A quick post about Monthly HB. Half-Back (HB) refers to the 50% retracement of a prior specified time period’s range. It is just one of three pivots that I show on my charts in the various timeframes that I track. The other two pivots are the high and the low of the prior range. The pivot levels that show on the chart are all for the prior period so the monthly HB line that you see on the chart’s below is the 50% retracement of last month’s price range displayed during the current month’s price action. The prior timeframes that I track are daily, weekly, monthly and yearly. In this post I’m strictly looking at the Monthly HB. It’s not more important than the other pivots but it makes for a nice demonstration of why I have these pivots on my charts. Let’s begin.
This is the daily chart of SLV. Friday opened at 21.39, rallied .05 to 21.44 then rejected hard and fell over 2%. What was the monthly HB price? 21.44. Hmmm… could be a coincidence.
How about GLD? It opened .06 above monthly HB, rallied .10 then was rejected and fell over 1%. Well, maybe this HB thing isn’t a coincidence but it probably only works on the metals.
Then there’s GOLD. That’s Barrick Mining Company not to be confused with the actual metal. Pretty close, right? You can calculate the math yourself.
Let’s try a non-metal related stock. How about COST? Definitely a bit of an overthrow but if I was trading it that day I could’ve shorted it when, after spiking above, price dropped back below monthly HB. I would’ve used 458.08 as my trigger for the short and the 459.59 spike high as my stop.
And finally there’s MSFT. What was resistance on Wednesday became support on Thursday and Friday. How could I trade that on Monday? Any suggestions? Leave them in the comment section below.
Are they all perfect touches of monthly HB? Absolutely not! Nothing works perfectly but they don’t have to be perfect for me to trade them and profit from them! Are they worth having on your charts? Obviously they’re on somebody’s charts (hint: the word I’m thinking of start’s with the letter A and ends with lgos) otherwise you wouldn’t see price reacting to them over and over again! Go ahead and add them to your charts and see for yourself. Since ThinkorSwim allows you to automatically have the pivots created on your charts it doesn’t make any sense to not include them in your analysis! Questions? Ask them in the comment section below this post.
Great post, Paul. To your question about how we could trade Microsoft on Monday: The daily chart is still in a downtrend, so my bias on that timeframe remains short. On the other hand, multiple aspects of last week’s price action suggest that Microsoft may be reversing here. (Monday’s large lower wick….Tuesday/Wednesday’s strong follow through….Wednesday’s wide-range bar, gap fill, and close at highs…Thursday/Friday’s holds above the monthly HB, the gap, and Wednesday’s wide-range bar…the more than 60% retracement over the last leg down…).
Give that potential for a trend change, I’d try to remain flexible on Monday as use the monthly HB as a bull-bear line to set my bias for the day. I’d do this by looking to fade intraday moves back to to the monthly HB from either direction. (Short a move up in the monthly HB from below and long a move down in the monthly HB from above.) Stop under the day’s high/low or the monthly HB, whichever is further.
The overall downtrend would influence my position size. I’d look to take full size on a short trade, since it would confirm the downtrend. I’d probably take half size on a long trade, since that trade would be countertrend until Microsoft breaks the 9/23 pivot high.
Travis, I like your position sizing strategy here. It makes sense to go full size short since the major daily trend is down. As the saying goes, “the trend is your friend.” Thanks for including that important piece of trading information!
In addition to HB or 50% retracement being used on a specific timeframe, it can also be applied to a period of trend. Using MSFT chart for reference, connecting the downtrend from 9/16 high to 10/4 low, you’d be surprised to find that the HB is within the range of September’s HB, offering additional importance to the area. When there’s an overlap of HBs, lows, and/or highs, that would be the area to trade against – long above, short below.