A-B-C-D Trade - page 156
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Here is the same chart we had posted previously on EUR/USD. The one difference is we moved the low for the fibo fan to pivot of May 26th 15:00 1.40670.
Top = 1.42775 and is FE 161.8 of aforementioned ABC. It's also 78.6 of fibo fan.
Experienced traders would short at resistance of fibo fan, and aforementioned details on daily chart. The FE 127 level is same as a 38.2% retrace based on pivot low of May 26th 22:00 1.41236.
The 23.6 of 1.42409 (current price) is at dotted expansion line outside of APF.
The total pips from low to high (A-B) of retrace plot is about 150 pips. With large A-B moves, the 23.6% retrace level being the maximum retrace increases in probability. Otherwise it's 38.2%.
The top for EUR/USD on last post was also an exact hit the Mars 0-degree.
EUR/USD revisited European session high and bounced down, for end of session +30 pips. Attached are 2 1-hour charts, one with approach to high, and one after. Obviously, we also use the small time-frame chart for trigger, etc. (not shown).
Important lesson here is not to chase the market. If we know the resistance level and natural reaction (bounce down), plus the fact that it is end of session - we can avoid this mistake of chasing. In this case, it is also end of week.
Follow-up on last post:
The 1-hour charts are the same otherwise. We labeled the low, high, 61.8% retracement, and 138.2% extension. That top was also at the Mars 0-degree. This scenario was illustrated as a bounce trade on last post. The retrace plot had identified exit levels. Bounce went as far down as the 61.8 of 1.41854.
Realistic entry was 1.42610. S/L above high of 1.42775 + 3 pips = risk of 20 pips.
Trading to fib levels, net profit, and Reward/Risk ratios:
23.6 1.42423 = +17 net pips R/R = .8/1
38.2 1.42205 = +39 net pips R/R = 2/1
50 1.42030 = +56 net pips R/R = 2.8/1
61.8 1.41854 = + 74 net pips R/R = 3.7/1
The R/R was all calculated prior to entry based on educated guess of entry price. We posted a calculator for this on goggledocs, which can make thing a little easier.
There were so much resistance at that particular top that it was screaming at us. We tried our best to convey this but there is going to be a little lag time with the intra-day set-ups, as we also copy charts for you.
These live set-ups are given from time-to-time, but to do it on a regular basis is avoided. This prevents viewers from using this thread as a free live signal service. Over the course of one year, there have been plenty of live set-up calls.
The purpose here is to share knowledge and assist viewers in securing skills that will identify S&R, as well as basic fib operation.
We recently posted a series of consecutive EUR/USD charts that plotted new fibs as the swings changed. If you duplicated those plots, and viewed them now, you will have a big picture of how the markets move in fib ratios.
As we have repeatedly emphasized that we don't have to chase the market. While there have been techniques introduced for entry on reversals, such as the BAJA divergence, we can always wait at a location for the bounce. Bounce trading was covered in detail, after the Asian breakout (1st subject in thread).
The three methods are:
Trading Breakouts
Bounce trading
Trading between S&R
Certain techniques require a trigger, such as the BAJA. With bounce trading, it does not, although that is ultimately up to the trader. It does require skill with stop-loss placement, and of course plotting of exit levels.
We like the EFT as trigger for the BAJA, and have posted the inventor's white paper (technical information). However, we also recognize that about 90% are the same or close.
Sometimes it's just a matter of how a coder speeds up the indicator. A faster one doesn't necessarily mean it would be better for the BAJA.
Using S&R, including identification of extension levels allow traders to "cherry pick" set-ups. That is true for BAJA divergence set-ups as well.
To round out your knowledge, be aware of what time it is in relations to data release and session. The indicator Time_modified2 is used to partition sessions by color. Link to full economic data calendar has been provided, so you can avoid these potentially dangerous periods.
Andrew's Pitchfork plot on GBP/USD Daily chart:
Handle = Dec 28th low 1.53436
Upper corner = Mar 22nd high 1.62916
Lower corner = Mar 28th low 1.59354
Also have PSQ9, divergence, and Multi-Time Frame Heiken Ashi Smooth indicators.
We labeled fib swings low-high and extensions 138.2-161.8.
Let's drop down to the 4-hour and add fib channels per previously mentioned technique in aligning the 1st 2 lines with the APF's middle and lower forks.
We saw this pair not only hit the 138.2 and 161.8 fib extensions, but also the Mars lines at each instance. The top at the 161.8 (Apr 28th) was also at the upper fork line.
