Look-alikes are "want-to-be's" or "near miss" Directional signals. They don't quite meet the qualifications. Maybe a Double RePo is lacking in the extent or nature of the desired thrust. Possibly the tops between the first and second penetrations are a bit wider than the specified criteria. Perhaps the extension bars of the Railroad Track are a bit short or maybe the Railroad Track is occurring in "suburbia" rather than "in the country." The consolidation below a Head and Shoulders neckline might be one period rather than the several periods we'd like to see, before the Failure occurs. All these situations are Look-alikes. Often Look-alikes will behave similarly to the Directional signals they mimic, but not with the probability of success we would expect from a fully qualified Directional Indicator. I'll play these signals with less gusto, fewer contracts on the line. You might choose to let them go by. Either way is acceptable, just be sure you don't get in their way.

"STRETCH":

This Directional Indicator combines an oversold or overbought oscillator with strong Fibonacci support or resistance. It is obviously pretty difficult to describe this signal since we have yet to cover either concept. See CHAPTERS 7, 8, & 9.

The basic idea behind this indicator is to act on the combined strength of these two powerful, differently derived Leading Indicators, which indicate support or resistance when their respective price values are in close proximity.

Even though your entry is strictly placed, Stretch is more risky than other Directional signals. This signal has you buying down thrust and selling up thrust. Understand its implications before deciding to use it, place a physical stop (Bonsai or Bushes, Fib Tactics, CHAPTER 13), or monitor the position closely.

THE "FIB SQUAT":

This Directional Indicator is similar to Stretch in that you need strong Fibonacci support at a point where something else occurs. In this case, the something else is a Squat. So what's a Squat? As developed by friend and colleague, Bill Williams 3 , the Squat is a function of the range of a given price bar and the volume, or TIC volume, that occurs while that range is being created. The basic idea is that high volume and little price

movement indicate substantial support or resistance. Some of you old timers will remember the term "churning." That was a phenomenon in the stock market which occurred when you'd get tons of volume (60,000 to 80,000 shares in a day) and little price movement. The idea behind my approach to this indicator is to first look for likely Fibonacci support and resistance, and then see if a Squat manifests when that point is reached. If so, the Squat confirms the Fib support or resistance, and it's okay to act without a trend in your favor to support the trade. This indicator, like Stretch, is a more risky (lower probability of winning) trade than the other Directional Indicators I've outlined. It's good for the hyper types or over-traders among you, since you can use it all the way down to a five minute chart. Both Stretch and the Fib Squat yield a reasonable probability of a successful outcome.

For additional safety, the Fib Squat is most useful in a context, within a context. Let's say, for example, that you have a strong weekly trend in place and you are experiencing a pullback via a Stochastic sell on the weekly. The MACD is holding nicely. With several daily Fibnode locations to choose from to go long, it is helpful to see a Squat manifest at one of them, before jumping in.

Below, Chart 6-28 is an equity on Fib support (not shown) experiencing high volume as well as a narrow range daily bar. The subsequent move up culminates at an almost exact Fibonacci Logical Profit Objective. After you complete CHAPTERS 8 & 9, come back and check for an OP move up. Incidentally, this up move turned out to be a very significant rally high.

FILTERING THE FIB SQUAT

I have found that the level of "squatiness" is important as a filter to the Squat. If you choose to filter the Squat, part of the above formula would change accordingly: Squat equals 30% greater (TIC) volume and a smaller MFI than the previous bar. Larry Ehrhart, developer' of WINdoTRADEr 4 , has done some valuable research in this area. The bottom line is that I like to see a significantly increased level of volume, say 30% or more, before I call a Squat significant. In addition, you may more easily see a Squat manifest in a four or six minute chart, rather than a five or 30 minute chart. As with the RRT, a Time Frame outside of the ones we normally consider is not only acceptable but desirable if it can help you identify the existence ofthe indicator.

You can anticipate a Squat if you have all the volume of the previous bar, a very tight range, and if only 1/2 or 1/3 of the Time Frame you are observing has elapsed. It's a pretty sure bet you'll get your necessary volume reading by the close, just make sure the range has not expanded unacceptably.

Another way to "play" the Squat, is to wait for a Confirmed Squat to occur in the vicinity of a major Fibnode, then enter on the first shallow Fibonacci retracement you get. Your stop goes at or just under the bottom (top) of the Squat bar. A similar technique is described as Minesweeper A in the section on Fib tactics, CHAPTER 13.

FREQUENTLYASKED QUESTIONS: Can I anticipate Directional signals?

You can anticipate any signal I give you in this book, but Directional signals can be among the most dangerous to anticipate. Anticipating classic pattern Failures and Railroad Tracks can be suicidal.

Why do Directional signals take precedence over Trend signals? By their nature, they are more powerful.

A majority of your examples are for long plays. Are these signals as effective on the short side?

Yes, perhaps more effective since the public or less experienced traders have a propensity to favor longs. When they are wrong they are more easily panicked.

Don't you ever feel for the player on the other side of the trade?

It's your choice. Be the minnow or the shark. Minnows will be eaten and smart sharks get out of the vicinity when the big whites are circling.

In summary, I would encourage you to reflect upon what you see occurring in the market. Test the validity of reoccurring patterns and Failures of widely followed signals. Soon you will develop some Directional signals of your own. The difficult part is waiting for them to manifest.