👨🏫 A students ask me to clarify a strategy I use when momentum trading using retracements in something I call the "Springboard Effect"
The theory is, the deeper the retracement after the initial impulse move the less chance of an extension or "strength" of the continuation.
I like to use the analogy of a Spring Board, (or diving board) and the stiffness of the board or the amount of "spring" it has 👇
🤔 Imagine we we have 4 different boards, all with a different amount of springs and we are going to drop the same amount of weight ⚖️ from the same height onto each board.
When we drop the weight onto the board that has lots of springs, it wont retract far before launching the weight high 🚀
If we drop the weight on a board that has a less springs it will retract further, but have less strength to launch the weight very high 🛫
If we drop the weight onto a board that has barely any springs then it will retract a lot and then struggle to even launch the weight higher than the height it was dropped from 😤
In this analogy.....
The height we dropped the weight from, is the top of the impulse move 📈
The different boards are the different fib retracement levels 🧮
The springs are the buyers at those levels 💵
How far it throws the weight is the strength or price action of the extension 💪
👉 A Bounce on the 382 tells us that there are plenty of buyers wanting to enter this market asap, this is a good sign that the extension could be strong. I like to target the 1.618 extension and or match it up to a level of resistance close by
👉 A bounce on the 50 tells me there is still a lot of bullish momentum but buyers where happy to buy it much lower, I'll still consider this bullish and target the 1.272 extension and match it up with some resistance close by or front run the level if I have to.
👉 A bounce on the 618 I dont really consider to be a strong move, I feel we will get a good bounce and may extend further, but I play close attention to the previous high incase we double top. I will look for things like candle stick reactions and use the CCI to spot divergence if momentum is lacking.
👉 A bounce on the 782 I consider a failure of the trend, I will expect buyers to still step in, but it will be a weak bounce and only really look to target other fib levels inside the retracement as potential resistance and this trade becomes more of a short term scalp.
I hope this makes sense and adds some value to your trading, peace ✌️
The theory is, the deeper the retracement after the initial impulse move the less chance of an extension or "strength" of the continuation.
I like to use the analogy of a Spring Board, (or diving board) and the stiffness of the board or the amount of "spring" it has 👇
🤔 Imagine we we have 4 different boards, all with a different amount of springs and we are going to drop the same amount of weight ⚖️ from the same height onto each board.
When we drop the weight onto the board that has lots of springs, it wont retract far before launching the weight high 🚀
If we drop the weight on a board that has a less springs it will retract further, but have less strength to launch the weight very high 🛫
If we drop the weight onto a board that has barely any springs then it will retract a lot and then struggle to even launch the weight higher than the height it was dropped from 😤
In this analogy.....
The height we dropped the weight from, is the top of the impulse move 📈
The different boards are the different fib retracement levels 🧮
The springs are the buyers at those levels 💵
How far it throws the weight is the strength or price action of the extension 💪
👉 A Bounce on the 382 tells us that there are plenty of buyers wanting to enter this market asap, this is a good sign that the extension could be strong. I like to target the 1.618 extension and or match it up to a level of resistance close by
👉 A bounce on the 50 tells me there is still a lot of bullish momentum but buyers where happy to buy it much lower, I'll still consider this bullish and target the 1.272 extension and match it up with some resistance close by or front run the level if I have to.
👉 A bounce on the 618 I dont really consider to be a strong move, I feel we will get a good bounce and may extend further, but I play close attention to the previous high incase we double top. I will look for things like candle stick reactions and use the CCI to spot divergence if momentum is lacking.
👉 A bounce on the 782 I consider a failure of the trend, I will expect buyers to still step in, but it will be a weak bounce and only really look to target other fib levels inside the retracement as potential resistance and this trade becomes more of a short term scalp.
I hope this makes sense and adds some value to your trading, peace ✌️