Trading Futures | John McNichol | 6-21-21| Fibonacci Retracements
good morning everyone there's the bell john mcnichol here welcome to trading futures and another fantastic week of education with td ameritrade our topic today is going to be fibonacci retracements and certainly with a lot of movements in the market we'll take a look at some of those asset cap classes and review the economic calendar for the week so stick around all right hey it's great to see everyone here on a monday morning hope everyone enjoyed their weekend we got vijay simi jenkins tm m.a tony ricardo sri and everyone else do appreciate you joining us each and every week and a special shout out to those who listen in the archive session as well uh as we your cnr sessions you can see our twitter handle on the screen at j mcnichol underscore tda if you wish to follow myself along with some other fine instructors here at td ameritrade education let's go ahead and take care of disclosures folks and we'll get right into the discussion presentation is for educational purposes only in order to demonstrate the functionality of the platform we will be looking at actual symbols keep in mind td ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility now whilst webcast may discuss technical analysis other approaches including fundamental analysis may serve very different views futures futures options trading is speculative not suitable for all investors risk disclosures provided for you here and those futures and futures options trading services are provided by td ameritrade futures and forex llc those trade privileges are subject to review and approval not all clients will qualify as long as options spread straddles other multi-leg adoption strategies also involve risks including the risk of loss advanced options often involve greater more complex risk than single leg option trades and commissions are important transaction costs are important factors should be considered when evaluating any trade and keep in mind that a stop loss order will not guarantee an execution at or near an activation price once activated they will compete with other income and market orders all right folks uh once again here's our agenda we'll talk about fibonacci retracement i seeing that there's been a lot of movements in the market over the previous week see how some of the different asset classes are setting up uh as a review and we'll also look at the economic calendar uh for this week as well rounding out that session let's go ahead and bring up the thinkorswim platform we got forward slash a es on the chart that is the s p mini futures as we uh take a look at this and this will uh probably come into our discussion here if we look on the daily chart after a big sell-off day uh kind of a continuation of uh selling from earlier in the week uh markets at least attempting to hold some support uh in this example got a 55-day moving average uh representing uh that existing trend after hitting some intraday lows uh over night and uh price is coming up basically fill in the gap strategy that we've talked about in the past although some traders looking for that uh during regular trading hours but sometimes those gaps uh can fill uh in the overnight this was the close from friday and after selling off earlier sunday evening uh prices went ahead and basically filled in that gap and moved into positive territory as we can see from uh most of the major market indices uh this morning and as far as the sectors being in positive territory after selling off last week uh looks like uh more along the lines of on the inflationary uh type stocks that were knocked down energy materials industrials financials that would probably make the assumption after uh yields making some lows or more recent lows that yields may be attempting to tick up a little bit here this morning as uh we're in uh below two percent actually below one and a half percent uh on the uh ten year and i believe the thirty years below two percent as well all right let's go ahead and apply principle of fibonacci here and why one may consider using it you know the idea behind a fibonacci retracement if we look at a trend right trends don't go straight up nor do they go straight down although sometimes they seem to do that uh relatively speaking uh they have a tendency of zigzagging right prices go up they may pull back a little bit go up pull back uh in the context of a trend kind of more of a natural progression of the trend uh these pullbacks have a tendency to be a certain percentage or a certain ratio and uh there's uh some tie-in with that potentially with fibonacci uh if those you may already know fibonacci is that renaissance man uh who figured out uh spending some time watching rabbits and looking at the natural patterns of the breeding of rabbits to different uh measurements and their relationships to each other that these patterns seem to occur in nature and since technical analysis you know is essentially the analysis of human behavior uh one would think that fibonacci may come into the mix here as well and so as we go ahead and parmy take a look at this and you you can also see examples of that uh with some of the moving averages i've utilized uh such as a 55 uh period moving average a 13 period and a five period which seems to isolate uh certain cycles now what are is the significant of those numbers well if one looks at a fibonacci series starting with a one 1 plus 1 is 2 and then if you take those numbers and add them together 3 add those numbers together 5 and then just keep going 8 13 21 uh 34 55 you can kind of get the picture there 89 and so forth okay now if you go ahead and divide the one number uh from the previous one you'll also see these percentage ratios come into play as well and in the case of the drawing tool that we have on the thinkorswim platform and we'll go up to the drawing tools and we'll take a look at the percentage line drawn this is a fibonacci retracement and the concept being if we go back and for instance look at this daily chart we can see an existing trend overall right you can see you know going from the hard a hard left edge of the screen to the hard right we can see a channel in stock here uh but notice that you know prices do have a tendency of retracing or pulling back in that trend so if we kind of go ahead and start all the