200
 
Once price reverses up after hitting thesupport FibZone the crowd has to covershorts and be buyers again becauseprice is back above the 200-Day SMAproviding fuel for the ride up.
 
 
 
Price Movement (A)
\
     
          
200 SMA violated initiatingcrowd reaction by hitting sell ~~ >><<—stops and short selling ~~~
   
~~
FibZone (5)
 
Price goes below 200-Day SMA butcompletes a Bullish Two-Step Pattern (TSP)and hits our support FibZone and initiates apotential long Heisenberg 200 trade.
 
  
Heisenberg 200 147
Rules For Buys (Shorts Are Reversed):
1. A Bullish Two-Step Pattern has been completed. This includes Symmetrical,Gartley, and Butterfly TSPs.
2. The pattern has hit a Support FibZone of at least three Fibonacci price levels.3. The final point (D) of the TSP must complete below the 200-day SMA.
4. Enter a long trade when price goes above the previous day’s high. Or, con-sider a trigger entry from Chapter 11.
5. Once triggered into a long trade, my initial stop is just below the SupportFibZone.
6. My first objective on the long trade is the 50 to 618 retracement level ofpoint A to D. Once I have taken profits on half the position at this level, I willtrail my stop up. Ideally the stop can be moved to breakeven. However, themore important issue is that the stop is trailed up to a recent swing lowpoint.
7. My second and final objective is the 1.272 extension of swing A:D. I do notimmediately take profits at this level. Once price hits this Fibonacci level, Itrail my stop to the previous day’s low. As higher highs are made, I continueto trail the stop to the previous bar’s low. Basically what I am trying to dohere is allow myself to ride a home run if it happens. Otherwise I’ve trailedthe stop to a point where I’ve locked in sizeable profits.
 
 
 200 Day SMA
, Symmetrical
Hh TSP
: smeie || 3) — seas
8.295 Ret 0.618
 
+ +9.510, -3.291 9,030, -3.48511 Jan
16 23 30 Dec " 21 28 Jan ll 6 2created by Dynamic Trade 996-200)
 
Heisenberg 200 Setup:
Above is a daily chart of Amazon.com (AMZN). The necessary ingredients are inplace:
1. A Bullish Symmetrical TSP Pattern has formed.
2. A Support FibZone of at least three levels has been tested. In this case wehave six Fibonacci price support levels in our FibZone.
3. Point D of the pattern crosses and completes below the 200-day SMA.
At this point it’s time to start looking for opportunities to go long.
  
 
 
Heisenberg 200 149
 
 
 
he ego
     
  
13.827 Ret 1.272
13.38 + (7)
  
Ne sm
11,361 Ret 0.618
   
10.915 Ret 0.500 [42
       
 
 
eazanetoss |
a Ret 0,618F8.000
i ally (5) brow
 
 
     
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i
31 Sen 218 Ot 2)ha
(6.000
        
t t9.510, -3.291 9.030, -3.485
 
 
Ae ety pert 4 2t 28 ln ttle 35 haeCreated by Dynamic Tracer 996-206
  
Heisenberg 200 Result:
4. After the TSP is complete, a simple trigger would be to take a long tradeabove the previous bar’s high. In this case I am triggered long at 9.85.5. My initial stop is just below the support zone at 8.25.
6. The next day I take profits at the open between 12 and 13, because price gap-ped above range of the .50 and .618 Fibonacci retracements of low point A to
7. Price declines one day then rallies to hit the 1.272 extension of swing A:D at13.82. I now trail my stop to the previous bar low. Continue to do this as wemake new highs. Ultimately I’m stopped out around 13.39 for almost 3.5points of gains on a nine-dollar stock.
ooo
  
44,046 Ret 6.81843,810 App 1.00¢
43.173 Ret 0,786,
42,416 Ret 1.61841.876 Ret 0.
 
