Fibonnaci Extension miscalculation on my part?

[dberliner]

Is this a fibonnaci extension mis-calculation on my part?
look at this chart of MHS.
it broke today the 6/4 DMA and I'm looking to enter above the high of that bar at 35.93 , with a stop at the low of Wave 4 - 32.23.
if I risk 200 $ on this one , I can buy 54 shares. the 1.6 risk/reward ration (at 38.21) , would give me a profit of $120 , which is less than the risk! now , I do understand it gave me 60% of 200$ ,but it should've been 1.6 times the risk , shouldn't it ?
That's the extension number I've seen being used on the videos for risk/reward... So what am I missing here? How am I supposed to calculate risk/reward?


TIA ,


Dana Berliner

[mattsb]

Dana,

There are a couple of ways to project a W5 target. One of them, the MOB off the W3 pivot, is already plotted. Another method is to take the move from the beginning of W1 to the top of W3 and then take .618 of that projected up from the end of W4. I don't have the AGet manual in front of me, but look in the Technical Analysis Section and you will find their recommended W5 target projection methods. Another resource would be Robert Fischer's Book, the New Fibonacci Trader or his latest book combining Fib, candles and chart pattern recognition.

Ttarget you have projected merely measured the distance from the end of W4 to the current price where it crossed the 6/4 dma. The dma isn't related to the Fib levels or extensions. It's a tool for entry and exit. Again, check out the AGet manual for using the 6/4. As an aside, you might want to experiment with a 5/3 dma as those two numbers are Fib numbers. Again, for entry and exit.

Hope this helps. Keep at it. The learning curve with AGet is exciting.

[fabrizio]

Re: Fibonnaci Extension miscalculation on my part?

Originally posted by dberliner
Is this a fibonnaci extension mis-calculation on my part?
look at this chart of MHS.
it broke today the 6/4 DMA and I'm looking to enter above the high of that bar at 35.93 , with a stop at the low of Wave 4 - 32.23.
if I risk 200 $ on this one , I can buy 54 shares. the 1.6 risk/reward ration (at 38.21) , would give me a profit of $120 , which is less than the risk! now , I do understand it gave me 60% of 200$ ,but it should've been 1.6 times the risk , shouldn't it ?
That's the extension number I've seen being used on the videos for risk/reward... So what am I missing here? How am I supposed to calculate risk/reward?


TIA ,


Dana Berliner

Dana

You must calculate you R/R starting FROM YOUR FORECASTED LOSSES, or in other words mutipliing Your STOP LEVEL , either i PTS or in USD by the R/R

The use of R/R 1.62 is not casual ( guess you why)
So your R/R should start FROM YOUR ACCOUNTED LOSSES and your forecasted losses are from your entry point to your stop point.
From that level you calculate teh EXIT piìoint in terms of R/R.

I.e:

...... my profit objective needs to be 1.618 times my potential loss. 1.618 times $50( my potential loss) gives us $80.90. Therefore, my profit objective must be at least $80.90 above the buy price, .......

Hence the best lesson for a trader:
YOUR FIRST CONCERN IS PROTECT YOUR "SURVIVAL " .
YOUR SURVIVAL IS ASSURED BY STOPS .
YOUR STOP IS YOUR GAIN.
IF YOU ENTER THE POSITION IN SUCH A FASHION AND LET THE MARKET SHOW YOU THAT YOU ARE RIGHT .......NOT THE REVERSAL, YOU ARE A WISE TRADER.

I hope I have been clear and helpfull

[dberliner]

Hey Fabrizio and mattsb!


First matt, I know the DMA channels are not related to the fib extensions , per se.. I'm just not as good as making those pretty charts as Marc does, so I let them stayed on.. I know they're unrelated in their essence , and they weren't part of my question.

Second , If I understood you correctly , Fabrizio , then 50 $ times 1.618 = 80.9 $ , hence my profit objective , which equals to 161.8% of 50 $ .
So In order to see if I reach that , I need to set up my Fib Extension to 2.618 from STOP LEVEL . that would give me 161.8% , right?

[fabrizio]

Dana

No.
Calculte the First FIBO EXT on the first movement .
Than the second click will be pointing your mouse NOT on the ENTRY point, BUT ON THE STOP POINT,
so below the entry if is a long , above if is a short.

Once you clicked the second time, the tool will show you the levels you choose. Among those there will be 1.618.

There is your target .

With a R/R of 1.618

To check it out make the math: multiply YOUR POTENTIAL LOSS, the amount of $ from your entry to your stop by 1.618. If the result match with what outlined by your Fibo Ext on the Chart you properly applied the tool.

[dberliner]

sorry, I'm a tough nut
still didn't quite get it then..
I got most of it , but what do you mean by "first movement" ?

maybe a visual explanation (i.e. chart) can help, if you can ..

btw, they did MATCH my potential loss when I multiplied it by 1.618 when using a FIB EXT with first click on stop , second on entry level , last click back on stop level , showing me a 2.168 extension from STOP. which is 1.618 times my potential loss from entry level.

SO it's the same thing , isn't it? I guess I'm puzzled now..

[mattsb]

Dana,

See if this chart helps. This is the way I see it.

Fabrizio, do you concur?

[ACM]

Matt
That pretty much explains it
Alex

[dberliner]

Gotcha , matt !

I've managed to replicate the FIB EXT as you did.

However, I've noticed this was done a little differently than how Fabrizio had said..

Your first click was on the STOP , your second Click was on the TOP of W3 , and the last click on the same level...

Fabrizio was saying the second click should be the stop level.. never mind.. as long as we get the same results

What I can assess from this now is this trade is not really good , because if the wave 5 ends at the MOB ( 70 % chance), I get less than 1.618 there.. so it shouldn't be done if I use proper R/R ..

[mattsb]

Dana,

My first click for the Fib Extn was at the beginning of Wave 1. Second click at the end of Wave 3. Third click at the end of Wave 4. This is what I described as one of the means of getting a Wave 5 target in my post several posts ago. Notice how it coincides with the -5- target that AGet projects.

Take a look at page T-42 in your AGet manual.

Are you trading the stock or an option on the stock?

Matt

[dberliner]

I don't have the AGET manual, so you're better informed, obviously



Also, I noticed on that chart , that there are two -5- Targets. Which one do we use as a target? is the lower target if we're more conservative ,and the upper target if we're more aggressive?
I'm probably totally wrong here, but just guessing..


P.S.

I'm not trading the stock yet , but If I will , it will be the stock itself , not options..
but anyway, now that I see that it offers me a target of less than 1.618 , I think it's negated ...

[mattsb]

Dana,

The two -5- are a range from .618 to 1.0 times the length of W3. W5 usually ends between those two -5-.

You need a manual. Call eSignal and AGet one.

Cheers, Matt

[dberliner]

A LiveRep told me that he believes a PDF format of the AGET Manual is in the works...

I just hope this will be ready soon!

[mattsb]

Dana,

In the mean time, you ought to take Fabrizio up on his offer!

Just a thought.

Cheers,

Matt

[fabrizio]

Here I am.