A-B-C-D Trade - page 57
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Here is recap of actionon Oct 22nd during the Asian and European sessions. The attached chart contain 3 of the 5 plots listed below.
EUR/USD Oct 22nd Asian & Euro Sessions
Data: 08:00, 11:00, 12:30
1) Fib Retracement Tool –15-Min or 5-Min Chart (not shown on attached chart)
Low = 02:15 1.3892
High = 03:25 1.3936
138.2 = 1.3993
161.8 = 1.3963 (hit 04:55)
Market assuming pullback of 38.2%. Depending on data feed variations, it may have probed slightly below. If we feel this is the case, we can always use the Expansion Tool (ABC) in an effort to be more precise. In any event, the market will almost always respect the regular expansions/extensions of 138.2 and 161.8. In most cases, it will respect expansion levels from both tools used.
2) Fib Retracement Tool (black) – 15-Min Chart Pull From
Low = 00:15 1.3888
High = 05:45 1.3970
138.2 = 1.3857 (hit 08:00)
161.8 = 1.3838
This is simply representing that the drop from previous low of 1.3888 to 1.3857 was a 38% drop of total pip distance between the Low and High.
3) Fib Expansion Tool – 5-min Chart ABC Downward (not shown on attached chart
A = 05:55 High 1.3970
B = 07:05 Low 1.3928
C = 07:10 High 1.3950
FE 161.8 = 1.3884 (hit 07:55)
4) Fib Retracement Tool – 15-Min Chart Pull From (not shown on attached chart)
Low = 08:00 1.3857 (Swing A)
High = 09:30 1.3928 (Swing B)
Regular Extension 138.2 = 1.3955 (hit 11:45)
Regular Extension 161.8 = 1.3972 (hit 13:00) SAME AS FE 100
Rule: If pullback is 38.2%, which was the case, trade to 161.8, same price as FE 100 when using Fib Expansion Tool (ABC).
The 161.8 was also just above the Asian High, and may even be the same depending on which data feed. Always keep that in mind, and be ready to take profit a little sooner.
5) Fib Retracement Tool (purple) –To Trade Bounce – 15 or 5-Min Chart Pull From
Low = 08:00 1.3857
High = 13:00 1.3971
23.6 = 1.3944
38.2 = 1.3829
50 = 1.3914
61.8 = 1.3901 (hit 15:45)
78.6 = 1.3881
As the retrace from the bounce made its way down, notice how it also respected the first set of fibs, per # 1 plot above.
6) Fib Expansion Tool (blue) – ABC Downwar
A = 13:00 high 1.3971
B = 14:00 low 1.3919 (Doji)
C = 14:15 high 1.3945 (50% of A-B)
FE 100 = 1.3893 (hit 16:00)
When we trade a retracement, we can choose to exit at a conservative fib such as the 23.6 or the 38.2. Alternatively, we can exit a portion of our position and trade the balance. If opting to trade the balance, we look for a pivot. If this happens, the market might be forming an ABCD extension.
Money management will apply. Exit enough to at least break-even. The balance will then be "gravy" should it be profitable. Move stop-loss to at least break-even.
For newcomers to this thread, and/or in the event you missed this;
If distance of A to B is more than 45 pips, we trade to the FE 100 only. If A-B is 45 pips or less, we can opt to trade to the FE 161.8.
The reason we applied the Fib Expansion Tool (ABC) for this move is the pullback was 50%. Read recent posts regarding this.
EUR/USD 4-Hour Chart
1) Fib Retracement Tool- Purple Fibs
Low = June 29th 12:00 1.2151
High Aug 6th 12:00 1.3333
138.2 Regular Extension/Expansion = 1.3885
161.8 = 1.4063
* * Pair retraced to its 61.8 fib on Aug 24th, prior to extending to its 161.8.
