A-B-C-D Trade - page 55
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When applying this rule:
If the retracement of A-B is 61.8%, the 138.2 is the same as the FE 100.
If the retracement of A-B is 38.2%, the 161.8 is the same as the FE 100.
To avoid using both the fib retracement tool and the ABC tool:
Modify your fib retracement tool.
Add = -.382
Description = -38.2 or “Reg 138.
After description, you can add %$ in order to get label to display % and price.
Example: Reg138.2%$
Do same by adding -.618
Now, when you plot a retracement to ascertain Swing C, this tool will automatically plot the 2 extensions in the direction of the ABCD pattern.
Just remember the above rule, which gives you a quick understanding and recognition of the highest probabilities (trading to the FE 100).
If the pull-back for Swing C is to a minor fib, you’ll have to use the ABC tool to project the extension levels (FE)
Although deeming a 38.2% retracement of A-B as preferable, the 61.8% is not without its advantages. If we follow the assumption that 31.8 and 61.8 are the highest probabilities, then 61.8% is a harder support or resistance, or the last big fib in the way of a turnaround.
If we use the 61.8% as an entry point, the stop-loss can be place just behind the minor fib of 78.6%. Add appropriate spread, if any, and cushion. We can trade to aforementioned levels of the Swing B price, or the FE 100.
We can also opt to trade to another fib. Entering at the 61.8 gives us more fibs for exit, prior to the Swing B price level. Those fib levels of course are 50%, 38.2%, and 23.6%.
There might be other non-fib pivot levels from previous price action, en route to the Swing B price, so watch out for those for possible exit areas.
Whichever exit price level you choose, just make sure the risk/reward is at least 1:1.
If you like, you can add two indicators. One is a trend indicator, such as the forex freedom bars, which specifies direction over 4 time-frames. This may allow you to just pick trades that are in the direction of the trend.
Incorporating a cross-over such as the FX Sniper’s Ergodic CCI and Trigge may help you see and confirm the entry.
After week opened with about a 25-pip gap up, pair settled back down with sell tone. Attached is a 5-min chart with swings and targets.
A = 20:55 high 1.3994
B = 22:15 low 1.3956
C = 22:40 high 1.3974
FE 100 = 1.2935
FE 127 1.3924 = 1.3924 (hit)
FE 161.8 = 1.3911
We also had the retracement fibs plotted from:
High = 20:50 1.4005
Low = 22:15 1.3956
138.2% = 1.3937
161.8% = 1.3926 (hit)
We have following plotted:
Longer picture with fib channel going up.
Fib channel going down from Oct 14th
Retracement fibs from yesterday's Asian Low to Euro 08:00 High
ABC with FE 78.6 at 1.3921
See if you can duplicate these plots and verify with attached chart.
As of about 02:50 GMT, let's update progress of EUR/USD from the last 2 posts' parameters.
1) The ABC's Swing C was the 38.2% retracement fib of A-B. Pair revisited and failed to breach, sending it on breakout of Point B. Extension made it to the FE 161.8
2) We must then plot the 2nd ABC, using the last Swing C as Point A. This 2d ABC pivoted to form point C at the regular 138.2 extension. The extension rested at the FE 100 of 1.3884 before reaching the FE 127 thus far.
3) The 1-Hour chart should also plot a wider retracement fib from:
Low = 08:00 1.3774 to
High = 14:00 1.4157
We can see pair move below the aforementioned ABC's FE 78.2 to the FE 127.
4) We'll come back with the fib channel plots tomorrow. We want you to try to plot.
Here are data releases and results, during our period of focus Oct 17th-18th start of week:
09:00 GMT Low-Impact EUR Data = negative Italian
12:30 Low CAD Data = positive Int’l Securities Transactions
13:00 Medium USA Data = positive Net Long-Term TIC Flows
13:15 Low USA Data = negative USD Capacity Utilization (SEP)
14:00 Low USA Data = positive USD NAHB Housing Market Index (OCT)
EUR/USD – 5-Min Chart Plots
1st ABC Oct 17th Start of Week
A = 20:55 high 13994
B = 22:15 low 1.3956
C = 22:40 high 1.3974
FE 100 = 1.3938
FE 127 = 1.2927
FE 161.8 = 1.3914
FE 236.2 = 1.3886
2nd ABC
A = Oct 17th 22:40 high 1.3974 (same as previous ABC’s Swing C)
B = Oct 18th 00:35 low 1.3918
C = Oct 18th 01:10 high 1.3940
FE 100 = 1.3884
FE 127 = 1.3869
FE 161.8 = 1.3849
Previous day’s (Friday Oct 15th) low of 1.3936 acted as resistance as pair formed Swing C.