way back from this last leg up and we go ahead and take that drawing tool and draw from a low to a high i got that selected here click on the low and then drag the mouse up to a high and the idea here on identifying this type of moves here is if the price was to pull back and one may be looking at a candle pattern such as an engulfing you know any type of bearish candle uh that would potentially be that high and then looking to see where that pullback may occur to now notice you can see some of these ratios here uh some of the common ratios or a quarter about a third now a half or 50 percent is not a fibonacci uh ratio but it comes into play with dow theory and so it's one that's typically shown before a lot of discussion on uh fibonacci retracements you know dow theory which goes back quite a ways the idea is that prices may have a tendency of retracing about 50 percent of their previous move okay then we have a 61.8 retracement it's kind of the golden ratio there and this idea here is that if a trend is to hold uh it should hold that retracement i have this one highlighted in gold there some technicians kind of what has been referred to kind of a make or break point for that trend if it breaks down then the idea is that previous lows may be tested or at the very least more of a sideways trend okay and so you know as we look at this example on the price pulling back you'll notice you can see an example of a hammer hammering out at that third retracement at that 38. now it's a stronger trend
when one thinks about patterns such as bull flags uh you know or very minor retracements you know those bounces may occur around this quarter and third level and if we go forward notice that that wasn't confirmed as price did not trade above the high the low day and continue trading down notice here kind of a convergence of the 50 retracement and in this example the 55 day moving average also the midpoint of the channel you know that could be a potential bounce point so you know not utilizing the indicator you know in a vacuum you know how does it tie in with some previous price levels and then be in some support here we can see an example of a pearson line as that price bounces now there's no guarantee that that previous high will be taken out notice even after that bounce there was more of a consolidation at that 50 percent and kind of a continued retest of that area and then then trading down to the 61.8 which is a make or break and as you can see kind of a hammer in formation now let's see if that make or break holds you know inside day retesting again still holding now when prices do pull down to particularly around that 61.8 that does demonstrate a weaker trend and we can see the characteristics of that as you know from previous bounces kind of more swing failures this is why the aspect of a breakout trade looking for confirmation of prices break in outside of that range and we still haven't seen that happen you know finally uh echo hold price closing above the high the low day and then we can see that train continuing being supported by those moving averages okay now this can also be applied to the uh downside as well before i could apply it to the downside you know looking at some other examples and from this perspective when we're seeing an example here of after that after that bounce you know do prices take out that previous high and continue and continue that trend in this case we're seeing kind of reversal uh off of some of these previous highs so in some traders and looking for a you know a potential reversal may draw opposite if they're looking more for a bearish breakdown from a high down to the low and you can see in this example here some of the different ratios how they can act as some shorter term areas of support and resistance now in this case price did get back above that 61.8 retracement didn't necessarily stay below there that long and then if prices do break down essentially look for trading down to some of these different fib levels uh in one of the fib trades you know we've looked at examples of target in that quarter retracement if one trades a bounce off of somewhere between the 60 and the 50 there okay now if we go ahead and pull this out again let's go ahead and apply this to kind of what we're seeing with the market right now okay now if we go back and take a look again we're looking at the s p futures uh the mini futures if i was to go ahead and take fibonacci retracement and draw it from the low to the high because we're looking at a bullish trend we're drawing fibonacci retracements we're drawn in direction of the trend the trend that you're trading there and then we can see where are we looking at right now with the s p futures here's a 50 percent retracement those confluence there of the in this case a 55 day moving average potentially acting as support and then we see a candle uh forming that potential support and some traders may go ahead and trade that potentially as a bounce now there's no foregone conclusion that prices are going to rally up and take out that previous high but traders may go ahead and potentially target uh that next level now if we kind of zoom in on this notice we do have a long range day long range days can also act as support and resistance and if we were to go ahead and measure this long range day on the s p mini futures uh we can go ahead and take a look at r for the range that's a 79 and a quarter points if we take half of that that would be uh just shy of about 40 points so we're talking about what uh uh 39 let's go ahead and do that here go to the math do a calculator 79.25
divided by two that'd be 39.625 now if we go ahead and uh you know whether off the high and the low add or subtract that in this case we have a high of 42.20 42 42 20 minus 39.625
that'd be 41.80 so if i go ahead here take a horizontal line we'll go ahead and mark 41 80. and as you can see here i was just off there a little bit there but like 41.80 notice we can see you know as we start off regular trading hours uh you know entry day we're just below that area so you kind of see some of these intraday areas how previous support can act as new resistance and kind of uh correlate in a little bit within a few points of that 38 retracement all right and looking at some of the questions there laura d says curious why john uses a 55 versus a 50.