2) Fib Expansion Tool (ABC - Blue Fibs):
A = Oct 14th 08:00 high 1.4121*
B = Oct 18th 08:00 low 1.3831
C = Oct 19th 00:00 high 1.4003
FE 61.8 = 1.3824
FE 78.6 = 1.3775
FE 100 = 1.3713 (hit 16:00 Oct 19th)
FE 127 = 1.3635
FE 161.8 = 1.3534
FE 236.2 = 1.3318 (near Aug 6th high of 1.3333 used for plot above)
* The reason we are using the high of 1.4121, as opposed to 1.4157, is that the market tells us to do it. We can see the extension halted at the FE 100 with the use of 1.4121.
3) If we draw a simple trend line from(blue):
Low = Sept 10th low 1.2643 to
High = Oct 12th low 1.3774
We can see the break on Oct 18th Asian session 00:00 GMT. When applying the ABC per above parameters, price action hit the FE 61.8 and bounced back up to trend line. Pair then proceeded to break Point B and extended to the FE 100.
From the FE 100, it bounced back up to the 161.8 level from plot #1.
4) Fib Retracement Tool – Pull From (Black Fibs)
Low = Aug 24th 1.2603**
High = Oct 15th 1.4157
23.6 = 1.3763
38.2 = 1.3541
50.0 = 1.3362
61.8 = 1.3183
78.6 = 1.2928
* * We used this as it is the 61.8% retracement fib from plot #1. Your data feed may have pivot slightly lower.
Some swing and position traders are calling consolidation here. We see it from an intra-day perspective, which will still contain plenty of opportunities.
Technically we view recent price action as a break in the trend line, with the potential to extend furthest to the FE 236.2 near-term, which is close to the pivot of 1.3333. A good bounce will occur at that level. Look for the break of the FE 100.
The area of 1.3775 - 1.3790 has 3 fibs and should prove to be significant support.
Cheers
Here are some consolidated notes on the subject of the “impending” U.Squantitative easing (QE2), and a little about the China "situation".
Greenspan
QE2 will not necessarily help if stimulus money sits on asset side of a bank’s balance sheet, as opposed to being lent out. Concerned about U.S. debt level. Recovery is a slow process, can’t rush it. U.S. needs higher tax rates. May not be strong market for treasurie
Columbia University Professor Joseph Stiglitz,
is a Nobel Prize-Winning Economist and Globalization expert.
His web site: Joseph Stiglitz - Nobel Prize-Winning Scholar, Author, Economist, Globalization Expert, Professor, Columbia University Business School
Interview Sept 2010: Dinner With Joseph Stiglitz | Oil Price.com
Professor Stiglitz had previously voiced support of stimulus packages:
“Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster
More recently:
- U.S. policy of printing stimulus money won’t work. US & EU flooding with money causes severe problems elsewhere.
Stiglitz: The FED's Flood Of Liquidity Is Throwing The World Into Currency Chaos (Ambrose Says $30 Trillion QE2) - Home - The Daily Bail
Employment is key:
- US had 3rd consecutive month of about 9.5% unemployment, worst since 1947.
IMF
- Meeting recent weekend in D.C.
- Mg Dir of IMF wants free floating currencies and considers Yuan undervalued.
G7 meeting recent weekend.
- Essentially the same position on Yuan. Elected to defer any possible solutions to the IMF.
ECB - President Trichet
USD cannot depreciate against Asian currencies, specifically the Yuan. Euro bearing brunt. (ref: Bloomberg)
China’s Premier Wen Jiaba
- 20-40% appreciation of Yuan will cause instability.
- EU should not encourage Yuan debate or pressure for appreciation.
G-20 Meeting
This weekend with focus on currencies.
Other
- US Senate to vote on China sanctions bill Nov. elections.
- FED meeting in first week of November.
- Markets priced/pricing in QE2 (for US) per Bloomberg interview with a senior currency strategist of Westpac Bank..
- US unemployment to remain at 9% through next year per independent entity. Ref – Bloomberg
- Japan = USD 61B stimulus pkg. 2 weeks ago said they will continue forex intervention on strong Yen. Ahead on G-20, reportedly stated they will not intervene.