* +
45.450, -6.550 43.900, -6.460
310cto2 BNovO2Nov a
Above is a daily chart of Amgen.com (AMGN). The necessary ingredients are inplace:
1. A Bullish Symmetrical TSP Pattern has formed. It looks like price has givenup and is ready to fall apart after testing the 200-day SMA twice. I thinkHeisenberg has something else in store.
. A Support FibZone of at least three levels has been tested. In this case wehave six Fibonacci price support levels in our FibZone.
. Point D of the pattern completes below the 200-day SMA. So, it’s time to lookfor longs.
  
Heisenberg 200 151
1octo2 _32,000, 12.880
 
 
48.906 Ret 0.618
 
47,950 Ret 0.900 148.
 
 
 
 
 
SESS A AE T
43.173 Ret 0.786
 
 
 
42.416 Ret 1.61841.876 Ret 0.786 [42
 
+ t8-450, 48.580, 6.4603.
 
 
 
 
 
 
 
a7 SNA Ret 2 KIA
 
-fSen0: = + = = = =eo 27 ot 11 8 5 Nv BIS a2 9 Dec 13 20 27 Jn ‘10 17 24 31 Feb a4 210 28hart created by Dynamic Trader 996-200
 
Heisenberg 200 Result:
4. After the TSP is complete, a simple trigger would be to take a long tradeabove the previous bar’s high. In this case I am triggered long at 45.53.
5. My initial stop is just below the support zone at 41.70.
6. Ina few days the first objective between 48 and 49 was hit, which is betweenthe .50 and .618 Fibonacci retracements of high point A to low point D.AMGN continues to make higher swing lows to trail the stop up as we ap-proach the 1.272 retracement of swing A:D.
7. As of this writing, AMGN is still an active position (with only half of theoriginal trade remaining after taking profits around $48) and has just hit the1.272 extension so the stop was trailed up to the previous bar’s low.
ooo 
 
152 Chapter 8
STRATEGY Q&A
Question: What makes this different than simply trading the TSP patterns?
Answer: The 200-day SMA is adding market participants and increasing volatility.So, if the “crowd” is caught on the wrong side, then our TSP patterns can createeven more significant trading opportunities.
Question: What is a good way to scan for these setups?
Answer: The two things I look for are stocks with liquidity and stocks around the200-day SMA. So volume and the moving average is all you need. Once a watch listis established, it’s a matter of waiting for patterns to develop. But the one thing niceabout this strategy is that there is always a pipeline of stocks approaching their200-day SMA.
Question: Do you trade this strategy on any other time frame?
Answer: I do not. The 200-day SMA is for daily charts. You could shift to a 40-periodSMA on a weekly chart. I have never traded this on intraday charts.
Question: Are you looking for anything else with these setups?
Answer: I do look to see if the setup is occurring within the context of the trend. Forexample, if we have made two or three higher swing lows and higher swing highsand price pokes its head above the 200-day SMA then falls back and forms a TSP,then I’m more excited about that setup than a stock that is simply in “chop” modenot really making higher highs and higher lows. A mechanical way to scan for thisis by using the ADX. I would recommend a 13-period ADX greater than 20 and ris-ing. The ADxX is just telling us the strength of the trend, not the direction.
 CHAPTER 9
SHARK ATTACK
 Whether I’m looking at an intraday, daily, weekly, or monthly chart, I’ve observedan interesting relationship around swing high or low Points. When Price is ap-Proaching the most recent swing high or low Point, it faces a key decision at the .786Tetracement level. If the -786 retracement is Violated, then Price will more often thannot continue quickly to the next Fibonacci levels between the 1.272 and 1.618 exten-sion. Although that is a critical part of the Shark Attack Strategy, it is not the oppor-tunity I’m looking at. To the untrained eye, it would Suggest further downside whena low point is violated and further upside when a high point is violated. This iswhere the shark attacks. It comes out of the water with Power, but once it “attacks,”
1. What the relationship is between the .786 and the extension levels at swing
3. The more Fibonacci extension levels that come together in a tight price range,the greater the likelihood for a tradable reversal,
155
            
el
156 Chapter 9Shark Attack—Long Setup
  
1.272 of B:C(7) wnune
Price Activity
 
 
 
