Profiting with Inflection Points
PROFITING FROM INFLECTION POINTS WITH EXPEDIA (EXPE) The next example of working inflection points and sequences
into the One Shot – One Kill Method will come via a stock, Expe-dia (EXPE). The stock went on a huge run for about eight months before showing signs of strain and starting to roll over from a quasi-double-top formation (see Chart 5.6). One of the methods I like to use when measuring Fibonacci expansion points is to take a pivot high or pivot low and project expansions or retracements off them. For example, Chart 5.7 shows that EXPE made a pivot low at 36 before attempting to challenge its high of 42.5. The attempt to retest that high failed and forced traders to measure what area would make that pivot low a .382 retracement from the high at 42. This is the spot to which you
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CHART 5.4 As the Nasdaq continued to rally, it met up nicely with an 18-month trend line and a number of areas of Fibonacci resistance to create a huge inflection point on the daily chart. This is a great spot to look to take profits as well as a spot to possibly shift your bias from buying dips to selling rallies.
CHART 5.5 After hitting the downward trend line, the Nasdaq sold down 130 points in that time period to some Fibonacci Friends near 1020.
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CHART 5.6 Expedia (EXPE) is setting up for a healthy pullback after a strong rally and subsequent double top.
CHART 5.7 When creating inflection points on EXPE, you should take into account all of the recent pivot highs and pivot lows to see where the stock might go. From these pivot points, you can create the neces- sary collaboration of price levels, which will give you highly probabilistic inflection points.
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up with any natural Fibonacci retracements along the way. In this case, there is a move from the low in December at 16.5 to its high at 42.5. A natural .382 retracement is created near 65, close to the expansion level down to 31.5 and near some historical support on EXPE at 32. So, based on the information, you should be looking for the fall to head to 32, about $7 below the price of 39, where Chart 5.8 is.
Like the example with the Nasdaq, you would also be expecting a bounce to happen when the price hit your area of support at 31.5 to 32.5. As the days come, EXPE takes a nice plunge and heads down to the inflection point near 31.5. From this point, you are looking for a bounce, as the stock and the market like to move in a natural ebb and flow, with you offering into rallies during a declining market, buying weakness in a ris-ing market, and takris-ing profits at predetermined price points (see Chart 5.9).
As expected, EXPE mounts a nice bounce to the inflection point at 35.5 and the Fibonacci resistance from the high at 42, as well as a declining 15-period MA (see Chart 5.10). This is a clas-sic One Shot – One Kill setup—offering into the subsequent bounce following a breakdown and playing this as a measured move for a 1 1 down to the next area of Fibonacci support (see Chart 5.11). If you were able to play the move long, then this is where you would be looking to blow out of your long positions and start offering into the short trades, putting a pasting on it when it broke through previous day’s low, which would be around $35. After entering, you would look to measure a 1 1 down to 26.5 by taking the length of the first down move from 41
CHART 5.8 The ideal situation occurs when you can get a collaboration of Fibonacci levels, or Fibonacci Friends, to line up at one respective level. After seeing these levels emerge, you should be able to target your trades at this price area. In the case of EXPE, 31.50 to 32.50 is a great spot to look to cover any short positions as well as look to go long.
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CHART 5.9 Once the target is hit, it is not a time to get greedy and dismiss your plan. Instead, you should execute and wait patiently for a bounce to reload. Either that, or look for a shorter-term long setup to play a potential snap-back rally higher.
CHART 5.10 The bounce on EXPE takes us back to our pivot low at 36 and hits a declining 15-period MA. This level then becomes a low-risk entry spot to reenter a short position, and look to play for another leg down.
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CHART 5.11 The next move down looks to set up near point 4, which is a natural Fibonacci retracement near 27. This is also an area where a Fibonacci 1 1 projection takes us, thereby giving more validity to the target.
In line with the profit target, EXPE spirals down to 26, a major inflection point for this stock and a spot from which a trader would be looking to take profits, as the premium from the trade is gone. If the market keeps on plunging without you, you wouldn’t have to worry, because the next bounce will probably take you back to the same spot you covered. Again, trading is about putting yourself in good spots on a consistent basis. And you would be waiting for the target to match up and could look at covering your shorts there and taking on a long position to play back up to your last downward pivot around 31.5 (see Chart 5.12).
SUMMARY
This chapter on inflection points is intended to teach you, a future One Shot – One Kill Trader, to be proactive and antici-pate future market movements, thereby allowing you to put yourself in good spots again and again. Executing on this type of trading style requires work outside the market. It is not for peo-ple who can’t or won’t put in the time and effort to create this type of research.
The previous four chapters and this one have provided you with some very powerful tools in understanding how to success-fully trade these markets. You need to continually take notes and review your trades to see if you were getting in at good spots or if you were exiting at your price targets. Learning this method is the easy part; going out and seamlessly executing it is an entirely different matter. Inflection points can be used to play both the up and the down side of the markets, which is why Chapter 6 will focus exclusively on short-side setups and the dynamics behind benefiting from sell offs in the market.
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CHART 5.12 On cue, EXPE heads toward the target and puts in a very healthy bounce on an intraday basis. At this spot, many traders are looking to get long as well as cover short positions.
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