There was a subsequent revisit to this top on May 2nd, where a reversal took place. We can see the lower fork provide support May 9th-12th.
Along with the PSQ9 Mars levels of support, we had the fib channel 100% and 161.8% extension lines provide bounces. The 161.8 was a reversal back up to the lower fork.
How would we have taken that reversal trade? The fact that it was the 161.8 fib of the channel was significant. Then we must also arrive at a fib extension via horizontal plot, which also provides another confirmation. That was evident, and it's O.K. to have plotted in hindsight. This plot had the bottom as its 161.8 extension.
High = May 11th 11:00 1.66169 and Low = May 12th 12:00 1.62335
Now let's drop down to the 1-hour and see if there are additional clues.
The bottom dip on May 23rd 23:00 was indeed BAJA bullish divergence. From here, we can also use the EFT trigger on the 15-min for the BUY entry.
This set-up had a extremely low stop-loss. If we are trading for more than a quick bounce, we must plot exit levels above.
Select a previous high and use that price for plotting retracement fib levels.
- selecting May 20th 17:00 high 1.63040 was good as that was also at a channel line.
- it retrace to the 61.8 of 1.62095 before pullback and extension.
As the price ratchets upward, plot extension fibs. Move stop-loss behind pivots or fibs. Mars and Moon line provide further S&R.
***
Using the sharpest pullback as the high for retracement plot was selecting May 11th 1.65169. The end-week price ended at this level, where Mars 180-degree intersects the lower fork.
Trading with this 2nd and larger selection had assistance with the HAMa staying blue on the 4-hour.
We inserted the MTF HAS to illustrate that the large down move was considered count-trend on the Monthly and Weekly. That's because it utilizes indicators/calculations that lag. That's O.K. during some assessments. However, if we understand how to plot S&R, it would prevent trading counter-trend.
We inserted the MTF HAS to illustrate that the large down move was considered count-trend on the Monthly and Weekly. That's because it utilizes indicators/calculations that lag. That's O.K. during some assessments. However, if we understand how to plot S&R, it would prevent trading counter-trend.
****CORRECTION****
Sorry, that should read:.....it would NOT prevent trading counter-trend.
In other words, our repeated comments refer to "experienced" traders for certain trades, and this is one example.
Our last post on USOIL was May 13th post #1493. That described the BAJA buy and maximum 50% retrace for a very high reward/risk ratio.
We pick up from there on the same 1-hour chart, and see a subsequent revisit to significant low level of May 6th and 12th. That was a 161.8 extension to the downside (plot not shown).
On May 24th, we add the fibo fan: High = May 11th 01:00 104.56 and Low = May 20th 13:00 96.35. Confirmation of this plot is acknowledged by resistance provided by the fan's 50%, at May 19th 10:00 and May 20th 18:00 (white arrows).
While the natural instinct is to find another confirmation to trade the bounce off of another hit to the same 50% fan line, we couldn't align a horizontal fib or PSQ9 line to it.
Instead price hit the Mars 90-degree to form Swing B 14:00-15:00. After this, it got a little interesting. A lesson can be learned here.
After Swing B, a fast drop to 97.89 occurred during the 16:00 candle, which was labeled Swing C. This dip's price was between the 50% and 61.8% retracement of A-B.
Price drifted back down on May 25th and at 06:00, it reached area of the 50% fib 98.19. Now what do we do? Do we use this as Swing C? Technically, no.
What resulted was the price action respected both plots precisely. May 25th 17:00 101.58 and May 26th 01:00 101.85 were the hits to each FE 100.
The other resistance in area just above were the Mars 270-degree and fibo fan's 78.6.
***
That May 26th top registered a BAJA bearish divergence. The 2 peaks were the 2 different FE 100s. The RSI(4) readings for those 2 peaks were 92 and 82.5, and therefore in divergence with price.
We proceed to measure from Swing A to top (D). Using the fib retracement tool, we arrive at the 38.2% = 99.75.
However, since that move is rather large, we can choose to use Swing C as the low for the retracement plot. This will provide more fibs as options for exit.
Chart 2
Zoom-in on 15-min. The BAJA entry rule is to use the 15-min EFT trigger for SELL entry. When the EFT histogram closed a red bar end of the 02:00 hour, we enter at the opening of the next candle 03:00, at price of 101.69.