 
    
1.618| sssseees c(5)
  
 
Sys
Shark Attack 157
Rules For Buys (Shorts Are Reversed):
1.2.3.
Swing point low A is identified.Once a low point A is established, price rallies to form a high point B.
This is where it gets interesting. As price approaches the .786 retracement ofswing A:B, a potential momentum trade is setting up. Basically, if price goesbelow the .786, it is likely to decline to the 1.272 to 1.618 extension of swingA:B. Many times, this move from the .786 to the extension levels happensvery quickly. So this presents short-term momentum traders an opportunity.This opportunity is peanuts though, compared to the reversal potential.
Once price goes down to the range of the 1.272 to 1.618 Fibonacci extensions,it forms a shark-looking formation. It’s like the shark is getting ready to takea bite out of any short traders at this new low level as price reverses fromthese extension levels and rallies significantly to the upside. Go long on atrade above the previous bar high.
. Initial stop below the Support FibZone.
The first objective on this trade is the .50 to .618 retracement of swing B:C.
The next objective is the 1.272 extension of B:C. Once this price level is hit,begin trailing a stop to the previous bar low on the rest of the position.
  
158 Chapter 9
s..*o.a2.....*.*22..*22e*
o2ae*..22.22.*«.2aa
19.206 Ret 0.786
17,830 Ret 1.272
116,851 Ret 1.618
 
 
 
Shark Attack Long Setup:1. Low point A is made.2. Once a low point A is established, price rallies to form a high point B.
3. Price goes below 19.20, which is the .786 retracement. This presents a shortmomentum trade opportunity down to the 1.272 to 1.618 extension of swingA:B. In two bars, SMH hits 17.83 for a quick potential profit of a little over 1point.Once price hits the 1.272 to 1.618 extension of swing A:B, we have a Shark Attackpattern in full swing. With a new low established, the shorts are in control, or theythink that’s the case, until the shark takes a bite out of them.
 29.000
fo Ret 2.618 bo aap
 
 
 
19.860 Ret 0.61819.375 Ret 0.500
 
 
17,830 Ret 1,272
 
 
16,951 Ret 1.618
Shark Attack Long Result:
4.
A long trade is initiated at 18.45 when we get the first price bar to go abovethe previous day’s high after hitting our Fibonacci extension levels.
. The initial stop loss order is placed just below the 1.618 extension level
around 16.80.
» The first objective on half of the position is between the 50 and .618
retracement of the high point B to low point C.
+ The next objective is for Price to hit the 1.272 extension of swing B:C. This
level comes in at 22.54, As the stock makes new highs, I move the stop up tothe previous bar’s low. In this case, we are stopped out at 22.35,
| a
  
160 Chapter 9
882,81 Ret 0.786
 
yeo00
866.77 Ret 1272
 
955.36 Ret 1.618
 
 
366.00290¢11:00
 
Shark Attack Long Setup:1. A downtrend is in place as the stock forms swing point A.
2. Once a low point A is established, price rallies to form a high point B.
3. Price goes below 882.75, which is the .786 retracement of A:B. This presents ashort momentum trade opportunity. In two 30-minute bars, the S&P 500e-Mini futures contract trades down 16 points without looking back. Onceprice hits the 1.272 to 1.618 extension of swing A:B, we have a Shark Attackpattern in full swing. With a new low established the shorts are in control, orthey think that’s the case until the shark takes a bite out of them.
  
