• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

A Pocket Guide to Fibonacci Trade Setups

Let's take a look at the QQQ.
By CAROLYN BORODEN
Jan 15, 2014 | 11:00 AM EST
Stocks quotes in this article: QQQ

As longtime readers will know, my work uses a very simple formula to make money:

Trade setup + trigger = entry

(Then, manage the trade.)

With that in mind, let's walk through a setup in the PowerShares QQQ (QQQ) that is still in play. This can help you understand how to use my setups in the future.

In Monday's session, I saw a classic setup -- a two-step pattern cluster -- developing in the Qs as the market took a fairly unexpected dive for the day. This is essentially a zig-zag pattern that includes the coincidence of at least three key Fibonacci price relationships within a relatively tight price range.

QQQ -- Daily I
Source: Dynamic Trader
View Chart » View in New Window »

Now, on the daily chart, we actually saw the coincidence of more than just three price relationships, and the first cluster came in at the $85.48-to-$85.68 area. Not only did the fund test and hold above that price support, but a cluster of Fibonacci time cycles were also due between Monday and Wednesday.

So, for the Qs, the setup was in place with our requisite time and price parameters -- and then, with Tuesday's gap open, we also saw a buy trigger fire off on a 15-minute chart. The entry wouldn't have been very graceful, but that trigger nonetheless constituted a buy signal in QQQ. Our initial risk for the trade was defined below $85.86 -- the low that the fund hit prior to the buy signal.

If we see the full move off this trade-setup zone, the first target will come in at $88.58, and the second at $89.37. Since the QQQ has not yet met the upside target at this point, I will now set up pullbacks for another buy entry, as well.

QQQ -- Daily II
Source: Dynamic Trader
View Chart » View in New Window »

Now, on this second chart, I've illustrated exactly where the price relationships came in and collided. We saw a confluence of a 0.618 retracement that overlapped two 100% projections of prior declines, along with a 1.272 extension.

You just can't make this stuff up. If you wish, you can actually go back and recalculate this price cluster for yourself (with the highs and lows I've marked on the chart), and I think you will start to understand the method behind my madness.

As always, remember that stocks don't always make the upside target, so be sure to use a trailing stop with any of my trade setups.

For more information on trade triggers, please refer here. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Boroden had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Stocks

More from Investing

Fear Fades as a Reason to Rally

James "Rev Shark" DePorre
May 16, 2022 4:20 PM EDT

Monday turns uninspiring as traders lack incentive to buy and oil moves higher amid poor economic data.

You Can't Keep a Good Datadog Down

Bruce Kamich
May 16, 2022 3:48 PM EDT

A rally back to this area could unfold soon, so current investors should keep a tight leash on shares.

Occidental Petroleum Continues to Target Higher Prices

Bruce Kamich
May 16, 2022 2:52 PM EDT

Here's our first price target and our long term objective.

Supply and Demand Are Critical, but Remember: Timing Is Still Everything

Maleeha Bengali
May 16, 2022 1:51 PM EDT

Econ 101 suggests that at some point, either the supply side catches up, or demand falls to get prices back in equilibrium. Let's see what this means for oil -- and a potential recession.

How Is JetBlue's Stock Affected by Its Hostile Bid for Spirit?

Bruce Kamich
May 16, 2022 1:08 PM EDT

Let's review the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • 12:20 PM EDT PAUL PRICE

    A Blast From the Past Regarding Bitcoin

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login