We repeat. The default color settings on the EFT must be changed to:
# - Color
0 = Blue
1 = Red
2 = Red
3 = Blue
4 = Dim Grey (default color O.K.)
With the default width of histogram bars, entire settings are:
# - Color - Width
0 = Blue - 2
1 = Red - 0
2 = Red - 2
3 = Blue - 0
4 = Dim Grey- 2
It's better to make these changes in the formula, otherwise the EFT indicator will reset to default each time it is launched.
The trigger is not the cross-over at the zero line. It is when the histogram bar changes from thick to thin, which is represented by change of color after you make the changes per above.
Let's resume with Chart 2.
We know that the FE 100 is a significant resistance since it is the same as the formula A-B = C-D. This simply means that the 2 legs are equal in length/number of pips. The other 2 confirmation by fan line and Mars line make this resistance area even stronger.
The high pivot was 02:00 101.86.
Entry = 101.69
S/L = 102.20
Risk about .50
Targets after deducting slippage & spread of .50 (spread is .05) =
38.2% = 100.44 and R/R = .65/.50 and 1:3 ratio ----- hit 11:15
50% = 100.01 and R/R = 1.08/.5 and 2.2 :1
61.8 = 99.57 and R/R = 1.52/.5 and 3:1
The reality was that we ran out of time to go beyond 38.2%, as U.S. GDP came out at 12:30.
Other observations:
Moon 180-degree (red) and FE 61.8 (blue) right at the 38.2 retrace fib.
Mars 90 at 50%
Fan 61.8 at 61.8%. Previous pivot from May 25th at this level.
Moon 270 caught pivot at 12:45 during/after data release.
HAMa kept trader calm by staying red to the 38.2% retrace fib.
We received a secret message from Mike to give our assessment on the EUR/USD 4-Hour Bearish Bat pattern. We will provide this in the Pattern Recognition thread in a few minutes. That thread is also located in this Tutorial section.
We spoke of the trend line, which is plotted from peaks on May 11th and May 20th. The attached 4-hour chart shows that trend lien in pink, as well as yellow horizontal fibs based on plot:
Low = May 23rd 08:00 1.39682 and High = May 24th 12:00 1.41320
Top = 200% extension on May 27th.
That top of May 27th (Friday) had its 12:00 closed at the trend line. The next colorless candle of 16:00 was a doji at the trend line.
****
The 2nd chart has Mars lines, and Andrew's Pitchfork with AML indicator.
APF plot:
Handle = June 7th low 1.18754
Upper corner = Nov 4th high 1.42811
Lower corner = Jan 10th low 1.28723
ABC plot:
A = Jan 10th low 1.28723
B = Feb 2nd high 1.38607
C = Feb 14th low 1.34271
The AML's interior line (between the upper and lower forks) are fib ratios. We place blue arrows at good S&R points.
U.S. and London closed yesterday (Monday).
EUR/USD gapped up at open on Sunday and hit the 161.8 extension from plot previously shown: Low = May 25th 07:00 1.40122 and High= May 26th 13:00 1.42053.
Pair retreat below Friday's high almost immediately afterwards. Bounce trades include from 161.8 to 138.2 level for about +40 net pips.
Plot retracement using low pivot of May 26th 15:00 1.40679. This produce 23.6% fib at 1.42597, which was hit May 30th 05:00, for about +50 net pips. This plot is on attached on 1st 30-min chart.
***
After the 23.6% retrace, pair channeled around the Mars 0-degree until early Asian May 30th 23:00, when it broke to the upside. After a small pivot/stall at the Moon 45-degree, price hit the Mars 90-degree on May 31st 01:30. The Moon 90-degree also just above.
When we move the low for retrace plot, to May 27th 09:30, we can see this top as the 161.8 extension. We call this a tight plot. We can also see the previous pullback became the 38.2%.
We can also see the channeling between the 23.6 and 38.2 levels, prior to the breakout. At the top, we can see the bounce off the 161.8 back down to the 138.2.
This tighter plot is shown on 2nd attached chart.
Here's the same 1- hr chart, updated to present. We can see how accurate the PSQ9 is as it caught extension and the attempt to break resistance with its Mars and Moon.
These 2 peaks of course are in BAJA bearish divergence with RSI(4). The 2nd peak was the 07:00 candle. 1.44038 was 15-min entry, with S/L max 25 pips. Using pivot of 00:00 low 1.43238, exit options include the 50% fib 1.43710 where previous support of channel took place. That is also the 138.2% fib.