Fib Retracement
High = Oct 17th 19:05 1.4005
Low = Oct 17th 22:15 1.3956
- The 1st ABC pivot/retraced to the 38.2% to form Point C
138.2% regular extension = 1.3937 (same as 1st ABC’s FE 100 and Fridays low)
- The 2nd ABC retraced to this fib to form its Point C
161.8% regular extension = 1.3926 (about same as the 1st ABC’s FE 127)
EUR/USD – 15-Min Chart
A = Oct 15th 15:30 high 1.4046
B = Oct 15th 18:00 low 1.3936
C = Oct 17th 19:00 high 1.4005
FE 100 = 1.3895
FE 127 = 1.3865
FE 161.8 = 1.3827
This plot was most accurate. This tells us we better watch/use this one too.
END ASIAN SESSION – 5-Min Chart
A = 06:45 high 1.3896
B = 07:25 low 1.3863
C = 07:40 high 1.3884
(C was also FE 100 fib from 2nd ABC & FE 236.2 from 1st ABC) (61.8% retrace of A-B)
FE 100 = 1.3951 (about same as 2nd ABC’s FE 161.8)
FE 127 = 1.3842
FE 161.8 = 1.3831 (hit 08:15)
Although the 15-min ABC was accurate to the FE 127, pair had one more extension at end of Asian. Thus, to be more accurate, we plot this ABC off the 5-min.
European Session – Oct 18th
A = 08:15 low 1.3831
B = 10:45 high 1.3920
C = 12:05 low 1.3881 (same as 2nd ABC’s FE 100 of 1.3884)
FE 100 = 1.3972
FE 127 = 1.3997 (hit 17:05)
FE 161.8 = 1.4028
Notes for this plot:
1) In some instances the FE 78.2 can be the same as the regular extension of 138.2%. If we plot a retrace from B to A, this is the case. Its 161.8 is also same as the FE 100.
Remember when using the fib retracement tool:
If the retrace is 38.2%, then the regular 161.8 extension is the same as the ABC’s FE 100.
If retrace is 61.8%, then its 138.2 is same as the ABC’s FE 100.
2) When applying the Ichimoku on the 15-min chart, we saw cross-over of the Sen lines (red over blue) near Swing B, prior to pivot to Swing C.
At 13:30 it probed above top edge of cloud (Senkou Span B) price of 1.3930, but failed to close above it. We had mixed U.S data at 13:00 & 13:15, which might explain the hesitation. At the 13:35 candle, it broke past this resistance area.
We also had yesterday’s (Friday Oct 15th) low at 1.3936, which was the same as the FE 61.8. After hitting extension levels, pair retraced and rested here near end of U.S. session. The following secret reversal signal with its accompanying chart will be removed Oct 20th 0:00 GMT. We had identified a reversal signal for Forex. As we know, the Forex market runs 24 hours Mon-Fri. There is a quirk in separating the days. For U.S. residents, the market re-opens on Sunday afternoon, but changes date when the Asian session opens at 00:00. This small period of time, between opening of the new week and 00:00 GMT, is represented by its own candle on the daily chart. Viewers can simply mouse over the candle to see the smaller volume. Attached is a daily chart of EUR/USD for 2010, with arrows pointing to the Sunday candles that are small in body. This type of candle is sometimes referred to as Doji candles, a reversal signal. Doji candles have no or very little bodies. Strangely enough, when we initially looked at the daily charts to ascertain reversal candles, we excluded these Sunday candles. We thought that due to the smaller volume, it would not properly represent an entire day. You'll have to devise the plan on how to trade it. Using fibs and the previous candle for stop-loss is a good idea. End of secret reversal signal.
THERE WAS A 2nd ABC. It would be a Step-ladder, with its Point A the same as the last ABC’s Point C. The pivot for this 2nd ABC during Euro session would be a 23.6% retrace. Using the fib retracement tool would place the 138.2% regular extension at 1.3994, same as the 2nd ABC’s FE 61.8..
Smaller ABC – Breakout of Asian High
We’ll highlight this one as we want some precision.