*****
Sounds like Professor Stiglitz agrees and disagrees with stimulus.
Sounds like Mr. Greenspan has learned a lesson, after contributing to building a 2nd consecutive bubble, regarding recovery taking time. He and then Treasury Secretary Rubin had an unusually good relationship, in that they agreed for the most part on major economic issues. Rubin, of course, was a former head of Goldman Sachs. Current Fed Chief Ben Bernake is also a former head of Goldman Sachs.
Make no mistake; the U.S. wants a weaker Dollar. They have been pressuring China to strengthen the Yuan and will eventually incorporate sanctions. The Yuan has lost about 2% against the USD recently, but more against other majors.
China surprised the market by raising their interest rate this week. The Yuan lost a little value but regained it just a day or two after the market's reaction/digestion.
At the moment, the Yen and Euro have been hit with a large measure of appreciation. Too much for their taste. The “currency wars” refer to most countries aggressively trying to weaken their currencies
China, attending a recent summit in Europe, had been forced to comment on the U.S. effort. When the EU chimed in, it was not received very well. China’s main verbiage is that they are not the root cause for the ills of the U.S. economy
International economics is also a zero sum game, like Forex. There are winners and there are losers. The Asian economies have been prospering, while the U.S. is mired in its worst recession since the Great Depression.
Rules of “the Game” will often change. Certain groups will continue to lobby politicians to change the rules to benefit themselves. Politicians themselves see the potential/alleged jobs recovery with the China Bill. Investment banks create new investment vehicles, with the latest being the dreaded Synthetic CDO
While we don’t hear much about parties that are opposed to the China sanctions Bill, they do in fact exist. The theme of the opposition is underpinned by possible counter-measures by China. After all, it is the world’s most populous country
China is projected to make the transition to a larger consumer economy rather soon. The same U.S. manufacturers that think they will benefit from the current Bill’s passage, albeit in the short term, may also be locked out of the future export market to China
Will the application of import duties on some Chinese imports return jobs to the U.S. manufacturing sector? It may not be as much as people think. Other countries will step in and their manufacturing cost will still be below that of the U.S. These include other South-East Asian countries and Latin America.
Here’s an article on the pros and cons of QE2
For Fed, Risks of Goosing Market Are Worth It - WSJ.com
As USD weakens, oil rises.
Oil is priced in USD. The USD cannot be allowed to weaken to the point where the price of oil becomes unmanageable. This of course, will be counter-productive for economic growth, not only in the U.S. but also globally. We have seen this part of the equation already.
EUR/USD opened week with a gap up of 42 pips.
1-Hour chart:
A = Oct 2nd 16:00 low 1.3893
B = Oct 24th high !.3994
C = Oct 24ty low 1.3933 (61.8% retrace of A-B)
FE 100 = 1.4034 (just hit)
EUR/JPY – Oct 25t
As the new week opened, traders looked for reaction from this weekend’s G-20 meeting which focused on currencies. More notes and brief comments on that later
Data at 23:50, 08:30, 09:00, 12:30, 14:00
Attached is a 15-minute chart with 3 plots, and arrows pointing to data release periods.
1) Fib Retracement Tool (blue) – Pull Fro:
Low = 23:15 113.32 to
High = 02:30 113.79
138.2 = 113.14
161.8 = 113.03
261.8 = 112.56
2) Fib Expansion Tool (1st ABC) (green):
A = 04:15 high 113.78
B = 05:45 low 113.35
C = 06:45 high 113.64 (61.8% retrace of A-B)
FE 100 = 113.21
FE 161.8 = 112.94 (hit 07:45)
FE 236.2 = 112.62 (hit 14:45)
3) 2nd ABC (black):
A = 06:45 high 113.64
B = 08:00 low 112.86
C = 10:00 high 113.33
Asian Low = 07:45 112.89
FE 100 = 112.54 (hit 15:00) same as the 261.8% regular expansion from Plot #1.
