A-B-C-D Trade - page 101
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EUR/USD 30-Min chart.
Low = Jan 18th 00:30 1.3251
High = Jan 18th 10:00 1.3427
Pullback = 38.2%
FE 161.8 = 1.3536 (just hit Jan 19th 13:30)
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That was bigger picture from plot involoving previous day. The focus here was catching the up swing during early European session. Let's now re-draw the fibs.
Low = Jan 19th 04:15 1.3435
High = Jan 19th 07:30 1.3506
138.2 = 1.3533 (hit 13:30)
161.8 = 1.3550
We can see the pair make 2 dips during the 08:00 and 10:00 candles as traders reacted to data 09:30-10:00. The RSI (4) tells us there is divergence. Once the 10:00 candle closes, at 10:30, we switch to the 15-min trigger chart.
The swing point was also the low price from fib plot. It was also the 50% from Asian low to high.
The 10:30 Ehler's Fisher histogram bar closes a "thin" bar which we have colored blue. The next 10:45 bar open price is our entry, at 1.3471.
The histogram version of this indicator gives us as easier view of the cross-over. Since we could be monitoring several pairs, this is quicker, and we don't have to click on the cross-over points to determine if it happened.
Stop-loss just below 2nd hump price of 1.3433.
Risk reward 40/62 gross pips. If your stop-loss risk was 2%, win made about 3% on your account. This also means 150% return on risk, or 1.5 to 1 reward to risk ratio.
****
Back to bigger picture. What happened was the market took pair to the 138.2 extension level, bounced, and then proceeded to the 161.8 extension.
The lack of power on the 2nd dip/hump indicated that were was less commitment and probably short-term reaction to data.
As technical indicator/fib traders, we look for these type of occurrences. Our technique, along with our discipline, allows us to take advantage of these movements. Remember, most are moving like the herd and chasing the market. Recognizing divergence gives us an advantage and is a "leading" indicator/technique.
EUR/USD Jan 19th
Short off 1-Hour divergence candles of 07:00 and 13:00. In this example, the RSI peaks did not align exactly to candles, but the analysis is the same; falling strength with 2nd peak area. We’ve included both versions of the Ehler’s Fisher Transform indicator. The cross-over version allows us to also see the 2 peaks/hump
Again, we switch over to the 15-min trigger chart. After the 13:00 1-hour period closes, we are at 14:00 and looking for the Ehler’s fisher to flip over. Entry was at open of 14:15, price of1.3503.
Fib retracement plot was Euro session low to high, which produced fib exit levels. The 61.8 was 1.3473 and hit by the 15:15 candle, for +30 gross pips.
We had mentioned several times that should a trader want to stay in a trade longer, we can apply the Heiken Ashi Smoothed (HAS). Some think the HAS is a bit cumbersome sine they have to monitor 2 sets on candles and perhaps 2 sets of charts. We present the HAS as an overlay at the bottom of the chart.
We can see the HAS overlay had all red to the 61.8 target.
*****
Divergence occurs often, with all currency pairs, and during all sessions. The rules we’ve laid out are pretty simple. We have a minimum of indicators, and not too many that we’d go crazy. Fib awareness is also key. If a trader was to do nothing except divergence trades, he/her will be successful. It’s a good beginner trade, as well as a good trade for all levels of experience. Very, very consiste
Practice recognizing the signs to get out of trades too, as with the example outlined in the following example with EUR/GBP. This can keep losses to minimum.
Did you know? If an intra-day trader averaged 30 trades per month, with average loss/profit of 15/20 pips..........the annual return would be 372%. That would be an average of 31% per month, based on 2% risk per trade and a winning percentage of sixty-five percent (65%).
Attached is a 30-min chart on EUR/GBP, which we haven’t covered much. There was GBP data out at 09:30, followed by EU data. The market also has been pricing in for inflation in the Great Britain, which has resulted in higher (bullish) levels for the GBP.
We just want movement, so we don’t care which direction and treat fundamental speculation as dinner conversation.
We plotted fib retracement tool from Asian Low 00:00 .8375 to Asian High 07:30 .8422. The pullback was precisely 61.8% and occurred right at the European open candle at 08:00.
The data pushed pair back up and through the Point B (Asian High) level where it met resistance during the 10:30 candle period at .8436, as this is the 161.8 from a smaller plot.
There was also divergence here, better seen on the 1-Hour, with the 07:00 and 10:00 candles. After the 10:00 candle closed, we must look at the 15-min for a trigger. Entry for a SELL at 11:45 .8425. The vicinity of the Asian High at .8422 can make one wait until it cleared first.
