.
 
Forgot one other point:

4. If you enter the trade initially with only a small portion of your capital, keeping some in reserves to add on dips, you will experience only a very small win if the trade moves in your favor quickly.
 
Quote from Took2Summit:

Any plans for your next trade? certain SPY level to initiate, will SPY even be the vehicle? etc.
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Well, since fibonacci numbers are MAGIC and PREDICT PRICE MOVEMENT, I wouldn't dare enter until price retraces to one of these magic seashell points :D So in this case, the next SPY fib retracement appears to be around 121 (actually just missed it the other day).

Haha.

In all seriousness, I'm experimenting with some stuff to see if I can come up with a different entry method that doesn't necessarily require a pullback.

I enjoyed following your thread.
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Thanks :)
 
Quote from dv4632:

Maybe you can predict better than you think. I haven't counted but it seems like you had a lot more wins than losses in your day trading. I've never tried to do this (not comfortable holding 9 contracts) but I bet it could be pretty easy to start drawing fib lines in the wrong direction and take plenty of full losses. I mean, once price starts retracing and you've entered your first position.... isn't it 50/50 as to whether it will touch the 0% or 100% line first? And I haven't seen anyone posting about their success day trading your methods.... so maybe you do have sense of which way price is more likely to go?
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I'm more comfortable doing this long term now which is why I stopped daytrading awhile back. Plus, it takes less effort and I don't have to be glued to the screen all day.
 
Quote from PocketChange:

Nice sequence of trades...

Seems your hedging strategy is not designed to cover 100% of your draw down but to cover approx 1/3 - 1/2. The more oscillations the more realized hedge trades. From what I can observe your exposure is one directional deep collapses. Even then it seems you have some discretion in your system.

Man this is a long thread to read... I'm sure I've missed much skipping through. I'm interested in learning more about your option plays and leveraged ETF trades you've put on to hedge or carry the trade position. Sorry if you've answered it somewhere in here.. Just a high level summary of your approach and reasoning.
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I'll shoot you a PM in a bit.
 
Next fib buy would be here. Not sure if I'm going to play it this way or not, but here it is. It's $121.06. We just missed it on that one day. Do you see it? I'm sure some people will ask "why didn't you just buy it there? That was close enough." The answer is because there was no way of knowing if price would have continued down to the actual buy level.

I know, fibonaccis are magic and they should have used their magic seashell powers to pull the price down there. I don't know what happened, either! :confused:

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Of course if this current uptrend continues and then pulls back a bit we may have to redraw the magic fib lines.
 

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