Fib Ideas and other patterns: What makes any of this interesting?
It's been mentioned before elsewhere, but I always get questions about many patterns such as Fib as well as the question: when is the best time to use such an alert?
Most people answer with an emphatic emphasis on price. While this is important, it goes hand in hand with volume too. But what about volume accounted for in the pre and post markets?
Some types of chart patterns are graded by the amount of time covered by the chart pattern. Crossing a support line which has been active for one day is interesting. Crossing a support line which has been active for two days is more interesting. Crossing a support line which has been active for an hour is not very interesting.
This time is measured in "hours of trading". Normally there are 6.5 hours between the open and the close. But, what about premarket and post market?
If I see a pattern that lasted from noon yesterday to noon today, is that any better than a pattern that lasted from the open this morning to the close this afternoon? How much better? We weight the pre and post market according to volume. On an average day an average NASDAQ 100 stock will trade roughly 1 hour's worth of volume between the close and the following open. If you want to see stock patterns that lasted for a whole day, a good estimate is 7.5 hours, 6.5 for normal hours plus 1 for the pre and post market.
The same rules apply during the day. If a chart pattern lasts for one hour starting from the open, it will almost always be considered a stronger pattern than if it lasted one hour starting from the beginning of lunch. Hours are just an estimate.
Here is how another tool looks for Fib:
http://www.trade-ideas.com/Help.html#FU38
Volume is the major factor in this filter. Stocks trading on higher than average volume will satisfy this filter faster than stocks trading on lower than average volume.
A picture is worth 1000 words:
http://www.trade-ideas.com/Source/Banners/LiveDemoContainer.html
