When e-mini trading, the Ambush trade can be a strength tool in your arsenal of trading. It’s a Fibonacci trade, which certainly is not my favorite, but has a surprising level of success. This trade set-up, which occurs frequently, take some time and practice to recognize, but learning it can put valuable ticks on the positive side of your trading ledger.
A quick observe on trades employing Fibonacci number is in order here. I have no belief that Fib numbers keep up any particular value in e-mini trading, but enough people believe in Fibonacci magic to make this trade a virtual self-fulfilling prophecy. I trade what works, in spite of of my personal beliefs. Since enough e-mini traders have a high level of belief in Fibonacci trading, I will happily join in their fun.
There are several ways to trade the Ambush trade, with some individuals believing that the complete range of the day is in order. These traders plot the usual Fibonacci numbers in the usual manner, only using the complete day’s range as their basis. Personally, I have found this trading methodology to be less successful than mine; I generally look to find a substantial move in the day’s trading and apply Fib retracements to that individual move. I have listened to numerous discussions on this topic some pro some negative; but for me, seeing a meaningful move and trading the Ambush on that move has been most successful.
So what is the Ambush trade?
As I mentioned before, I generally notice a meaningful move in the day’s trading action and apply a set of Fibonacci retracement from the beginning of the move to the conclusion of the move. Essentially I am measuring the level of retracement of the initial move. The area I am interested is the 50% retracement to the 61.2 level of retracement. The area between these two plots is called the Ambush zone. I might add that the number 50 is not a Fib number but it gets thrown into the mix for reasons I don’t fully understand.
Some aggressive traders automatically take a trade at a predetermined level in the ambush zone; say, at 50%. I personally don’t use this method, as I generally wait for the market to begin to change directions before entering this trade. It’s an strange trade for those who are not accustomed to observing this trade, as it seems you are taking a trade “out of the blue” in a comparatively strong retracement against the trend. But Fib traders are well aware of the Ambush trade and are generally waiting patiently for the retracement to hit the Ambush zone. Then they take action, and trade in the direction opposite the retracement and in the direction of the original trend. I can generally get 12+ ticks out of this trade; but do not let it run, as the price action often resumes in the direction of the retracement. This is not a trade to get greedy on, get your ticks and get out at the first sign of movement opposite the direction of your trade.
In summary, I have described a very popular trade among experienced traders based upon Fibonacci retracements. This trade is comparatively consistent so I look for it throughout the time of the day. Don’t try to eek every tick out of this trade, and exit at the first sign of the trade moving against your position.