A-B-C-D Trade - page 33
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EUR/USD dropped like a rock upon opening of European session. The first attached 5-min chart shows the quick 4-candle ABC formation.
A = 08:40 high 1.2905
B = 08:50 low 1.2854
C = 08:55 high 1.2867 (23.6% retrace of A-B)
Asian Low = 1.2845
FE 100 = 1.2815 (target - hit)
FE 127 = 1.2801
FE 161.8 = 1.2783 (hit)
Entry SELL = 09:35 candle open price 1.2842
Reward = 23 pips after 4-pip spread & cushion.
Stop-Loss Options =
- Just above Point C 1.2867 + 4 pips spread & cushion = 1.2871. Risk = 29 pips
- Just above 23.6% retrace fib 1.2856 + 4 pips = 1.2860. Risk = 18 pips.
The distance from Point A to B was just above our 45-pip tolerance. Thus, we targeted the FE 100.
Extension did eventually hit the FE 161.8, exactly. Pair took on a pullback after bouncing off the FE 127, prior to reaching its ultimate low at the FE 161.8.
Chart 2:
Our fibo fan plotted happened to have caught that pullback. The fan's 78.6 also acted as resistance for the Asian high, and other pullback levels en route.
Fibo fan pull: Aug 11th 12:35 high 1.3030 and Aug 11th 21:15 low 1.2829
We also had retracement fibs plotted from previous high/low points. We monitored this pull and was happy with how the market respected the fib levels. In this particular case, the 23.6% fib was useful to have as a stop-loss option.
High = Aug 11th 14:25 1.2944 Low = Aug 11th 21:15 1.2829
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Chart 3 1-Hour
We had posted this chart yesterday with the 138.2 and 161.8 overshoot of the low. These are retracement fibs not extension fibs. Today's action hit the 161.8 and failed to close below that level of support.
Quick note regarding tomorrow's (Aug 13th) U.S. CPI data release. Please double check release time. I have it for 12:30 GMT.
This is a high-impact data release. Unless you "trade the news", best to stay on the sidelines in event of whipsaw action and wide spreads and slippage.
For those getting a little bored with the same examples and lessons, here is a channel fib plot, a subject we haven't covered for a while.
We saw EUR/USD establish the Asian High and European session Low.
Pair retraced 61.8%. This is also area of 38.2% fib from Aug 11th High & Low, as mentioned.
Attached 5-min chart has fib channel tool applied to following points:
1) Pull from Aug 12th 12:30 high 1.2825 to 15:30 high 1.2872
2) drag 2nd line's dot to 14:30 low 1.2818
Down arrows points at break of channel at 16:50 candle. This is also just breaking fib level of: 50% of recent high/low per above. It is also the 23.6% fib from the Aug 11th high/low plot.
The diagonal FE levels of 61.8, 100, 127, 161.8 mimic the math of the horizontal expansions.
This particular diagonal extension captured about 20 net pips from 1.2854 to 1.2829 (Aug 11th Low), or a little more if traded to the FE 100 1.2826. Next levels of support are defined by the 127 and 161.8 diagonal channel fibs and the 23.6 fib from Aug 11th high/low.
This is another way to take advantage of a trend line break.
Asian Low = 1.2826
If Point C holds, and Asian low is broken:
FE 100 = 1.2802 (target)
FE 127 = 1.2784
FE 161.8= 1.2762
Asian Low = 1.2826If Point C holds, and Asian low is broken:FE 100 = 1.2802 (target)FE 127 = 1.2784FE 161.8= 1.2762
O.K., profit target hit, and pair testing levels below the FE 100. Bear in mind, this is aforementioned 1-hour chart support area. If confirmed below this, should be nice gain.
We have U.S. CPI ahead at 12:30 GMT and move to the sidelines.
Here are the parameters of the ABC swings and full details on the 5-min chart:
A = 07:40 high 1.2893
B = 08:30 low 1.2829
C = 09:00 high 1.2866
Asian Low = 1.2826
FE 100 = 1.2802 (target - hit)
FE 127 = 1.2784
FE 161.8 = 1.2762 (hit)
Entry SELL = opening price of 10:10 candle 1.2825
- Reward = 19 net pips after 4 pips to cover spread and cushion.