 
920.38 Ret 1.272 Io
© Stopppedout @ 920
 
866.77 Ret 1.272
 
 
- The initial stop loss order is Placed just below the 1.618 extension levelaround 855.50. If this is too far, consider Placing the Stop justMade into the e
below the lowxtension area before triggering long. In this case, that wouldbe 865.75.
 a
 
 
 
 
 
 
 
 
 
 
 
| 162 Chapter 9\ii MERAY 15-1 _ a oe02. Thu 11:00 64,200 64.450 64.010 64.160 0.540240¢9:45 240c11:0064,000 64.450¥ + {64,600A = 64.00 CcB = 63.30 64.439 Ret L628 |C = 64.45\ 64,190 Ret 1,272 [64.200A (3) \ 164.000\\— 63.850 Ret 0.786163.800(1) \& 63.600LaanB le.200/ e3.000|cosgoa |3(2) \ |63/300 p62.600, 240c10:30BatChart created by raic Tr 1996-2001
Shark Attack Short Setup:1. An up trend is in place as the stock forms swing point A.2. Once a high point A is established, price declines to form a low point B.
3. Price goes above 63.85, which is the .786 retracement of A:B. This presents along momentum trade opportunity. In two 15-minute bars, EBAY trades upalmost .30 points without looking back. Once price hits the 1.272 to 1.618 ex-tension of swing A:B, we have a Shark Attack pattern in full swing. With anew high established, the longs think they are in control. Unfortunately theyare buying in shark-infested waters.
 
  
 
Shark Attack 163
 
 
464,450
(5)
 
64.433 Ret 1.618
 
64.190 Ret 1.272
 
 
63.275 Ret 0,500
 
63.739 Ret 0.618
62.987 Ret 1.272 }63.000
 
 
 
 
Shark Attack Short Result:
4. A short trade is initiated at 64.01 when we get the first price bar to go belowthe previous bar’s low, after hitting our Fibonacci extension levels,
5. The initial stop loss order is Placed just above the 1.618 extension levelaround 64.50.
6. The first objective on half of the position is between the .50 and .618retracement of the high point B to low point C. In a situation like this whenusing intraday charts, I will sometimes not take profits and just wait for the1.272 extension level.
7. The 1.272 extension of swing B:C comes in at 62.98. Once price hits this levelI start trailing my stop to the previous bar’s high. As the stock makes newlows, I move the stop down to the previous bar’s high. In this case we arenot stopped out at the end of the day, so I close the position because thetrade was based on a 15-minute chart. So, the short was covered around62.50 for approximately a 2-point profit intraday.
_,__
 
  
164 Chapter 9
STRATEGY Q&A
Question: This looks a lot like a double top/double bottom strategy. Is that what you are de-fining?
Answer: In theory, yes, the double tops and bottoms can make slightly higher highsor slightly lower lows. I suppose you could look at this as a specific type of doubletop or bottom with a specific Fibonacci target completion point for the secondpeak/trough between the 1.272 and 1.618 extension levels.
Question: Again, could you explain exactly why you call it “shark attack”?
Answer: Sure. Let’s talk in terms of a Shark Attack short setup. When you look atthis pattern as it is forming, price establishes the first high point. Then it reverses inthe opposite direction to the downside. This gives “hope” to the early reversal trad-ers looking for a nice downside move. However, when price returns to the previoushigh and makes a slightly higher high, then the early reversal traders typically getstopped out and are forced to buy to cover their short position. Not only do earlyreversal traders get stopped out, but this pulls new trend followers into the game asa new high is established. This influx of long order flow creates momentum and willtypically push price to a Fibonacci extension level between 1.272 to 1.618 of swingA:B as we defined earlier in this chapter. Many times this is the “last gasp” exhaus-tion move before the real change of direction occurs. When you look at a chart thisprice movement takes the shape of a shark head with its mouth open. Basically, theshark is “attacking.”
Question: As a Shark Attack pattern completes, are there any specific characteristics aboutthe FibZone that one should look for?
Answer: I like to see multiple extension levels fall into this FibZone from variouslow to high or high to low swings. Specifically, multiple levels of the 1.272 and 1.618ratios. When four or more extension levels come together, there is an extremely highprobability for at least a short-term tradable reversal.
 
