Dinapoli levels is a Forex trading tool that represents support and resistance levels. Joe Dinapoli, the author of the tool, used the Fibonacci analysis as a basis and developed his trading concept, which is now used by traders around the world. Levels of Dinapoli allow you to analyze the entire series of Fibonacci numbers, so they help you solve many practical problems faced while working in the financial markets.
This indicator gives a trader an opportunity to assess the market signals as objectively as possible as well as to open the positions to a small risk at the most appropriate moment. The advantages of such a tool against the usual support and resistance lines are discussed below.
How do Dinapoli levels work?
As mentioned above, this tool uses the Fibonacci numbers, but the calculations are based not on the standard levels: 38.2%, 50%, 61.8%. In this case, the level of 50% is the additional one.
Construction of the DiNapoli chart is also the same as of the Fibonacci graph:
- the grid is built from a local maximum to the downtrend minimum price;
- the grid is also constructed from a local minimum to the uptrend maximum.
There is a range of the two points of minimum and maximum called the market swing. With the correct construction, the lines follow the trend direction, from 0% to 100%. At the same time, you can select the retracement area and the expansion levels on the chart. The retracement zone helps determine the key entry points to the market and the expansion area, representing the levels below 100%, is used to set the exit points. The levels of 100%, 161.8%, and 261.8% are the key ones.
Many novice traders prefer to rely entirely on the automatic configuration since the Dinapoli terminology can be confusing because of its complexity and line constructing. However, without a proper understanding of the mechanism, or if the chart is plotted incorrectly (for example, drawing a level of 100% above the minimum, or vice versa, a level of 0% below the maximum) - the signals of the indicator can play a bad joke with the novice trader. For this reason, we should consider several key concepts in the Dinapoli system.
- The focus number is the mark that determines the end of the market swing zone and the beginning of the retracement zone. It should be noted that the swings often include more than one focus numbers, and the graph will grow to the next one with every new point. Naturally, in this case, there will be several retracement zones, which are called "reaction numbers."
- Fibnodes are the points of the automatic datings indication and origin designations. There are two such points, for each reaction number. The trader needs to determine which minimum corresponds to the particular node pair to understand when the price will be closest to the node.
- Datings - level zones which several nodes are located in, with the same values of the different reaction numbers. These datings are considered only within the retracement levels of 38.2% and 61.8%.
Application in trading
There are many methods to work with the Dinapoli levels. We will highlight the most popular ones such as "Bushes," "Bonsai," and "Minesweeper."
These methods of opening the positions were developed by the author of the tool himself. The "Bushes" and "Bonsai" strategies are quite similar and will suit aggressive traders. The difference between these methods consists, mainly, in the distance to a stop-order.
The positions are opened according to the constructed retracement levels, as soon as the price crosses the 38.2% mark, in the trend direction. In the "Bonsai" method, stop-loss is placed below the new level, which is 50%. In the "Bushes" technique - the limiter is set above.
The "Minesweeper" method is conservative, and it should also be divided into two separate methods - "Minesweeper A," and "Minesweeper B." Within these strategies, the position entry is set when the price rebounded one of the Fibonacci levels, and then created a retracement zone below. The entrance is located on any of the next retracement levels, in the current trend direction. Unlike the "Minesweeper A" method, more than one retracement zone is required for "Minesweeper B," after the rebound from the Fibonacci level occurred.
For any of the selected strategies, the target profit-making points are set at any level of the scheme constructed.
Dinapoli level is a tool created by an experienced economist and trader. Due to appropriate use, it's a ready-to-go trading strategy that gives the excellent trading results in Forex. However, this tool has some significant drawbacks - since it's a product of the another level system processing, it's not easy for interpretation at all.
Novice traders can easily get confused by the indications of such a tool and lose money. Therefore, you should study the system carefully before you start trading with the Dinapoli levels. Traders will benefit from reading the Joe Dinapoli's books. Remember to start real trading after successful practice only.