it's a personal preference it's a exponential 55-day exponential moving average yes 50 days a very commonly used moving average 55 is just a little variation of that and it's tied to a lot of the themes as far as fibonacci series and fibonacci numbers okay and again you can see some of that correlation there as far as with that 55-day moving average coming into play here on the futures here over the last few days or at least last two sessions okay so we got that pegged on a daily chart so keep in mind these could be some trading ranges that you know traders may be looking at as we start this week now if we go ahead and switch to a an intraday a five minute chart we can see our pivot points some we had discussed last week so if those you that are new uh feel free to go ahead and look at the archive you can just search google uh john mcnichol futures and you'll be able to see all the different webcasts there along with the education tab and uh we got a basically above that daily pivot as the price went ahead and filled into that previous close the daily pivot getting above that which you know at least from a daily basis for today's session would be a positive a break down below that pivot may tie into more bearishness but also keep in mind as far as time frames here is the weekly pivot okay the weekly pivot looking at the previous five days of trading and lo and behold where is that weekly pivot falling on it's fallen on 41.80 which happens to be the midpoint of that long-range candle so we got some bit of a correlation there all right also as i was looking at the chat uh folks there is a survey uh that is on the chat there so if you could be so kind to click on that link you can put it aside you don't have to fill it out right now but fill that at the end of the session we'd love to get your feedback uh also another way to second the vote uh is click like uh on uh youtube there also those you list in the archive session you can click on like as well uh that'll let other people know you enjoy the content and give an opportunity for other people to take a look at that now if we go ahead and see once again we are kind of between you know that weekly pivot and that daily pivot so pools would be potentially looking for a break above that pivot area uh and hold above the weekly that can potentially set things up more positively on the week whereas a continuation to the downside would be a break below that daily pivot now you can see some of the fibonacci areas that are in play here as well from the daily chart so prices break down uh where some potential targets may be and those you can see on the intraday you know how they have previously acted as some support and resistance now when i looked at that fibonacci retracement we were looking at it from a larger time frame okay i was looking at a daily chart wonderful thing about technical analysis we can apply these to any time frame so in the case of this five minute chart here let's go ahead and apply it from a shorter term basis and we may find some correlation with some of those pivot points so i'm going to do is uh in this example a starting point may be well we can see this breakdown being below the weekly pivot uh from in the overnight on thursday we can see the downward move in that price action going into friday and and essentially selling off into the close and we can see that sell-off early sunday evening before prices started reversing as you can see some those common price patterns like an inverse head and shoulders talk about these on wednesday and uh technically speaking breakout reversals those can be applied to any instrument and any time frame okay just happens a lot quicker uh i'm going to take a drawing tool we'll go ahead and bring up that fibonacci we're going to go ahead and draw from you know the high of that move approximate high of that move and take it down to the low okay and so now we're looking at potential bearish resistance uh utilizing some of these fibonacci areas and notice a bit of a confluence with the 50 percent level as that was consolidated over the week prices are rallying up to that weekly pivot so we're keeping an eye on that 41.80 and then just above that 41.84 so kind of a target for