The short trade was brief when pair pivoted at that smaller ABC’s 61.8*.IF you were in this trade, the worst exit point would have been when a fractal locked in at the end of the 12:30 candle (15-min) with price of .8417. The fractal will show as early as after the 4th candle of the formation closes ( the low is the middle candle), but doesn’t lock in before the 5th candle closes (12:30 candle).
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When we plot a smaller ABC* after that resistance and pullback, we arrive at FE 100 being the same price level as our master plot’s 161.8
Pair made its 161.8 extension during the 14:30 candle. We applied the LSMA Channel which gave us a good view of the diagonal S&R lines.
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We then plotted a small ABC from the top, pointing down with swings 14:30/15:30/17:00. Swing B was at the trend line. We also noticed that the FE 100 was the level of the Asian High. Price broke through and got to the FE 127 (.8415) which was also the 61.8 retracement from Euro Low to Euro High, as well as the regular 161.8 extension of A-B.
Some experienced traders would make this short off of the 161.8 top. One reason is that it’s from a wider plot starting at the day’s open, as well as topping out at the end of the Euro session. Profit taking usually takes place
When you get in near or at the top, it opens up options to take quick profits and/or trend some for a ride down.
Attached is 30-min AUD-USD for Jan 19th.
1) We moved the QTA back to previous high-to-high (HH) and low-to-low (LL) points and marked chart accordingly. I think we can agree that these are the significant points leading into our day.
High-to-high = Jan 17th 11:30 and Jan 18th 09:30
Low-to-low = Jan 17th 06:30 and Jan 18th 00:30
These swings can be seen on the zig-zag. Click on QTA HH and LL until dot appears. Drag to desired HH or LL. If you change time frame on chart or zoom in/out, it will reset QTA plots to current.
We had a cluster at 12:30/13:30 at 2nd peak of divergence.
2) The divergence was at the 06:30 and 12:30 candles. Switching to the 15-min chart, the entry for SELL was for 13:30 open, based on Ehler’s Fisher cross-over, at price of 1.0058.
We’re not showing the retracement fibs to keep chart less cluttered for viewing here. It was a 100% retrace, with several excellent exit levels for the conservative. Stop-loss just above high of 1.0075 + spread and cushion.
If using the HAS on the 15-min, it was red to the 50% fib of 1.0018 for a +40 gross pip profit. If using the Forex Freedom Bars, its 15-min was red all the way down. Up to each trader what they feel most comfortable with, within their style.
EUR/USD Jan 20th Divergence Signals
Mixed EU and GBP data early Euro session produced divergence on the 30-min, which was not successful if the normal S/L was used. That S/L level would have been just above the 10:00 candle. The 1st peak was at 06:00 and 2nd at 10:00.
The next peak during the 12:30 candle was a successful divergence signal. Entry effected at 13:00 15-min candle open price 1.3473. The high was 1.3522, a good distance from entry. The good aspect was that it was below the Asian High.
The move off of the 2nd signal made a regular 138.2 extension to 1.3393, after a 61.8 pullback. Therefore risk = 51 and reward = 78 net pips.
If exit was at first fractal locked-in price of 1.3447, also the 78.6 retrace fib, profit = 26 pips. That was Swing B. Pair pivoted and formed Swing C at the Asian High.
The Ehler’s Fisher indicator was below the zero line after entry candle closed and remained below zero for entire duration of extension. The extension was classic example. “If pullback is 61.8, highest probability is extension to the 138.2, in order to comply with A+B = C+D”. That is also the FE 100 (meaning C-D is100% of A-B lengt
If your risk is 2% per trade on the Stop-Loss:
1st signal = 2% loss
2nd signal = 3% gain
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Net +1%
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USD/CAD 30-M (Attached Chart)
2 divergence signals, 1st set 01:30/07:30 captures a modest 16 gross pips but had a small distance to the top that made it a 1:1 risk reward, while the 2nd set was a nice retracement to the Euro low. Risk = 31 net pips Reward = 58 net pips. That’s about 1 to 2ratio
The 2nd signal 13:00/14:30:
.Pre Asian set-up fibs had low = Jan 19th 13:00 .9887 and high = Jan 19th 19:30 .9964. This was O.K. to leave alone as pair made both the 138.2 and 161.8 extensions. However, moving high to the Asian divergence peaks was alright too.
