Joe DiNapoli is a well-known author and professional trader. His in-depth understanding of the technical makeup of the markets can benefit any trader looking to better their market timing strategy. The majority of Joe DiNapoli’s trading success stems from his trading system. DiNapoli came up with an incredible method that integrates lagging and leading indicators to generate timely and highly accurate signals. Fibonacci levels are the foundation of his strategy. Also, Joe DiNapoli used the Fibonacci levels in such an odd way that the levels he created became known as DiNapoli levels.
Trading technique concepts
Many charting applications have their auto-generated Fibo levels. However, Joe uses his own designed Fibo horizontal levels in his trading techniques. The levels are, 0.382, 0.5, 0.618 and 1. In a bullish market, the levels are plotted from top to bottom. In a bearish market, they are plotted from bottom to top.
How to construct DiNapoli levels in a chart
Steps
- Apply the first Fib Retracement. Go to settings, change the number of levels to 5 levels. Then change the level values to 0, 0.38, 0.5, 0.618 and 1. Use a different color for each level. Draw from top to bottom. This is the first swing.
A – Focus point (local high)in the chart is at 0.65574.
B – The beginning of the swing is at 0.63777.
C – Local low is at 0.64454.
- As the price retraces after the first swing at 0.618 (point C), draw another DiNapoli extension from there. Use the same levels. Draw from the bottom (point C) to the top (point D).
D-Target point of a take profit order is at 0.66190.
Trading strategies
Terminology
Swing: This is the distance from start to end of a trend.
Reaction: This is the end of a trend’s movement correction. In a single swing, several reactions may occur.
Focus point: This is when the correction begins, which is established following the most recent price move in the trend direction.
Fibonacci node: This is the price chart point where the correction movement comes to an end.
Fundamental techniques
- The number of swings is always equal to the number of focal numbers in the chart.
- Reactions are always to the left of the focal numbers to which they are linked.
- A focus number is linked to a reaction in a bullish trend if it is the highest price point after the response. As a result, the focus number will be the downtrend’s lowest point.
- The longer the time frame, the fewer the reactions. When the price detects a strong resistance/support, you can use lower periods to identify required reactions and swings that aren’t visible on higher ones.
DiNapoli trading strategies
Bonsai strategy
This is an aggressive strategy. In this strategy, the price should roll back from the 0.382 level of the already developed swing. When the price reaches level 0.382, the trade is opened. A stop loss is placed at a distance less than or equal to the 0.5 Fibo threshold. The Fibonacci level of 1.618 is used as a take profit level.
A – Enter trade (0.38) at 1.18396.
B – Take profit (1.618) order is at 1.8826.
C – Stop loss (0.5) is at 1.8530.
Bushes strategy
When the price reaches the 0.382 mark, a trade is entered, setting a take profit level at 1.618. A stop loss is set at a level that is higher than 0.5. It is typically set at a percentage of 1.618. We exit the trade when the price reaches 1.618 of the DiNapoli extensions grid.
A – Enter trade (0.382) at 1.8339.
B – Take profit (1.618) is at 1.8826.
C – top loss (0.618) is at 1.8530.
DiNapoli Minesweeper A
This strategy recommends trading at the end of a corrective move.
- Wait until the first reaction is completed before forming the next swing and second reaction. The price should break through the 0.618 level.
In the chart, the first reaction was at 1.23642 (marked as A).
- The second reaction: the price should break through level 0.382.
In the GBP/USD chart, the second reaction was at 1.26078 (marked as B).
- Enter a trade once the second reaction is complete. An entry is put immediately after the reaction ends when the price goes back in the main trend direction. A take profit is at the level of 1.618, or 2.618, in case of a sharp price movement.
In the GBPUSD chart above, the entry is at 1.27685, with a take profit at 1.34967.
DiNapoli Minesweeper B
This strategy is the same as DiNapoli Minesweeper A strategy, and the only difference is that one opens the reaction after the third reaction is formed.
Conclusion
Joe DiNapoli has worked in the financial markets for over 38 years. He uses Fibonacci levels with a slight twist as a leading indicator for trend analysis. The twist is that he developed his own levels. There are four strategies used to predict the market trend. Bushes strategy and Bonsai strategy are aggressive strategies. DiNapoli Minesweeper A strategy and DiNapoli Minesweeper B strategy are conservative strategies.