A-B-C-D Trade - page 3

fxisland
3839
fxisland  

Further my last post.

The last ABC pattern did indeed extend to the FE 100, as per the attached 5-min chart. However, it was a quick, darting move by Leg C-D. If you switch to a 1-min chart, you'll see that it happened in one candle (1-min).

Made it virtually impossible to trade UNLESS the trader had an automatic order for entry about 3 pips below Point B, and willingness to accept lower risk/reward. Stop-loss could have been placed just above Point B, but I don't like to that.

Nice to see it happen anyway. It only further confirms the extension action.

We saw this in set-up mode, and based on that kind of entry:

Stop-loss at last pivot on 1-min = 1.2769 + 4 pips = 1.2773

Entry = 1.2755

Exit =1.2739 + 4 pips = 1.2744

Risk/Reward = 17/11

Not exactly the trade we want to take.

The D leg did end up hitting the FE 1.27 area as I type now. Interesting that I only found out about this level (for extension) from reading the guru's article just yesterday. I mentioned that I didn't know if that level would be hit consistently during intra-day trading.

Cheers

Edit note: this period is weak in volume as the US session closed and Asia is typically very slow, especially in the early hours. The volume also drops after New York 16:00.

False breakout to 1.2758 below Point B did not hold and created the colorless "cross", which denotes indecision by traders and possible reversal. If entry made, would have had to sit through channel before the true breakout.

fxisland
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fxisland  

The charts that I am attaching utilizes an indicator glenn5t so graciously posted here 3 years ago.

I've attached it here again. I was using another box graphic indicator for the London breakout, but like this one better. It separates the 3 sessions and we don't have to draw vertical line, etc.

You can change the color of each session. I had to play around with that since I used red as a color for my candles, and it won't show up during the red Asian session.

Edit: I noticed that when I changed the interval on the chart, it reverts to original colors. I saved the colors that I wanted as a template and that seems to have solved this problem.

Files:
fxisland
3839
fxisland  

Here's a simple ABCD calculator. Sometimes we don't drag the fib extension (expansion) tool to exact highs and lows. This will assist in confirming.

Files:
ABCD_Calc.xls  24 kb
fxisland
3839
fxisland  

Was too tired to watch this myself last night, as I operate from Pacific Time as was up around the clock the previous day.

We saw 2 false breakouts. Per attached charts.

The first false breakout was easy to see as the 5 min candle did not close below the Asian low after bouncing off the FE 61.8. Also the crossover indicator had not crossed going down.

The second false breakout was tougher to gauge. The 5-min candle did close at 1.2766, which was below the Asian low. However, it did not close below the close-by FE 61.8.

The message the market was giving out to me, was that I need to see it close below the FE 61.8 before I enter. Since the Asian low and the FE 61.8 were so close together, it made sense to wait. It wouldn't cost that many pips in lost profit due to a later entry. I know this is all hindsight, but that's all I can offer on this one.

The Risk/Reward:

Possible Sell Entry: 1.2764 (estimate)

Stop-Loss: The 1-min pivot was too far away from entry price. We now have to consider Plan B for the Stop-Loss. It would make sense to place it above the Asian low. Let's say 5 pips above to cover spread and cushion.

1.2779 = 15 pip risk

Target Profit: FE 100 = 1.2645 = 19 pips reward

Risk/Reward = 15/19.

So this was a double head fake. Kind of like Michael Jordon faking left, then right, and blowing by you for a dunk.

You didn't go for the first head fake, but might have gone for the second...lol

------------------

So what happened?

The market formed a second ABCD pattern, per attached 5-min Chart 2

The probe below the Asian low to 1.2766 was in fact to the FE 100, and 1 pip shy of the FE 1.27. If we entered, we were joining a Move-In-Progress (MIP). In other words, we entered at the bottom of Leg C-D.

This is not to say that sometimes the market would not also recognize and move in accordance with the first ABCD pattern. There are also times when one set of fibs has the same price as another, with the only difference being in the actual ratio number. An example is that a FE 100 can be the same as a FE 161.8 from another ABCD pattern.

All we can try to do is go with what we believe is the higher probability and dismiss those set-ups that are questionable based on our experience.

Practice, with a demo account of course, and over time you will make up your own rules as well as recognize most of the head fakes.

As a foot note: The second ABCD pulled back and retraced to the 78.6% fib. The further back it retraces, the less likely the fib extension is the belief. It also reduces profit as we would enter just past Point B. You'll notice a lot of micro-pattens. The market always behave in accordance to the fib ratios.

If you decide to be very conservative, just pick the patterns with a 38% retrace as Point C.

Cheers

fxisland
3839
fxisland  

This is way to use the fib extension on a different type of breakout. We need to identify a channel first.

Use the fib channel tool. Click "Insert", "Channels", Fibonacci.

With an uptrend, draw from the further LOW point to the highest LOW point.

Make sure the market behaved in accordance to the channels in the past.

Draw the fib extensions.

When the market moves out of the channel, that is a breakout. You can enter here, but keep in mind that breaking B is not guaranteed.

If you keep to entering at break of B, that will be the traditional ABCD trade entry.

Cheers

fxisland
3839
fxisland  

May 11th 16:55 GMT

EUR/USD testing Euro high of 1.2748.

Let's wait for confirmation, as it poked through for 1 second to 1.2750. BUT 1.2746 is the FE of the last ABC pattern from 15:30 (A), 15:40 (B), 16:20 (C).

We need to redraw the new ABC as it is retracing now!!

Footnote: The market like round numbers such as 1.2750 and 1.2800. It will back off these levels even if the fib is 1 or 2 pips different.

This is also a reason to think about taking profit just ahead of these round numbers, as well as set stops above/below them if they are in the neighborhood.

fxisland
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fxisland  

Attached is chart showing new ABC pattern developing after last one hit FE 100 (red).

Wait for C to set and draw the extension.

fxisland
3839
fxisland  

Last ABC pattern trying to deveop:

A = 1.2698

B = 1.2750

C = so far = 1.2725 (50% retrace of A-B)

FE 100 = 1.2777 (based on C as 1.2725)

If Entry about 1.2755

Reward = 27 pips


Stop-Loss
: undetermined until 1-min chart shows pivot.

If S/L placed below C = 1.2725 + 1 pip cushion = 1.2724

Risk = 21 pips


Risk/Reward = 21/27

So, we wait, with general numbers already figured out and ready to go.

If the entry is more than 1.2755, check your risk/reward.

Footnote: Overall trend is down, except 15-min. Movement is above the 5-min Ichimoku.

fxisland
3839
fxisland  

So far C is now 1.2718 and was a 61.8% retrace.

Making move back up towards B right now.

Readjust numbers. Clearly have to place stop at a pivot off 1-min chart or below B, after entry.

Let's keep watching. As we get closer to the New York close,voume drops which is not good.

fxisland
3839
fxisland  

EUR/USD has now formed an opposite ABC pattern and in fact broke B. On the way to the FE 100 os 1.2698, which is also the session low.

I don't trade within the session like that with this ABCD technique, although if it was in a decernable channel I will look at it as a potential trade.***

Now attempting o break US session low (thus far it's the low).

Edit: ***** such as the one on the attached chart, lol. Missed it.