Bounce play or buy a bounce is buying/ selling stocks to profit from temporary price reversal during price corrections. These are short term trades. Bounce play does not affect the direction of the larger trend.
David Jones of Trading 212 tells about Fibonacci retracements
Lifted from Investopedia
- Traders who "buy a bounce" attempt to profit from a short-term correction or "bounce" off of the identified support.
Steps shared by MoneyGrowers
- find a beaten up stock
- plot the Fibonacci
- let the market do its work
- choose your tools: there are other tools used for bounce plays
- the top of a downtrend or the bottom of an uptrend is the starting point
Trading 212 shares show to trade Fibonacci Retracement
When to enter in upward trend? After price goes down then price increases and reaches 50% and this goes on in the next 2 days, buy on 3rd day
When to enter in downward trend? When price goes up to 50%, buy.
Exit strategy
- Stop loss
- upward trend: place stop loss just below support
- downward trend: place stop loss just above resistance
- Target profit: using Fibonacci extension
- 3rd day rule: take profit on the 3rd day of a stock's ascent or buy a stock on its 3rd day decline
- 61.8% and 76.4% Retracements would be the ideal crash-point for pickup
- As long as 38% Fibo holds, expect your money to make MORE money.
- The best candles to watch for when playing the bounce are
- the abandoned baby: Doji on the second day whose shadows gap above the previous day’s upper shadow
- the hammer: lower shadow of this candlestick is at least twice as long as the body
- and some variations of dojis
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