FAQ’s this week: Fibonacci and trading the Almi versus the Alsi…

Q. “Thank you 100 times over for the Fibonacci articles and strategies you have shared with us over the last two weeks. I have added them onto my TradingView charts and they look great. I have some indication on how to find better trades with good entry and exit levels. Could you tell me why you like trading Fibonacci with your trades?”

A. Thank you for the kind words. I like to think of trading Fibonacci as a confirmation bias of turning chaos into order with the charts.

There are a couple of reasons why one should trade Fibonacci and add them to your charts.

If you missed the Fibonacci strategy I shared, then make sure you click here to catch up!

Here are my top 3 reasons why I trade Fibonacci

Reason #1: They find solid support and resistance levels

They are excellent for finding solid resistance (ceiling levels) and support (floor levels) on any high liquid (volume) market.

Reason #2: Great entry and exit levels

Once you have found a market you wish to trade the Fibonacci levels are great for finding entry, stop loss and even take profit levels.

Reason #3: Provide warning signals for possible pull-backs

Once you’ve plotted your Fibonacci indicator on the chart, you can use it to predict potential falls or pull backs in the market. It’s easy to track – once a price breaches a Fibonacci level, you’ll be able to see what the next pull back for the market’s price will be.

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Q. It was a revelation to learn we can trade the JSE index with as little as R1,300 deposit. I’m curious about how the trading costs, specifically the spread, differ between these options.”

A. To understand the differences in trading costs, or spreads, between the JSE ALMI 40 and the JSE Top 40 Index, we need to compare their spreads.

The spread is always calculated by subtracting the buying (Bid) price from the selling (Ask) price for any financial instrument.
In other words

Spread = (Ask price – Bid Price)

So we’ll use the current price for the JSE Top 40 and the current price for the JSE ALMI 40 to work out the spreads between the two.

And this will tell us which is more cost efficient when you trade.

TOP 40 JSE
Bid (Buy) = 67,393
Sell (Offer) = 67,440

Short (Sell) spread = (Ask – Bid) = (67,440 – 67,393) = 47 Points
Long (Buy) spread = (Ask – Bid) = (67,440 – 67,393) = 47 Points

This means, you’ll need the price to cover 47 points on the index before you can break even in your trade.

Now let’s look at the JSE ALMI 40.

JSE ALMI 40
Current = 67,450
Bid (Buy) = 67,340
Ask (Sell) = 67,450

Short (Sell) spread = (Ask – Bid) = (67,450 – 67,350) = 100 points
Long (Buy) spread = (Ask – Bid) = (67,450 – 67,350) = 100 points

This means, you’ll need to cover 100 points to break even with your trade.

So, not only does the JSE Top 40 require a smaller initial deposit of R1,300 compared to R10,070 for the JSE ALMI, but it also offers a more cost-effective trading option with a lower spread.

And this means trading the JSE Top 40 will make it easier to break even on your trades.