A = 12:40 low 1.3889
B = 13:30 high 1.3936
C = 13:40 1.3918
Asian High = 1.3953
FE 100 = 1.3965
FE 127 = 1.3978
FE 161.8 = 1.3994 (hit 17:05)
Entry at 14:14 or 14:20 open price of candle.
Stop-Loss options included just below last pivot of 1.3944.
This was an extension-in-progress as witnessed by the swing location of Point B from the Asian High. Alternatively, we can wait for it to possibly pivot after breach of Asian high. This did happen.
We featured the trend indicators we like best. This included the Ichimoku, Multi-Time Frame Forex Freedom Bars, and the Multi-Time Frame Heiken Ashi Smoothed (MTF HAS). The last 2 are similar.
Let’s look at the MTF HAS. On the 15-min chart, draw a vertical line on the chart where there is a period when the indicator is either all red (down trend) or all blue (up trend).
For the latest EUR/USD action on Oct 17th-18th, the red bars/down trend was from 20:00 to 09:15. The Ichimoku cross-over occurred at 22:45.
By the time we had the European session ABC plotted (see previous post), the change in trend was underway. The 12:15 break candle that closed above the Point B price of 1.3920 was short-lived.
Retrace occurred as the market realizes that data is ahead at 12:30, 13:00, and 13:15. The 12:30 candle after the break, retraced to 1.3889. The bottom edge of the Ichimoku cloud, named the Senkou Span A, was 1.3990. Although we often use and it complies with the top of the cloud, the bottom of the cloud is the text book support.
Note that the Senkou Spans A and B will flip-flop. Sometimes A is on top, and sometimes it is bottom. As mentioned, there is a lot of info on this indicator on the net. For our style of trading, we like it on the 15-minute charts and we find it especially conforming during the Asian session.
EUR/USD Breakout
Plot with fib retracement tool:
High = 00:30 1.4003
Low = 02:00 1.3917
138.2% = 1.3884 (target)
161.8% = 1.3864
Plot with ABC tool:
A = 00:30 high 1.4003
B = 02:00 low 1.3817
C = 02:45 high 1.3941
FE 61.8 = 1.3887 (nearly same as the 138.2 regular extension
FE 78.6 = 1.3873
FE 100 = 1.3854
Attached is a zoom-in on EUR/USD trade featured on last post.
We used red for the ABC tool’s swings and FE levels
We also have a black colored fib retracement plotted from Point A to Point B. This thus far, has Point C as a 38.2% retrace of A-B.
The FE levels are:
FE 61.8 = 1.3888
FE 78.6% = 1.3883
FE 100 = 1.3876
We focus on this as it is very easy to panic when the trade’s move halts or stalls. We measure the retracement and now understand that it could just be a pivot on a smaller ABCD pattern
Therefore, if it breaks Point B on this mini-ABC (1.3896), we should see it reach our objective profit target or an alternate FE.
Trade still alive as pair made almost a 100% retrace on the mini-ABC.
The lower cloud edge of the Ichimoku (5-min chart) provided resistance. 3 candles hit this, the 06:40, 06:50, and 06:55.
Pair now at 1.3910, back below break point of 1.3917.
Booked profit, filling at 1.3888 for +21 net pips.
We added to our position and also had + 27 net pips.
Our stop-los was just above pivot of 1.3928 + 3 pips = 1.3831. We came very close to stopping out and the Ichimoku saved this trade. The attached 5-min chart shows the 3 candles hitting up against the lower Ichimoku cloud Span A.
Further comment on last trade.
Attached is the EUR/USD 1-Hour. Using the fib retracement tool, pull from:
High = 19:00 1.3997
Low = 21:00 1.3928
138.2% = 1.3902
161.8% = 1.3885 (hit) This was our target area per previous posts.
We can observe that the market is looking at the closing price of the candles in this case. The 00:00 GMT candle closed at the 61.8% retrace of the High to Low.
Remember the rule: a 61.8% retrace will usually extend to the 138.2%, if it breaks out of High or Low. This happened, per chart, but based on the closing price (the lower body of the candles) which hit the 138.2 fib.
The wick of the 07:00 candle touched the 161.8, our exit price area. We found the risk tolerable after deciphering clues on the shorter interval charts. Our exit price was the 138.2 of a shorter plot, per previous posts.
***
A lot of data through 10:00 and again at 12:30 through 13:00. Check your economic calendar. Big one is CAD Interest Rate Decision (and any market-moving verbiage) at 13:00.
Cheers