Entry at open 15:15 trigger candle (15-min) at 1.0002. High was 1.0028, and we saw it pivot to 1.0026. Data at 15:00 was positive U.S. Housing Starts, which followed positive 13:30 U.S. Jobless Claims. We can see the pair make moves upward following each of those data releases.
Pair bounced off high area and proceeded to recapture losses from week, as well as take profit for the day. CAD is very sensitive to commodity prices, especially oil. It made a perfect 138.2 extension down to finish off the U.S. session.
1st signal = 2% gain
2nd signal = 4% gain
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Net +6%
*****
AUD/USD had a losing divergence signal at Jan 19th 19:30/22:30.
Net -2%
*****
3-Pair Total
3 Gains
2 Losses
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Net = +5%
Thank you for your system
No problem, but thank yourself for putting in the time for study and practice, etc.
AUD/USD in consolidation after previous day’s downturn. However, there was opportunity. Late Asian/Early Euro session test of Asian High failed. This level also backed up by 2nd-half U.S. high in the same neighborhood. Previous day’s Euro high-to-low move had its 38.2% retrace fib in this area. Early data ended at 09:30 with CAD data at 13:30.
Pair made a regular 161.8 extension to .9917 after CAD data. Plot was 05:30 low .9844 to 07:30 high .9889. This is also the previous day’s Euro session downturn’s 61.8% retrace fib.
We recognized divergence with the 12:30 and 13:30 30-min candles. Normal Entry SELL effected on the 15-min trigger at .9900. Risk - 22 pips including spread and cushion.
Here’s where your knowledge of different techniques merge. Seeing that the move respected the 138.2 with the 1st peak of 12:30, by closing the 30-min candle right on that price of .9906, we can anticipate the hit at the 161.8 fib of .9917.
On our plotting chart, we saw the pair reach .9916 before retracing. Typically, we need to have some cushion as it cannot be exact hits all of the time.
The total analysis enabled us to get in at a excellent price, should have been about .9913 - .9916 just to be safe. Some experienced traders will enter in layers. This means they will have automatic orders at different prices, for example, 50% of lots at .9915 and 50% at .9913. This way, if the market doesn’t quite reach the fib, trader will have a higher probability to at least get something at a good price. This is a type of advanced money management.
For exit levels, we plot from low of move 09:30 .9847 to high .9916. The 38.2% fib of .9890 is highest probability for this type of trade. It also is the Asian High. If entry by divergence trader was at .9900, it doesn’t look good, especially at the end of the European session.
Therefore, the lesson here is that experience provided a much better entry that can be the difference between win or loss. You have merged your expertise of bounce trading entry (and fib trading) into a divergence trade. At the 38.2, you would be about +20 net pips. If you entered at .9900, you would be struggling and wondering if there’s enough thrust after Euro and so close to end of week. Be aware of the time as well as where market is in relation to fibs.
Based on entry of .9914, stop-loss at .9922, risk = 8 pips and reward was 20 pips. This is 2.5 to 1 reward/risk ratio.
The divergence works on the 4-Hour charts for any currency pair. Attached is EUR/USD from July to present. We identified 16 signals, including one that caught the big turn up on Sept 10th, capturing 2400 pips.
AUD/USD had at least 12 signals since July, including the big boy from Aug 25th that measured 1500 pips.
The Ehler's Fisher Transform (EFT) indicator is used in the same manner as the intra-day system, requiring a histogram bar to flip from thick to thin. Change color of histogram bars for better viewing, with thick bars an opposite color of thin bars (blue/red).
Trigger with shorter interval EFT, such as on the 30-min. Waiting for the EFT will keep the trader out of most false signals.
We've given you 2/3rds of the system for this swing trading technique. You need to formulate your exit strategy.
Obviously, the stop-loss will be larger, and you must scale the number of lots to conform.
And last, remember that if you use a trend indicator for exit, it will often lag.
Don't worry about the small amount of signals. You can always trade multiple pairs. Some signals will capture big trends, which is another reason you won't get many, for each currency pair.
Cheers
Here's the same 4-Hour EUR/USD chart, but with the addition of fibs. Pair made a 161.8 extension to top (D), which was also the 360-degree level based on Gann indicator: SQ9(Price)22.5 Factor 56 .
After some consolidation and a probe (a) upwards, a smaller ABCD from top made a 161.8 extension back down. The c swing was 38.2% pullback of a-b.
Not on chart:
Plot C to a. The b swing point is 50%. The d swing point is 78.6%