Understanding Carolyn’s Charts & Setups

2017-05-30 | Danielle Shay

Her Fibonacci Levels are a combination of the following:

  • Fibonacci Extensions
    • These are shown by green lines that are labeled ‘EX Ret 1.272, EX Ret 1.618, and EX Ret 2.1618.’
  • Fibonacci retracements
    • These are shown by the blue lines ‘Ret 0.382, Ret 0.50, Ret. 0.786.’
    • The 0.618 retracement is shown by a single purple line – as this is the most important retracement level.
  • Symmetry
    • This is shown by single red lines that are labeled ‘App 1.00.’

Carolyn also runs timing cycles on her charts. Moments where she has found timing for a high are labeled at the top of the chart, while moments where she has found timing for a low are labeled at the bottom.

Moving Averages:

  • Carolyn uses the 8 & 34 exponential moving averages on all her time frame charts, except the daily chart.
  • Carolyn uses the 5 & 13 exponential moving averages on the daily chart, and the 50 and 200 simple moving averages on the daily chart.

 

EXPE – Example Chart

Across the bar at the very top, you can see a list of stocks and futures charts that she charts. EXPE-D is selected. This means we are looking at the Expedia daily chart.

On this chart, we have two defined Fibonacci Cluster levels – one at 104.49-106.09, and the other at 111.70-112.13. This is a bullish setup that has triggered. Once a setup triggers, we look for resistance in our way, and targets on the way up. As such, Carolyn has drawn the retracements and extensions that can be found above the cluster zone. The 1.272 extension is labeled as the potential target for this trade. You can also see timing labeled above the time axis – there are multiple overlapping cycles around January 4th, 2017.

 

Carolyn’s Setups:

Fibonacci Cluster Setups · Symmetry Setups · Two Step Patterns · Timing Clusters

Royal Setups

Carolyn identifies these setups for you on the charts. It is up to you to decide which ones to trade, and when. Here are some examples of each:

 

Fibonacci Cluster Setups:

“This setup is defined as a coincidence of at least three Fibonacci price relationships that come together within a relatively tight range. These price clusters identify key support and resistance zones that can be trade setups. A price cluster can be created from three retracements, three extensions, three projections, or the combination of any of these price relationships. When you do see more of these price relationships come together, this doesn’t mean that the zone is more likely to hold, but it does tell you that it is a very important price decision zone.”

Fibonacci Trading: How to Master the Time and Price Advantage

Fibonacci Cluster Example – DRI

On this chart, you can see the clear confluence of multiple Fibonacci levels, creating a cluster. Even though the exact numbers are a bit hard to read, this is ideal – we want tight clusters that we can place bets against, with well-defined risk. Our Fibonacci cluster zone on this chart is between $70.10-71.22. Entering any trade against this zone, regardless of if it’s through stock, day trading or swing trading options, has the same stop point – directly below this zone.

 

Symmetry Setups:

“My definition of symmetry is similarity or ‘equality’ when comparing swings in the same direction. This is a simple, yet powerful tool that should not be overlooked. I use symmetry most often to project possible support or resistance in order to help me enter a trade in the direction of the trend. To create these setups, I project 100% of the prior corrective swings to help identify areas to enter the market in the direction of the trend. What I mean by corrective swings is the countertrend or shorter-term declines within a larger uptrend, or the countertrend or shorter-term rallies within a larger downtrend.”

– Fibonacci Trading: How to Master the Time and Price Advantage

Symmetry Resistance Example – /KC: Symmetry in and of itself is powerful enough on its own to identify trade setups. In fact, when you are interested in learning how to draw levels yourself, it can be a great place to start. The example below is from /KC – Coffee futures. As you can see, price is trending up – straight into a single line of symmetry at $148.55. So far, this symmetry resistance has held. Because resistance held, we can now look for a short trigger, to enter this trade to the downside.

 

Two-Step Pattern Setups:

“This pattern is considered a corrective or countertrend move that is seen before a trend resumes. The two-step trade setup is a zigzag pattern that corrects a prior trend move. If we identify the pattern correctly, it should eventually resolve itself in the direction of the trend prior to the evolution of the zigzag. Within this pattern, we will be looking for specific Fibonacci price relationships to overlap or cluster to make sure it falls within the definition of a proper two-step. This setup is essentially a price cluster, with the addition of the zigzag pattern that strengthens the setup.” 

– Fibonacci Trading: How to Master the Time and Price Advantage 

Two-Step Pattern Example – AAPL: As you can see from the purple lines drawn on the chart to display the two-step pattern, after a rally, AAPL traded downwards into the cluster zone. It hit the cluster zone and paused, reversed, and the trend continued playing out to the upside.

 

Fibonacci Timing Clusters:

“When looking for basic time projections, you want to look for a coincidence or confluence of at least three of these time relationships within a relatively tight range of time. That is essentially the definition of a time cluster. These cycles will identify a time window for a potential trend reversal – if the market is actually trending into it. For example, if the market is rallying into timing, we will look for a possible high and downside reversal to develop as the odds for such a reversal are higher at this time. If the market is declining into timing, we will look for a possible low and an upside reversal to develop. On a daily chart, I consider dates that come within one to three trading days of each other. On an intraday chart, let’s call it one to three trading bars on the time frame chart you’re using.”

– Fibonacci Trading: How to Master the Time and Price Advantage 

Fibonacci Timing Cluster Example – AMZN:

The first week of January saw quite the decline from Amazon, until it hit the extension targets to the downside and ran into timing cycles on January 3rd, 2017. At this point, it reversed on timing, in addition to hitting a Fibonacci cluster of extensions. You can see the timing clusters on the time axis of the chart. When we notice a bunch of them together, that is what we want. It gives us a heads-up that we may be in for a possible reversal.

 

The Royal Setup

The ROYAL buy setup is a method of narrowing down powerful trend moves on a strong security. If you want powerful moves, sticking with following the trend (versus selecting countertrend trades) is the safest bet. How do we know? We look for a ROYAL setup on a daily chart. A Royal Setup is defined as having a Fibonacci Setup (symmetry setup, two-step pattern setup, or price cluster setup) on the buy side, and price is above the 50 and 200 simple moving averages. When price is above the moving averages, it tells us that the stock is a strong bullish setup, making it a stronger setup when you jump on the trend in that direction. In addition, the 5 and 13 exponential moving averages are in ‘buy mode’ – meaning that the 5 ema is above the 13 ema on a daily chart. If the setup also includes a symmetrical pullback, it’s even more ideal.

Amazon (AMZN) is a very clearly bullish stock. The Royal Setup gives you a well-defined entry point to jump onto the trend. On the chart below, AMZN pulled right back into symmetry support, combined with price being above the 5, 13, 50 and 200 moving averages. Once price hit and held at Carolyn’s $940 level, price continued climbing up to AMZN’s new high of $998.65, and you wouldn’t of had to sit through any pullbacks!

Now that you understand Carolyn’s charts and setups, it’s time to select which ones are best for you to trade.