***
EUR/JPY opened week with small 6-pip gap to upside, but nothing like the gap on EUR/USD. Eyes were on the Yen and how much traders would take it further down after the G-20 meeting.
This pair established a high of 113.82 at 20:00 and managed to set a high of 113.79 during the Asian session at 02:30. After a very small retrace, a revisit to high bounced and the tone was set to take this pair down.
The first expansion ABCD broke the low of 113.32 at 07:30 and hit its FE 161.8, refusing to close a 15-minute candle below that price of 112.94. Gross gain was + 38 pips, and exit during 07:45 candle was ahead of impending 08:30 data.
The second expansion: As the A-B leg work itself down to finish the FE 161.8 of the first ABC, it pulled back 61.8% to the previous significant S/R of 113.32, to form Swing C at 10:00. Remember, we pointed out that retracing to this kind of S/R is very common. In this case, the driver was positive Euro data at 09:00.
After a retest of 113.32, pair awaited pair of U.S. data releases at 12:30 and 14:00. Neither prevented Yen strength and we saw it hit its FE 100 of 112.54 at 15:00. With the data, it was not worth the risk to enter at the pullback (Point C).
Entering at the break of Point B price of 112.86 produced 32 gross pips. The trick was to wait a few minutes for the initial reaction to data to subside.
After break candle, action pulled back to resistance of 112.94. Open of 14:30 candle at price of 112.82 was ideal for entry.
As with most instance where a FE is hit for profit, it can happen very quickly. We can offset the risk of not filling our exit order by:
Placing take profit 2-4 pips in front of the FE target. We can also have our fingers on the button for a manual exit. If we wait too long, profit pips can slip away easily and quickly.
***
The 1st ABCD took care of the breakout that is comparable to a trader using the end of the 06:00 GMT hour for the Asian session.
The 2nd ABC breakout was for those that use our Asian period as the basis for breakouts. No reason a trader can’t trade both.
We prefer using 08:00 as our European session open time since most of the data affecting the Euro is released at 08:00 and 09:00. This allows 1 hour from the London open (equities market time) for straggling Asian traders to exit, as well as first hour European traders to jostle for position.
Breakouts are based on breach of significant support or resistance. Once you can identify these levels, you can wait for the set-up.
EUR/USD – Oct 25t
As we mentioned during Asian, EUR/USD hit its FE 100 of 1.4034 and eventually its FE 127 of 1.4061, probing just above.
The precise hit of the high 1.4080 was derived from a fib retracement pull from 4-hour chart (for easier viewing): Oct 22nd 08:00 candle low of 1.3857 to Oct 24th 19:00 candle high of 1.3994. The 161.8 = 1.4079 was hit with the 04:00 candle.
That 04:00 candle on the 4-hour chart was also a near-colorless candle, which normally denotes a change of direction coming (reversal).
15-Min Chart:
During the European session, the ABC swings of 7:00/12:45/13:15 produced a FE 161.8 of 1.3907 which was just hit at 23:15. The other FE levels were also respected en route down.
Notice the pullback for Point C was near the Asian FE 100 of 1.4034. Experiencedtraders anticipating this would enter here, but must consider upcoming 14:00 data in this particular case.
Entering after break of Point B during 14:30 candle was more prudent, similar to EUR/JPY which moved in tandem with this pair.
A tighter Point A at 10:00 was also good.
We also have retracement fib pull from 07:00 high to 15:00 low, which results in:
138.2 = 1.3918
161.8 = 1.3891
USD/JPY – Oct 25t
Amid the backdrop of the just concluded G-20 meeting this weekend, the focus on USD/JPY was acute. A gap down upon opening retraced before traders methodically worked it downward. Key support was 81.16.
The ABC pull had uncertainty with where to plot Point A. The double-check is to make sure Point C is either a 38.2% or 61.8% retrace of A to B.
We see that the 05:00 high of 81.02 would produce a 38.2 retrace for Point C.
