Revisiting the Barclays share price – how to trade with Fibonacci
John Burford looks at using Elliott wave and Fibonacci principals in this short trade on Barclays shares.
Revisiting the Barclays share price how to trade with Fibonacci
In a recent post, I showed that Barclays shares were conforming very well to both Elliott wave and Fibonacci principles, which should allow low-risk trades to be put on.
In this brief follow-up, I will show how a short trade made at the February rally to 340p was closed out at a nice profit on Friday just past.Recall that the 340p level was reached in a spike to a significant Fibonacci retrace level where I put on a short trade using a 10p stop at 350p. This was within my 3% rule limits.
Because the rally to 340p from the November 252p low occurred in five waves (which were textbook in form complete with a negative divergence with momentum at wave 5) I was expecting a three-wave correction down.
As trading progressed down, I then lowered my stop to break-even, following my break-even rule.
As expected, momentum readings started falling from their high levels at 340p, and on Friday, the market hit the 296p level on oversold momentum (marked in purple box on the daily chart below). Incidentally, I use mostly daily charts for individual stocks, and mostly hourly charts for stock indexes and the other markets I trade.
(Click on the chart for a larger version)
I have drawn the Fibonacci retrace levels using as top pivot the 340p high, and the bottom pivot the 252p low.
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Right on cue, the market on Friday fell right to the Fibonacci 50% retrace at 296p, where I took profits for a very nice 42p gain in less than three weeks.
Now why did I take profits there? Recall I was looking for an A-B-C three-wave pattern down. Although not perfect in shape, I can make a case for three waves down to 296p, thereby fulfilling that requirement. And a 50% retrace is a typical stopping point for retracements of a five-wave pattern.
Now, I have no idea whether Barclays will bounce a lot, a little, or just keep going down. What I will do is observe the market and let it tell me what to do. All we can do as traders is make percentage bets based on the chart patterns that have proved reliable in the past.
Using Fibonacci levels as trade entry and exit points as I have done here, cuts my initial risk, as I know where to place protective stops that make sense. I am not just stabbing in the dark, hoping the trade will work. Of course, my methods are not the only ones that can work, but the one feature of all successful methods is that you have a credible "system" for picking trade entry and exit points, and a tight money-management strategy.
With these, you can go places!
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