 
 
 
 
  
| CHAPTER 10
AIR POCKETS
 STRATEGY #7: AIR POCKETSOne of my favorite techniIn short, it is a tool
- By comb
cal analysis tools is the Average Directional Index (ADX),that helps determine the strength or lack of strength in a chart’s
ining this tool with Support and Resistegies that take adv,
tance FibZone anReversal Air Pockets,
   
MomentumTrade
ResistanceFibZoneFailure
      
Opportunity
 
Rules For Buys (Shorts Are Reversed):
1. Price has been trending down and has just established a low point where the14-period ADX is greater than 20. This is where we calculate Fibonacci priceresistance levels using retracements, extensions, projections, and expansions.
2. After calculating Fibonacci price resistance levels, two Resistance FibZonesare identified. FibZone #1 is closest to current Price.
3. There must be a tradable gap “Air Pocket” between the two zones, where noFibonacci price resistance levels exist.
4. Price trades up to FibZone #1 and pushes through the highest level in thiszone as the 14-period ADX reading goes below 20. At this point there aretwo possible entry options. First, the trader could enter immediately upon vi-olation of the zone. Second, the trader could wait for a small pullback to testthe zone that was just broken, then look to be a buyer.
5. Initial stop loss orders could be placed below FibZone #1, the current bar (thebar that violates FibZone #1), or previous bar low.
6. Objective on this trade is up to Resistance FibZone #2.
oe
  
Air Pockets 169
FIBZONE #2
 
(3) AR Rocker
23.370 Ret 1.618
 
 
 
 
Reversal Air Pockets; Long
1. Price establishes a swing low point where the 14-period ADX is above 20. Atthis point we calculate Fibonacci price resistance levels,
2. Two Resistance FibZones are identified.
3. There are over 5 points of “Air Pocket” between FibZone #1 and FibZone #2which should Provide plenty of Opportunity if FibZone #1 is violated to theupside.
4. As price trades up, the ADX drops below 20. Price moves up to the zone andPushes through and a possible long entry is made just above 24.69. (Note: thenext day GENZ 8aps up, but comes back to test the FibZone it has justcleared. This is another entry opportunity.)
5. A stop is Placed at the lower of a) the bottom of FibZone #1 or b) the lowPrior to the day price trades above the FibZone. In this case the two are ;about the same so my stop is just below 22.87. /
6. The objective on the trade is 27.59, which is the bottom of FibZone #2.
  
 
 
  
FIBZONE #2
i
  
$3,250 Ret 0.50052.607 Ret 0.382
|ml Ne
  
54.523 Ret 0.618 [>>
 
 
 
 
 
              
4 Reversal Air Pockets: Long
i 1. Price establishes a swing low point where the 14-period ADX is{ this point we calculate Fibonacci price resistance levels.
2. Two Resistance FibZones are identified.i:
is violated to the upside.
objective of 58.00 all in the same day.)
would consider moving the stop up to the current day’s low.
 
above 20. At3. There is over 3.5 points of “Air Pocket” or profit potential, between FibZone#1 and FibZone #2, which should provide plenty of opportunity if FibZone #1
4. As price trades up, the ADX drops below 20. Price moves up to the zone andpushes through and a possible long entry is made just above 54.52. (Note: apullback opportunity never occurred as ENZN hits the Air Pocket and our
5. A stop is placed below the previous day’s low. This is a wide stop and I
. The objective on the trade is 58.00, which is the bottom of FibZone #2,
 Air Pockets 171
32.347 Ret 0.61832.180 App 1121.965 Ret 0,500 }32.
 
