To The Moon

U.S. equity markets witnessed a see-saw movement on Tuesday as investors and traders held on to every word spoken by the Fed Chair. Major indices, however, ended the session in green. The SPDR S&P 500 ETF Trust (NYSE:SPY) gained 1.29% while the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) rose 2.07%.

Powell’s comments come in the wake of a strong jobs report released last week. The Labor Department reported the U.S. economy added 517,000 jobs in January, far exceeding economist estimates of 187,000 new jobs.

The labor report for January was stronger than what Powell had anticipated, he said: "It kind of shows you why we think that this will be a process that takes a significant period of time."

"By the way, it's a good thing that inflation has started to come down ... and that has not happened at the cost of a strong labor market," he added.

The Fed chair reiterated that "ongoing increases" will likely be appropriate to bring inflation down to the committee's 2% goal over time, but he explained that the Fed remains data dependent.

"All of these numbers that we are throwing around here are conditional on incoming data and what happens, so we never say 'this is what we think will happen.' We make a tentative forecast and then we let the data come in," Powell said.

Fibonacci Retracement

Fib levels are horizontal lines that indicate the possible support and resistance levels where price could potentially reverse direction.

The first thing you should know about the Fibonacci tool is that it works best when the market is trending. The idea is to go long (or buy) on a retracement at a Fibonacci support level at the "golden zone" when the market is trending up like today.

Bull Flag Continuation

When to open a buy trade?

The flag of the bull flag pattern is similar to the shape of a channel. The channel consists of an upper trend line and a lower trend line. A buy signal is generated when the price breaks the upper trend line.

Breakout of trend line must be with a big bullish candlestick. This is an indication of a valid trend line breakout.

Stop-loss Level

Place a stop loss below the lowest low made by the price after the breakout of the trendline.

Take-profit level

Close half trade at the last higher high made by the price. Apply the Fibonacci tool on the retracement wave and highlight the 1.272 Fibonacci extension level. Close the rest of the trade at 1.272 Fibonacci level.

Risk management

Risk only two percent of the total account balance per single flag pattern trade. The risk-reward should be greater than 1:2. Don’t trade the patterns that offer a low risk-reward ratio.

Channel Trading

A trading channel is drawn using parallel lines that follow the price floor (support) and price ceiling (resistance). With a trading channel, smart traders sell stocks at the upper resistance line, hold stocks within the parallel trend lines, and buy stocks at the lower support lines.

Range Trading

Trading range refers to the difference between the high and low prices in a given trading period.

Range-bound trading is characterized by prices staying in a definable range over time.

A trading range is characterized by both a support price and a resistance price, between which the price tends to fluctuate.

Traders use a variety of technical indicators, such as volume and price action, in order to enter or exit a trading range.

When a stock breaks through or falls below its trading range, it usually means there is momentum (positive or negative) building. A breakout occurs when the price of a security breaks above a trading range, while a breakdown happens when the price falls below a trading range. Typically, breakouts and breakdowns are more reliable when they are accompanied by a large volume, which suggests widespread participation by traders and investors.

Day traders frequently use the trading range of the first half-hour of the trading session as a reference point for their intraday strategies. For example, a trader might buy a stock if it breaks above its opening trading range for a quick profit as above.

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