the bulls based off of this last pullback over the last few sessions is to look for it to break above this weekly pivot and hold and push through that 41.84 so you can see that you know there's some upward work to do uh for the uh the s p futures here as we start off the week okay and there we go we can see it pushing higher right now now you know one one idea here uh is if one's looking to you know trade above whether a pivot or you know breaking above a fibonacci level uh is entering into a trade so let's do this as an example i'm just going to do one as an example now one may look at the mini contracts or the micro contracts as an example these are leveraged instruments i believe the margin on the uh forward slash es is going to be showing up as 17 300 on the micros it's a little bit smaller i'm going to go ahead and just do a bracket order here we'll bracket this by 20 points those of you that joined us last week showed you how to do this bracket order i'm going to go ahead and just click buy send that through price is moving pretty quick as we're looking at it but we went ahead and we got a fill there notice we're trading up to that 61.8 now
some traders may of you know waited for it to clearly breach that area and then uh what i'm doing is as far as with the brackets i can go ahead and set a potential target whether looking at a pivot point or looking at a fibonacci range you know these could all be those potential targets okay and then as far as a risk standpoint is taking a look at where the entry point is off the pivot and potentially set in a stop that is a dollar amount uh below that breakout point and we have a tool such as atr that can be one way of assessing that risk as we go ahead and we take a look at the pivot point at around a breakout we're seeing a value of 4.51 now if we did that by 2 a factor of 2 that would be risking 8 points now keep in mind actually 9 points keep in mind you have a multiplier for forward slash es that's 50 bucks so that's gonna be nine times fifty so theoretically the risk on the trade is going to be at least 450 dollars now notice i also entered above uh that breakout point so it's going to be a little more than that and so one needs to make sure that they understand the risk before they place that trade if you go ahead and click on the drop down board slash yes there's that tick value recorder point that's fifty dollars per point uh whereas on the forward slash mes uh the uh correction forward slash mes it is a tenth of the mini contract so that's a five dollar multiplier ever keep in mind commissions are the same ones trading in smaller contracts those commissions can be a significant part of that move there well i'll do that but if i did want to go trying to move something else around besides if if you actually didn't really catch the orders on the trade there you can just go ahead and click delete it'll get you right back to where you're at there notice as we speak you know prices are kind of hanging up at that 61.8 that's how those prices can move relatively quickly there i am going to go ahead and just adjust based off of that entry uh let's see that was at uh 41.83 uh the pivot
will just go off of 41.80 so i'm just going to adjust the stop let's get my tool out of here to about nine points below that 41.80 which basically should be what 41 71. you're right about there and as far as an adjustment one may go ahead and look at adjusting if the price has made half of its move so in this case if we were targeting that next pivot or fibonacci area once it makes half that move we can adjust that stop to a break even thus reducing the cost of the trade or reducing the risk to the trade all right now another idea now that was a bullish trade if we look at an idea from a bearish trade i'm going to remove some of these previous fibs and the consideration would be putting in the context of uh you know previous areas of support and resistance but if i go ahead and draw this fib from low to the high from a bearish perspective now notice we are above that 61.8 which is a make or break now the more we stay above that level uh the more potential for a successful trade in this example from the bullish case since we broke above that 61.