Stop-Loss Options:
- Just above Point B 1.2829 + 4 pips = 1.2833. Risk = 8 pips
- Just above 5-min pivot 1.2836 + 4 pips = 1.2840. Risk = 15 pips
- Just above 5-min pivot 1.2844 + 4 pips = 1.2848. Risk = 23 pips
- Just above 23.6% retrace fib of A-B 1.2847 + 4 pips = 1.2851. Risk = 26 pips
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Breakout was clean after 10:05 confirmation candle closed. Extension reached the FE 127 before bouncing back to the Asian Low. Pair then proceeded to hit the FE 161.8 and flutter at that level.
The 2 attached charts have the before and after fibo fan picture. We can see that the fan's diagonal 61.8 fib caught the pullbacks on the way down. Its 78.6 caught the 2nd pullback to the Asian Low area.
Nearing end of week in a few hours, thus squaring of positions may keep pair from falling further.
And finally, the missing piece as we wind down the week. The attached 1-Hour chart is updated with the easy-to-place ABC. Its 61.8 fib is where the pair halted its extension.
Also on the chart is a fibo fan and 50-EMA, both of which caught the high during Asian.[ATTACH]6554[/ATTACH]
EUR/USD 1-Hour Chart
Chart 1
1) Pull fib retracement from:
Low = June 29th 14:00 low 1.2151
High = Aug 6th 14:00 high 1.3333
2) Pull channel fibs from:
First Line (#1 label on chart): July 22nd high 1.2931 to Aug 6th high 1.3333
Second Line (#2 label on chart): July 30th low 1.2980
The last low pivot was caught by the 261.8 fib on Aug 11th 21:00 at price of 1.2829.
To view the fib labels for each line, slide/drag the second line (click on line and dot will appear which allows us to drag) while keeping it aligned on the pivot.
When we ran out of fibs, we adjust the pulls, per 2nd chart.
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Chart 2
First Line: July 22nd low 1.2740 to Aug 6th low 1.3157.
Second line: Aug 10th low 1.3074.
This gave us an additional fib channel line that caught the week's end bottom, which also coincided with the 50% retracement fib.
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When we look for channels, we attempt to find the best points for the first line's pull.
We then tell the tool that we have identified an expansion by dragging the second line (dot) to that pivot point.
The fib channel tool will then project, into the future, the calculated diagonal fib levels/channel. These levels assist us in support and resistance that can aid entry and/or exit.
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Should EUR/USD rise, we'll look to apply this tool to project expansion levels/channels going upwards diagonally.
Here is a zoom-in on the same chart, with the same channels.
At the top is an ABC plotted:
A = Aug 6th 14:00 high 1.3333
B = Aug 10th 14:00 low 1.3074
C = Aug 10th 18:00 high 1.3228
FE 100 = 1.2969
FE 127 = 1.2899
FE 161.8 = 1.2809
We can definitely see the pair break out from the diagonal channel fib marked as the #2 line, which also is Point B on the ABC. Each FE level was met and served as support.
As the market opened, the Japan GDP release just prior to Asian open set the tone. Market shrugged off less than anticipated figure after small sell-off, and proceeded to drift upwards.
An ABC formed with FE target reached during Asian session (not included on attached chart). Just take the first ABC swing upward after Asian open.
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Attached are 2 charts for European session. 1st chart illustrates pair right after breakout of Asian High to upside, and the 2nd chart as it hit our profit target.
We also referenced data release time points with market reaction. The breakout of Asian high was driven by reaction to U.S. Manufacturing data released at 12:30 GMT.
A = 01:25 low 1.2740
B = 05:05 high 1.2834
C = 09:10 low 1.2777 (61.8% retrace of A-B)
Asian High = 1.2834 (same as Point B)
FE 100 = 1.2871 (target - hit)
FE 127 = 1.2896
FE 161.8 = 1.2929
Entry BUY = Open of 12:35 5-min candle at 1.2838 + spread = 1.2841 (not including any wide spread due to data release, or slippage).
- Reward = 26 net pips (after 4 pips spread & cushion)
Stop -Loss Options:
- Just below 5-min pivot low and fib 1.2813 plus cushion = 1.2812. Risk = 29 pips.
- Just below 12:32 1-min pivot low 1.2824 + cushion = 1.2823. Risk = 18 pips
- Just below Asian High/Point B 1.2834 + cushion = 1.2833. Risk = 8 pips
Risk/Reward = 18/26.
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Hardest part to ascertain when not clear, is Point A. This example was such a case. We selected the Point A per above due to fact that it resulted in Point C being 61.8% retrace of A-B. If we used the other option for Point A, the Asian low, that would have not resulted in Point c being a fib retracement ratio for A-B.
We also looked at the 15-min chart, which allowed us to see the swings better in this case, as per Chart 1.