 
 
 
 
| Reversal Air Pockets: Long
1,
 
Price establishes a Swing low point where the 14-period ADX is above 20. Atthis point we calculate Fibonacci Price resistance levels,
Two Resistance FibZones are identified,
There is an Air Pocket of approximately 1 Point of profit potential betweenFibZone #1 and FibZone #2,
As price trades up, the ADX drops below 20, Price moves up to the zone andPushes through and a Possible long entry is made just above 32.34,
. A stop is placed below FibZone #1 around 31.50,- Once again, Price jumps through the Air Pocket the same day that it pushes
through FibZone #1. I find many of the powerful Air Pocket moves Occur
lated, explosive Opportunity,
  
172 Chapter 10
         
    
  
MomentumTradeOpportunity
    
SupportFibZoneFailure
(3) Air Pocket
       
Rules For Shorts (Buys Are Reversed):
1, Price has established a high point where the 14-period ADX is greater than20. This is where we calculate Fibonacci price support levels usingretracements, extensions, projections, and expansions.
2. After calculating Fibonacci price support levels, two Support FibZones areidentified.
3. There must be a tradable gap “Air Pocket” between the two zones where noFibonacci price support levels exist.
4. Price trades down to FibZone #1 as the 14-period ADX crosses below 20. Atthis point there are two possible entry options. First, the trader could enterimmediately upon violation of the zone. Second, the trader could wait for asmall pullback to test the zone that was just broken, then look to short.
5. Consider three stop placement areas based on the current day being the dayprice violates FibZone #1: a) current bar high; b) previous bar high; c) highestprice level in FibZone #1.
6. Objective on this trade is down to Support FibZone #2.
  
Air Pockets 173
Saas |
54.616 Ret 0.382
AIR Pocket (3)
 
 
 
Reversal Air Pockets: Short
1. Price establishes a swing high point where the 14-period ADX is above 20. Atthis point we calculate Fibonacci price support levels,
2. Two Support FibZones are identified,
3. There is an Air Pocket of approximately 70 cents of Profit potential betweenFibZone #1 and FibZone #2.
5. A stop is placed above the previous bar high around 55.75,
6. Price drops like a stone through our Air Pocket the same day that it pushesthrough FibZone #1. | find many of the powerful Air Pocket moves occurwhen there are one or more low points that have tested the lower levels ofFibZone #1 prior to the actual bar in which the FibZone is violated. Theselow points make the bottom of our FibZone even more critical and when vio-lated, explosive Opportunity.
                                       
                                     
174
 
Chapter 10
 
 
 
 
 
 
22,000
(5) 21.800,“ 21,60021.400
21.200
 
Bt: 480 Ret 8.2621,088 Ret 0.30821.000
(3)
20,686 App 1.00C20,577 Ret 1.618
20.515 Ret 0.78620.463 Rat 1.272
(6) 20,200
 
FIBZONE #1
AIR POCKET 20.800
 
FIBZONE #2 +20.600
 
 
  
2et___29w ot gif Febam 4t sw at \ 7 Febiom'tit_[ “aw ‘ist_—afADK 15,207aN -
 
Reversal Air Pockets: Short
1.
5.6.
Price establishes a swing high point on this 60-minute chart of HD where the14-period ADX is above 20. At this point, we calculate Fibonacci price sup-port levels.
. Two Support FibZones are identified.
. There is an Air Pocket of approximately 40 cents of profit potential between
FibZone #1 and FibZone #2.
As price trades down, the ADX drops below 20. Price moves down to the
FibZone and pushes through and a possible short entry is made just below21.06.
A stop is placed above the previous bar high around 21.40.Price hits the objective in the same bar that it pushes through FibZone #1.
All that for $.40? Yes, in fact, let’s look at it in percentage terms. That’s a 2% return
in 60 minutes. 
 
Air Pockets 175
 
FIBZONE #41
(3) AIR POCKET
FIBZONE #2
 
 
support levels,2. Two Support FibZones are identified.
3. There is an Air Pocket of approximately 2.60 points of profit Potential, be-tween FibZone #1 and Fib