but from a bearish setup let's say the price did fail uh at the 61 at the 61.8 or at this weekly pivot and that could still happen okay but if we see a reversal somewhere in this range going down looking at that 50 percent retracement a break below that 50 percent retracement may look to go ahead and target to the downside and the idea is uh if there was let's say a five minute close that goes below that fifty percent retracement after bouncing off of this area uh then to have a a bearish position or you know a short the contract in this example and then target that previous low and then we would have profit management if the price went ahead and went to let's say this quarter retracement is to scale out a part of the position if one had multiple contracts and reduce any stop to a break even now one way i've taught this example as far as a level of risk and position sizing is position sizing based off of the hundred percent level or basically from that previous high or previous low now that could be a significant range here in this case uh with how these uh commodities have been moving you know that's at a tune of uh easily about 20 uh actually close about 30 40 points so that can price some traders out from the size of that risk otherwise one may look for you know smaller moves to the downside instead of looking at the full move you know look at some of the smaller swings down so in this case if i take the fibonacci tool and draw from a swing high down the swing low notice one can look for some of these smaller moves now in this example you know the price did not come up to that 50 percent retracement demonstrating that the trend was actually still relatively stronger to the downside some traders may look for it to break out as some of these smaller ranges and target those previous lows but usually the reward to the risk may be better when there's more of a deeper retracement okay so if you learned something a little new with those fibs today and you know as we can see uh with our example here um you know prices again if we're targeting this particular pivot point uh you know price is about you know almost halfway there if i wanted to go ahead we can adjust that stop a little closer to a break even or at least below that pivot and we'll see how that plays out all right let's go ahead and take a look at some of the other asset classes folks and we'll look at the economic calendar for the week we encourage you to practice what you learn here today with some of these tools and so in summary as far as what the fibonacci is uh that you know trends just don't go straight up or straight down they they zigzag we can see these occur on multiple time frames uh common fibonacci retracements are going to be around that 38 uh the 50 and the 61. we utilize the 50 and the 61 area as kind of a value area on a pullback in a trend where they're on a bullish trend pulling back to that area and looking for the bounce in the case of a bearish trend the retracement as we demonstrated around that 4180 4184 potentially an area for the bears to possibly enter and push prices down however as we were looking at the five minute chart uh at least intraday looks like the bulls pushed through that area and so signifying that they're a little more in control at least at this moment just 35 minutes into the market starting off the week okay you can apply this to any instrument we did it with the s p futures and maybe as we look at some of these other asset classes you can maybe think fibonacci as well uh so let's go ahead and do that and uh thanks ricardo we are in a new quarter as well uh at least uh with the uh with options as well okay all right let's see here um let's go ahead and start off with the bonds we'll take a look at forward slash zn since we already looked at the s p so even with you know a lot of the back and forth in yields and with bonds you know we are still in a range here this is the 10-year futures and so if we're looking for direction from the bond market outside of you know some of the more volatile moves over uh this previous week we need to see a break one way or the other um if we look at from a standpoint of fibonacci one can look at this from you know a longer time frame as well as we look at the trend of the uh bond market you know from the last swing up we can see that prices did dig deep into that previous run from last quarter of last year if i go and go to the drawings we bring up the fibs draw from that low to that high notice we did penetrate that 61.8 and which explains why there had been some you know bearish sentiment you know in the bond market but notice you know we haven't just ran away to the downside it's consolidating so the bullish case for bonds is looking for a break out of that range getting above that 61.8 uh the bearish is if prices were to break down now that's just one segment if we look at it kind of more from a more of a longer term as uh there are pundits saying hey inflation's transitory and deflation is actually still the culprit uh i go from the low uh back in uh 2018 this was the last reversal in bonds notice how i got above some of these moving averages there rise and moving averages indicate an upward trend those bonds are only at the third retracement so as far as bond bears if yields you know were to continue rising you know these could be some potential targets or bonds to the downside we're not seeing that there at the moment now if we go ahead and take a look at uh see we got uh bonds there let's look at some of uh other areas such as crude go ahead and clear out this drawing set here you see crude has had a wild ride and notice there really hasn't been any significant retracement uh in crude i mean going back to last november so very strong trend uh if you go ahead and you take a look at some of these swings you'll probably even have a retracement of of much more i'm just going back to one of the last consolidations you know that was about a 50 retracement you know of that previous swing so pretty strong moves and as we start off this week broods uh still to the upside and uh as we've talked about this in the past kind of going back into that range uh that we haven't seen since going back to 17 and 18. looks like the higher range is around that 76 77 area uh looking at gold gc a gold struggled had a bad week if we go ahead and take a look at some of the fibs you know from some of the major moves and i believe i highlighted this one in the past you know gold actually held its make or break point at that 61.8 now
