The DiNapoli Trading Method is an uncommon trading strategy that is rarely taught.
The beauty of the financial markets is that there are hundreds, if not thousands, of ways to speculate on the prices moving up or down.
The majority of all trading systems is based on technical analysis, whether it be price action based or following a technical indicator.
Either way, you can get a signal from the markets whether to buy or sell.
I bet you have read a majority of different strategies online such as the “Golden” and “Death” crosses…
However, there is one method I bet you haven’t heard of… From Joe DiNapoli a trader who is well-respected, who adapted the common Fibonacci levels into his own Dinapoli Trading Levels.
Not heard of this trading strategy?
We’re not even surprised because it’s kept under wraps and is not publicised by the market gurus or self-proclaimed whiz-kids because it is hidden from the forefront of today’s technical world.
Plus the book itself fetches $100 on Amazon right now… Not bad considering it was published in 1998.
In this article, you will be led through the process of this system, learn how it works and how to trade it.
If you love using Fibonacci levels, then you are going to LOVE this trading strategy.
Joe Dinapoli Trader – All You Need To Know
Joe has been around the block a fair few times with over 40 years of trading experience, a lecturer and an author of financial market-related books.
Just think about it, 40 years of trading… That means he has traded during several market crashes globally. He predicted the fall of Black Monday in October 1987 and has been trading S&P futures since they opened.
So if anyone has any credibility in surviving the markets, Joe Dinapoli is up there for sure.
Joe Dinapoli developed his own oscillator & moving average convergence divergence predictor methods, but is most famous for his unique method of using Fibonacci levels.
This is what we are here to talk to you about today, his application of the Fibonacci levels and how it was a game changer for him.
What is the DiNapoli Trading Method?
Joe was famous for developing and applying oscillators, MACD and displaced moving averages into his systems to build a higher quality trade entry and exit.
However, the most important aspect of his methodology is his Dinapoli levels.
This is our core focus today.
The Dinapoli Trading Method can be rather straight forward…
To implement his full system can be very confusing, especially in a short article like this. So, we are going to give you an overview, which still covers the levels and targets.
The strategy is essentially an adaptation of fib levels, but instead of focusing on several ratios – the method focuses only on two:
The reason behind this is thanks to his years of research behind the Fibonacci levels he noted and concluded that the 0.618 and 0.382 levels are significant support levels during a retracement.
Which you can clearly see when plotted on the chart.
The idea behind the method is once the price has been rejected at either of these levels and formed an ABC pattern, then there should be strong evidence for the market to continue in its initial direction.
In addition, you can gauge with accuracy a take profit level. We’ll show you how later on.
The beauty of this strategy is that you only need the Fibonacci retracement tool to draw the levels and extensions.
You would draw a standard Fib retracement level, wait to see if the market reacts to either of the 0.618 or 0.382.
If it does, then draw a retracement from the new high/low towards the previous 0.618 level and there you have a profit target. (We will explain in greater detail below).
This has been a common theme in his findings and over the many years has proved that this can work on any asset and on any timeframe.
The lower the timeframe ( 1-minute, 5-minute,15-minute etc.) the more frequent these levels appeared.
The opposite is said on higher timeframes.
We touch on how to manually do the Dinapoli Trading Method using the freely available tools available in most chart packages.
That being said, more accurate and better-charting packages are available to subscribe to which will calculate and draw the levels for you.
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…
Trading DiNapoli Targets
Quite simply, this is the easiest part of the Dinapoli Trading System.
You will produce profit target levels based on the Fibonacci extensions.
However, instead of generating them from a single fib retracement level, another method is used.
DiNapoli Targets are generated from the original retracement 0.612 level, up to the Focus Point (Swing High/Low).
This then generates several DiNapoli Targets, our focus is on the 0.618, 1.272 and 1.618 levels.
These three levels give appropriate room for the DiNapoli Trading Method to workout and bag them pips.
Let’s have a look at an extension example below:
Here is an example that demonstrates how to use the tool correctly. As you can see, price retraced back towards the 0.382 level and broke above it to trade between the 0.62 and 0.382 levels.
The next step we do, once we see price reacting the way we want, is to grab the retracement too and draw between the Focus Price (F) and the 0.62 level, this will generate our DiNapoli Targets.
As you can see in the example, the price had reached all the way to Target #4, or the 162% level. You can take profit at either target level, but this is how we can predict future price movement with these extended targets.
You see the DiNapoli Targets aren’t just random levels, they are all part of the bigger picture. They are there to set levels that extend outside of the retracement tool.
By using the DiNapoli Targets you will get optimal profit taking levels should price go in your favour.
Examples of DiNapoli
Bullish Example #1
In this example, we see that the price retraced back to the 0.618 level and traded slightly low. However, the next candlestick traded back within the 0.382 and 0.618 range which suggested that the downward strength was not strong enough.
This gives a signal that it is possible to take advantage of the immediate return towards the range as an area to buy.
With confirmation that the 0.618 level was rejected, we placed an entry level at the candlestick’s high and the stop loss below the 0.618 level — a few pips below the breakout candlesticks low — to give the trade a chance.
Next, with the confirmation in mind, we gained the DiNapoli Target levels by drawing Fib Retracement tool from the Focus Point to the 0.618 level, which gave us the new extended targets of 0.618, 1, 1.272 and 1.618 – these are perfect take profit levels.
As you can see, this example traded higher than the DiNapoli Target level 4.
Bullish Example #2
In this bullish example, we will talk about trading when it is between 0.382 and 0.618. In this scenario, if you choose to trade like this, is based on perception.
When the market retraces and trades between these two levels, it suggests that the market is strong enough to retrace yet weak enough not to go further down. This is a good indication that we can jump in on a trade back towards the upward move.
We get a confirmation after the price broke out of the range between 0.382 and 0.618 to the upside. Entering the trade from this point is subjective based on your breakout rules (we cover optimal breakout entries in our Free Forex Trading CourseClick here to learn more…)
Once we had confirmed a buy entry, the DiNapoli targets outputted the take profit levels accordingly.
Bearish Example #1
In this example, the overall trend is downwards and we saw a retracement back to between the 0.382 and 0.618 levels indicating that the strength of the retracement is strong enough to pullback but too weak to recover, thus giving us a green light to look out for an opportunity to trade.
Shortly after the market broke the 0.382 level to the downside we look to place a trade after the breakout candlestick and applying the DiNapoli Targets.
As this trade was taken around the 0.382 level, we look to take profit at the 1, 1.272 and 1.618 levels. This should be a good example to look at when everything isn’t perfectly aligned up, but the opportunity is still there.
Summing up the DiNapoli Trading Method
Does this still work in 2019?
Absolutely, in fact, it’s one of the better trading method’s available with its simplicity, ease of use and robustness this is a pretty good strategy for beginners and experts alike to learn and take advantage of these turbulent markets.
Remember, the DiNapoli Trading Method is easier the more you practice it. Don’t expect to go and perform this trading strategy within the next few minutes.
Don’t use this method in a sideways market. This is to be able to enter a trending market with accuracy.
Don’t force a trade and draw what you can see.
Wait for confirmation of the retracement before plotting the target levels.
This strategy takes time to learn and practice.
Learning to trade? If so, you should get in touch with us. We offer performance coaching and mentoring online when you become a Forex Masterclass student.
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