A = 05:00 high 81.02
B = 05:45 low 80.65
C = 06:00 high 80.79
FE 100 = 80.42
Using the 06:20 high of 80.77 for Point C produced an FE 100 of 80.40.
If we utilize the fib retracement tool instead, we would arrive at:
138.2 = 80.51
161.8 = 80.42
This also complied with the rule: if pullback is 38.2%, highest probability of expansion is to the 161.8%.
Once again, we saw the hit to an FE price (the 161.8) to be very quick and probably did not fill on most trading platforms. We need to protect profits at the 138.2 area. Moving the stop-loss to just above that point was standard procedure.
The reasoning is that to gain an additional 9 pips trading to the 161.8, we should not risk more than 9 pips. Net was not a big gainer, but due to proper money management, it wasn’t a loser
***
Let’s remove the previous ABC plot during Asian but leave the retracement plot
We saw a bounce off the European high just ahead of U.S. Data at 12:30. Pair went on to test the Asian high and bounced.
Now, we see pair moving up during last portion of the European session. What plot do we use now?
Using a different color, pull a retracement from the European high of 80.71 to low of 80:45 (13:55). This plot produced;
138.2 = 80.87 (hit 18:55)
This level was also the 61.8% fib from the first plot (80.88). A subsequent bounce also occurred off this top at 23:15.
The 08:30 GMT U.K. GDP figures came out twice as high as projected. This resulted in a more acute spike in favor of GBP. Cross-pairs activity:
GBP/CHF - testing above the regular 161.8 extension of 1.5414 and past the FE 100 of 1.5406.
EUR/GBP - approaching the FE 161.8 of .8782
GBP/USD - testing above the regular 161.8 extension with next resistance at the FE 100 of 1.5885.
Of the 3 GBP cross-pairs mentioned, only GBP/USD had limited GBP strength after GDP release, which was due to positive U.S. data at 14:00. Thus, lets review the 2 movers.
GBP/CHF
Using fib retracement tool on 5 or 15-min chart.
Low = 08:30 1.5323
High = 08:55 1.5435
138.2 = 1.5478
161.8 = 1.5505
261.8 = 1.5617 (hit 14:50)
We also happened to have a 1-Hour plot:
Low = Oct 13th 1.5104
High = Oct 12th 08:00 1.5419
138.2 = 1/5545
161.8 = 1.5623
Of course we can also plot an ABC after pair pivoted at 09:15 to form Swing C. That resulted in an FE 161.8 of 1.5584, which was reached at 14:00.
EUR/GBP
The aforementioned fib extensions exhausted itself after pair exceeded its FE 236.2 of .8749 (hit 14:00).
Plotting a 2nd ABC:
A= 08:30 high .8851
B = 09:00 .8784
C = 10:00 high .8799
FE 100 = .8728 (precise hit at 15:00)
General plot using the fib retracement tool on 15-min chart:
High = 07:00 1.4080
Low = 23:15 1.3907
Regular 138.2 = 1.3841 (hit 15:00)
Due to data at 08:30 and 14:00, needed to squeeze any trades in-between
A = 05:30 high 1.3981
B = 09:30 low 1.3921
C = 10:00 high 1.3962
FE 100 = 1.3901
FE 127 = 1.3884
FE 161.8 = 1.3864 (hit 13:30)
Unless one specialized in trading the news, wise to wait for a pivot after data released. The ABC plotted fit in very nicely between data.
Using retracement fib plot A-B, the 138.2 = 1.3898 and 161.8 = 1.3884
We had previously mentioned our 4-Hour plot. EUR/USD is now sitting on the low of 1.3857.
Low = Oct 22nd 1.3857
High = Oct 24th 1.3994
Pair had bounced off its regular 161.8 extension price of 1.4079 on Oct 25th 04:00.
Next major pivot was at the 61.8 fib, where it retraced about 38.2%. From there it made a regular extension of 138.2 to 1.3841. Attached is chart.