Trading With Dinapoli Levels – Getting Started
Ok… Now you know what the method is, let’s sink our teeth into trading them.
There are two core concepts behind the ratios mentioned:
0.382 – When the price is retracing back to this level, but never reaches it – it is considered weak retracement and insignificant.
0.618 – When the price has pierced this level then it is considered that the trend is too strong.
The sweet spot is to see a reversal between the 0.382 and 0.618 levels.
Remember, the DiNapoli Levels are to take full advantage of a retracement of a markets swing.
If the markets go break the 0 and 1 levels then the retracement has been broken and no trading opportunities are there.
Right, so let’s get you trading with Dinapoli Levels:
Load up any chart in any asset on any timeframe.
Clear all indicators from the screen so you just have a clear price chart on your screen.
Done it? Good.
Next, we look for turning points in the markets – these are called Focus Points – or also known as market swings from a high to low, and vice versa.
This is ours:
Can you see how it’s easily identified as a swing, and the top being a Focus point?
Next, we grab the Fibonacci Retracement tool to draw the levels.
Depending on the market swing’s direction you will either:
Uptrend – drag the tool from the SWING LOW to the SWING HIGH
Downtrend – drag the tool from the SWING HIGH to the SWING LOW
You must make sure you are doing from the highs and lows because this is a significant difference between a successful level and a weakened level.
Now we have our retracement levels. Go into settings and turn off everything except the following levels:
Now your chart will appear similar to this:
Excellent. So this is generally what we want to see. Now in the future, we anticipate the markets to move towards the 0.382 and 0.618 levels. This is when we look to take a trade.
How do we enter a trade using the Dinapoli Levels?
We can do this in a couple of ways.
Firstly, the popular and aggressive way named “Bushes” and “Bonsai”…
We won’t go into why they are called these, so just go with it…
Now, these entry levels are aggressive because you enter when price touches the 0.382 level, expecting the market to bounce off the level and retrace back in your favour.
With this aggressive trade style, you will place your stop loss at the 0.612 level.
“But what if the price doesn’t react to the 0.382 level”
I know, this is why it is aggressive — you are preempting the reverse before it has happened.
Now, some people may enjoy that kind of trade – but if you are like us, and prefer a more… validated entry… then the next method is for you.
The conservative way is called Minesweeper “A” and “B”.
(Certainly sounds more dangerous than the aggressive Bonsai entry level, am I right??)
This entry method waits for a correction wave to form before taking action.
I.e) the price has retraced back to/ and or between the 0.382 and 0.612 levels. Once the price has been rejected/supported by these levels, then you have a valid entry level opportunity.
For this, you would be looking to take a trade between the two levels and a stop loss above or below the 0.618 level depending on the trade direction.
As you can see in this example that price traded between the levels and we used the candlesticks to confirm entry. The difference here is that we waited for the price to provide evidence of a rejection around the 0.382 and 0.618 level. This allows for a more precise entry.
Now we know how to enter the trade, DiNapoli Trading Method also shows us how to exit a trade or at least set targets…