In this article, we will cover a fundamental concept in the financial market: the 100% target. This concept, widely used by top traders, goes beyond a simple target and helps us understand the importance of the 100% projection in market movements. The idea of 100% projection is rooted in the notion that markets move in proportional movements, a principle most traders agree on, even those who don’t use Fibonacci. Here, we’ll demystify this concept and show how it can be practically applied.
Understanding the 100% Projection
The 100% projection involves identifying an impulse movement and duplicating this distance to project the next target. However, not every candle can be projected at 100%. This type of projection is most effective in specific market situations, such as reversal patterns (e.g., double tops) or pivot formations.
- Double Top: Upon identifying a double top, we can project the distance between the two tops by 100%, taking partial profit at this level and continuing to project the distance in search of a larger target.
- Reversal Pivot: When the market is in a downtrend and makes an upward movement (impulse), followed by a correction, we project the distance of the impulse to identify 100% targets.
To illustrate this concept, we’ll use an example on the 5-minute chart of the mini index, which offers high liquidity and is well-suited for day trading. By identifying an impulse on the chart, we check volume to ensure there is enough strength behind the movement. Once the impulse is confirmed, we wait for a corrective candle to form to project 100% of the movement and determine the entry point.
How to Set the 100% Target
It’s essential to wait for a corrective candle to form after the impulse, as it marks the limit of the initial movement. This correction provides an entry point and a safe spot to place the stop, which should be set below the low created during the corrective movement. When the price breaks above the impulse’s top, we enter the trade, aiming for a target that projects 100% of the initial movement.
This method helps avoid the common mistake of trading with a stop the same size as the target, which increases risk. By setting a 100% target, we aim for a more favorable risk-reward ratio.
Using Fibonacci to Project 100% Targets
For those who use Fibonacci, the 100% projection can be easily marked by adjusting the tool to reflect double the extension of the initial movement. Even traders who don’t use Fibonacci can use the tool as a ruler, which makes calculating projections easier.
To configure the 100% projection in Fibonacci:
– First, mark the impulse on the chart.
– Adjust the Fibonacci tool so the 100% level projects twice the initial movement.
This practice is not only convenient but also allows you to project targets quickly and determine how far the price might go before encountering resistance.
The Doji Setup: 100% Projection in Daily Charts
Another interesting setup that uses the 100% projection is the Doji pattern, a candle that represents a balance between supply and demand and suggests a possible expansion after a period of contraction. On the daily chart of assets like Petrobras, we can use the Doji as a reference point for projection:
- Identifying the Doji: Check if the Doji appears in a bottom or top position and if it’s “stretched” from the moving average, indicating a possible reversal movement.
- Entry Point and Stop: The entry occurs on the break of the Doji’s high (in long trades) with the stop placed at the Doji’s low.
- Target: The 100% projection in the Doji setup consists of duplicating the Doji’s height and setting that extension as the target.
This setup is most effective on daily charts or longer time frames, especially in assets with good liquidity, as shorter time frames like 1 or 5 minutes contain noise that can hinder the strategy’s effectiveness.
Conclusion
The 100% projection is a powerful concept that enables traders to set realistic and safe targets based on the extension of prior movements. Whether using Fibonacci or simply visually calculating the projection, this technique provides a structured way to set targets and manage risk. Consistently applying this concept, especially in setups like the Doji, can yield excellent long-term results.
If you want to explore these concepts further, watch our full lesson on the 100% projection and check out the video on the 61.8 Fibonacci level, an advanced tool to maximize your trading potential.
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