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. Chapter 13 Fibonacci Tactics 219BONSAI: AN ENTRY AND STOP PLACEMENT TECHNIQUEAlthough I rarely use this particular tactic, I include it for those of you who arepsychologically suited to it.This would include traders who are willing to accept a lowerpercentage of winning trades than would be possible using other techniques described inthis book.A number of former floor traders I have trained like this technique.HyperHank would likely be a Bonsai enthusiast.Those who utilize Bonsai believe, perhapscorrectly, that their ultimate level of profitability will be enhanced by this entry tactic,since they typically trade more often and keep the level of each loss suffered very low.Here's how this very simple strategy works.You have, as indicated above, a pre-calculated D-Level entry at point 'X.' Using Bonsai,you have a preset money or point stop at 'Y,' irrespective of additional DiNapoli LevelsCHART 13-1You enter both orders at the same time and hope the stop isn't hit.If it is, and the priceimmediately gets back above 'X,' you then reenter the trade at the market and again placeyour stop at 'Y.' 220 DiNapoli Levels.If the original stop at 'Y' is hit and the price remains below 'X,' then see if the contextyou choose to support the trade is still valid.If it is, you select a deeper DiNapoli Levelupon which to enter the trade and place another money stop below it.Bonsai players have 'Y' defined differently for each different Time frame they may chooseto play.The amount is usually determined by individual experience in a given market.Between 55 to 85 points is very typical for the five minute S&P, while three to five thirty-seconds (3-5/32nds) is common for the five minute US Bond market.The advantage ofusing Bonsai is its simplicity.Its ease of use frees the mind from more complex stop lossexit strategies and therefore may preserve a more relaxed attitude in the trader.He istherefore free to properly pursue the next trade in this, or other markets.There are many disadvantages.Bonsai players typically disregard volatility from one dayto the next in their selection of pre-set money (or point) stops.If they don't haveexcellent brokerage services, the frequency of trading can be costly in both slippage andtransaction fees.They also must have quick floor access to reenter orders if they aretrading short term.Although the exit criteria is simple, trades require constantobservation, since contingency order criteria left with a typical broker would likely be toocomplicated and subjective for the broker to be held responsible for the result. Chapter 13 Fibonacci Tactics 221BUSHES: AN ENTRY AND STOP PLACEMENT TECHNIQUEBushes is the technique typically used in the examples in this book with the exception ofthose described in "Advanced Comments.".You enter your buy above one D-Level andhide your stop behind another.It gained its name from a market professional whoattended a private seminar some years back.He crouched behind a large plant I had in myoffice area.Then, as he shot at another attendee with his finger, he indicated that hisfavored method to capture profit was to hide behind the bushes, jump up, take a shot, andduck back down behind the bushes.The entry and stop strategies described in CHAPTER11 (AN IDEALIZED TRADING EXAMPLE) are clear examples of Bushes.Standing up andtaking the shot is akin to your entry before one D-Level, while crouching down behind thebush is akin to hiding your stop behind another D-Level.The differing trade entrystrategies described in CHAPTER 11 are simply variations in where to take the shot andwhich bush to hide behind.The obvious significant difference between Bonsai and Bushes is the lack of "cover" for*the stop.The subtle, significant difference requires a knowledge of floor mechanics.Suffice it to say, if your stop is just behind a support D-Level, you have a good broker,and you're hit, slippage should be mitigated.If you have no support (more likely withBonsai) even with a good broker, who knows where your stop will be filled.Your chanceof having a better fill is alwavs higher with Bushes than with Bonsai because of thesupport manifested by the D-Level itself, even if it doesn't hold.CHART 13-2 222 DiNapoli Levels.MINESWEEPER A: AN ENTRY AND STOP PLACEMENT TECHNIQUEUsing this technique, we're exercising more caution than with either Bonsai or Bushes.Here's how it works.Let's say we want to enter the market at D- Level 'X.'"CHART 13-3While we expect support at 'X,' we wait, first for support to manifest at Point 1, then fora move up to 'F.' Point 1 and Point F (our Focus Number) are selected by market forces.We do not attempt to precalculate them.After those occurrences, we calculate- the Fiblevels of that up move.On a line chart, it would look like Chart 13-4. Chapter 13 Fibonacci Tactics 223CHART 13-4Our actual entry would be above the.382 Node.Our stop would go under the.618 Nodeor against the old low at 1.We've bought insurance which may of may not be costlydepending on what market action actually develops around the selected D-Level entry 'X.'With the benefit of hindsight, we can explore a variety of possibilities. 224 DiNapoli Levels.POSSIBILITY 1:CHART 13-5If we had support very near 'X,' our stop at 'Z' wouldn't have been hit and our actualentry "would have been higher than an entry at 'X.' Our insurance policy in this casewould be costly as represented by the distance between the arrows on Chart 13-5.Don'tmisinterpret this.The cost is between our original D-Level choice 'X' and our actualentry, not between our actual entry and our stop.Of course, we might not get the fill inthe form of an expected retracement back to our actual entry, but it's likely we will. Chapter 13 Fibonacci Tactics 225POSSIBILITY 2:SOME BENEFITSCHART 13-6Let's assume the expected support area at 'X' was deeply penetrated, all the way through'Z,' to a deeper Node or Confluence area 'K.' 'Y' in Chart 13-6 represents a Bonsaimoney stop.It's included here, as well as the Bushes stop, so the Bonsai players amongyou can see the effects of possibility 2.In this scenario, we would have been stopped outif utilizing the Bonsai or Bushes entry tactic.Waiting for the Minesweeper entryprevented getting stopped out.Additional advantage was achieved since we entered at alower price than the original D-Level location at 'X.' So we achieved some significantbenefits utilizing this tactic under these conditions. 226 DiNapoli Levels.POSSIBILITY 3:If we essentially had no support, as in an illiquid market, then we avoid a big ouch byutilizing the Minesweeper entry!SIGNIFICANT BENEFITCHART 13-7 Chapter 13 Fibonacci Tactics 227MINESWEEPER B: AN ENTRY AND STOP PLACEMENT TECHNIQUEThis technique attempts to buy more insurance by placing the actual entry above aConfluence area, rather than simply above a Node.The stop would have a greater degreeof protection since is located below a Confluence area.You might say the bush is largerand thicker
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