this is a weekly chart and had a bullish reversal and pulling back possibly form in a higher low so the trend still intact uh on gold looking to see if we're able to get a bounce they may continue that a lot of other commodities like copper got slammed over the last week and if we go ahead and measure that right which commodities are not for the weak at heart you know that was about a sixteen percent correction off of those highs but again look at the trend and notice as we see some of these zigzags notice a lot of these zigzags are typically not much more than about 50 of that previous move uh yes if we go ahead from now this is a weekly here let's go to a daily about a little bit here so we go ahead and draw from that high low to the high as you can see some of that weakness where copper did break below that 61.8 moving averages having crossovers that would you know make that a bit more on the bearish side with that potentially possibly may retest those lows now notice as you go ahead and look at this this would be to be determined but if there's some continued weakness in copper from a longer term since someone made a reference to a longer term is looking for a breakdown of that potential trend and you can apply that same principle whether on a daily or weekly chart but you know notice in the case of even with that pullback on copper just looking at the trend you know that trend is still relatively strong fact we're seeing a lot of these pullbacks to these support areas so some traders may be looking for a bounce over the next week and see if commodities come back into charge one day does not make a trend but there may be some signs of that okay uh let's see uh we looked at gold um let's look at uh just as a reference um not as a trade but looking at bitcoin just at different asset classes on how they've been performing notice again you know good overall trend but we've seen a retracement again if we take a fibonacci retracement you go from the low in that channel you know going up to the high notice how bitcoin and bitcoin futures is hanging around that 61.8 retracement potentially make or break uh let's see let's look at uh get some other metals uh i think we got silver set s i by the way folks if you're not familiar as far as with some of these symbols uh just go ahead and go to td ameritrade.com forward slash futures it's a great resource for you to learn more about futures how to start trading if you wish to kind of the pros and cons and the available products again td ameritrade dot com forward slash futures as we go here you can see the different asset classes we've started already going through these you know there's metals and you know potentially a starting point as far as defined risk is tradable options just like one can trade options on equities one could potentially do the same thing on futures now they're not available on all instruments on td ameritrade but here's examples for gold and silver if we go ahead and take a look at silver forward slash si you can see again some of these themes where a lot of these commodities that basically are still in their trends they're just pulling back to some of their more recent retracements let's go and finish off with the grains z s we'll look at soybeans you can kind of see again you know kind of holding the overall trend even selling off the last couple of weeks if i go ahead and look at a more recent retracement you know kind of go into one of these last consolidations before it broke out i think we're probably somewhere at around at just above that 61.8 so critical week
for commodities folks as uh you know we're seeing an attempt to possibly hold some of these support areas okay and that kind of ties into what we'll wrap up with folks is the economic calendar just so you can see what's coming up for the week so the theme from last week with the fed as well as previous weeks an ongoing concern is inflation right inflationary numbers uh you know the economy being too hot uh the theme for this week is growth and as we look at some of the reports coming out this week you can see that how that can have a tie-in uh with the market if you're on the td ameritrade website and we go to research and ideas uh take a look at sectors and industries and we'll go ahead and select calendar uh once on calendar we select economic events and so just an outlay here uh not much today but if we click on tuesday existing home sales okay there's a little slow down as far as anticipating buying new homes in the future based off interest rates although we did see a bit of a pullback this last week we'll see if there's any benefit so we got existing home sales on tuesday wednesday we're going to see new home sales and also uh the pmi which is going to give some signs as far as growth from a manufacturing and a services standpoint we're going to go into thursday news gets even bigger durable goods as well as retail inventories kind of get a gauge on how the supply chain is going and also gdp and then finally going in the end of the week inflationary numbers as far as from the standpoint of personal income and personal spending as well as a pce core prices and consumer sentiment so a lot of stuff kind of building up for the week folks hopefully you're ready for the ride we encourage practice what you learn here today folks by utilizing tools such as the fibonacci maybe identify some supports on commodities or maybe use it on equities as well we did a practice trade as well utilizing some of the fibonacci areas as well as pivot points to see at least a shorter term reversal we'll see if that continues going into the week uh once again practice what you learn and remember in order to demonstrate the function out of the platform we have to use actual symbols keep in mind t ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so please click on that survey folks would love to get your feedback and also click like and we'll see you later on uh coming up next is cameron may with getting started with technical analysis so stick around bye now you