A-B-C-D Trade - page 28
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Revised FE levels
FE 100 = 1.2889
FE 127 = 1.2876
FE 161.8 = 1.2860
1-Hour Retracement Fibs:
Low July 23rd 13:00 1.2794
High July 26th 06:00 1.2958
23.6 = 1.2919
38.2 = 1.2895
50 = 1.2876
61.8 = 1.2857
78.6 = 1.2829
Neglected to add that for those traders that elect to use the 15/15 pip strategy, this trade is a go and still pending.
Since this is like watching paint dry, let's review.
Pull retracement fibs from Asian high 1.2958 to Asian low 1.2903.
The fibs are:
78.6 = 1.2943
61.8 = 1.2932
50 = 1.2923
38.2= 1.2915
23.6 = 1.2905
Some of these are stop-loss options, as an alternative to using Point C 1.2936 or other 5-min pivot of 1.2931 for stop-loss. Remember we must add 4 pips to these prices.
So, in order to trade to the FE 127 1.2876, we need to reduce our risk. Since entry was 1.2901, target 1.2976 + 4 pips = 1.2880.
Reward = 21 pips
Stop-loss. Select option 38.2% fib price of 1.2915 + 4 pips spread and cushion = 1.2919.
This means if the price on our chart hits 1.2916, we are stopped-out.
Risk = 18 pips
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After downside move of about 50 pips, pair in consolidation. The ABC's minor FE 61.8 price of 1.2907 is acting as resistance. It has not closed above that level on the 15-min chart, but is testing again.
O.K., using the last post's stop-loss while targeting the FE127 was a stop-out. Same with the 15/15 pip strategy.
When using those stop-loss options, we are not reducing risk. Rather, we are reducing number of pips at risk. In other words, it was is more likely that we stop-out at those levels (in bold) than Point C. That is the trade-off.
Anyway, nice walk-though.
Breakout to upside occurred late Euro and first-half U.S. session. I had also bookmarked 14:00 GMT for medium-impact data release of U.S. Home Sales.
Attached is 15-min chart illustrating ABC swings leading up to break. As mentioned, we had resistance at 1.2965.
A = 10:15 low1.2891 (alternate Point A was 11:00 low 1.2904)
B = 14:00 high 1.2953
C = 14:45 low 1.2925
Asian High 1.2958
Entry after hurdling 1.2965 was 15:20 open price of 5-min candle at 1.2969 + spread = 1.2972.
We calculate in advance, our stop-loss options (switch to 5-min chart):
- Just below resistance, which turned into support 1.2965 risk = 7 pips
- Just below Asian High 1.2958 - risk = 14 pips
- Just below Point B 1.2953 - risk = 19 pips
- Just below 5-min pivot low 1.2933 - risk = 39 pips
- Just below Point C 1.2925 - risk = 47 pips
FE 100 = 1.2987
FE 127 = 1.3004 (we keep in mind round number of 1.3000 for exit).
FE 161.8 = 1.3025
Once again, distance A to B was more than 45 pips, thus we target FE 100.
However, the risk/reward must be considered.
Using the Asian High for stop-loss was the only way to trade to the FE 100 and have a tolerable risk/reward, which was:
Risk = 15 pips (includes 1-pip cushion)
Reward = 15 pips
We know what price would be the worst we can accept, prior to entry of course. All of the above stop-loss scenarios were easily spotted prior to the breakout.
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Although there were 2 options for Point A, our rule for target profit limited us to the FE 100 in both scenarios. Using the alternate Point A changes the FE 100, and made reward too small to trade.
Extension did hit the 1.3004 level, which was identified by both ABC pulls.
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15/15 was a winner.
Trend clearly to upside. We use the Forex Freedom Bars, which I think I attached in a previous post, that monitors 4 time-frames for trend.
We also knew that significant resistance was in the 1.3000 area. Just look at the daily chart, we can see a previous high of 1.3006 on July 16th, etc.
Attached are 15min and 5-min charts for better viewing.
As the last extension made its way up, we ran out of fibo fibs from our last pull for fan pointing down.
Since there was not a previous high to use, we needed to move our low.
High = July 20th 06:00 high .13027
Low = July 26th 08:00 low 1.2889
This adjustment to the low produce a 78.6% fib line, which caught the closing candle price in the area of 1.2995.
We also moved fan pointing up:
Low = July 22nd 00:00 low1.2736
High = July 23rd 08:00 high 1.2965
The fan pointing up a little tricky. We look for conformity.
Sorry for long post, as there were breakouts to both Asian high and low, during the European session. Attached is 5-min chart illustrating both ABCD patterns.
Slew of data release also aided to choppy trading, after pretty tight Asian range.
Breakout of Asian High.
A = 09:30 low 1.2963 *
B = 10:25 high 1.3016
C = 10:55 low 1.2993
Asian High = 1.3021
FE 100 = 1.3047 (target)
FE 127 = 1.3061
FE 161.8 = 1.3080
Entry BUY = Open of 11:10 5-min candle price of 1.3031 + spread = 1.3034
- That’s a loss of too many pips (18 pips between Point B and entry)
- Reward = 13 pips
S/L Options:
- Just below Asian High price 1.3021 + 1 pip = 1.3020. Risk = 14 pips
- Just below Point B price 1.3016 + 1 pip = 1.3015. Risk = 19 pips
- Just below support at 1.3007 + 1 pip = 1.3006. Risk = 28 pips
- Just below Point C price 1.2993 + 1 pip = 1.2992. Risk = 42 pips.
The only way we take this trade is to use the Asian High as the stop-loss area, which makes the risk/reward about 1:1. If this was the case, we would have stopped-out. We prefer not to use the Asian high or low for S/L.
* In hindsight, the next candle’s low was the Point A respected by the extension to 1.3045. Sometimes, quick spikes such as this one (on my chart) with wicks are not registered on most trading platforms
Generally, we can exit manually if we think that take profit is ideal, or set more of a cushion.
In any event, this particular trade example was a pass if using our entry rules and preference not to use the Asian high or low for S/L.
The 15/15 pip strategy was a winner, if entry did not wait for close of breakout candle.
The breakout of Asian Low:
Please note that due to U.S. Data Release of Consumer Confidence (rated as high impact) at 14:00 GMT, this was a not trade. We review as if there were no announcement for study purposes.
A = 12:45 high 1.3034
B = 13:35 low 1.2981
C = 14:00 high 1.3009 (50% retrace of A-B)
Asian Low = 1.2971
FE 100 = 1.2956 (target – hit
FE 127 = 1.2942
FE 161.8 = 1.2923
Entry SELL = Open of 14:15 5-min candle price of 1.2965.
- Reward = 9 pips
S/L Options:
- Just above FE 61.8 price 1.2976 + 4 pips = 1.2980. Risk = 15 pips
- Just above Point B price 1.2981 + 4 pips = 1.2985. Risk = 25 pips
- Just above Point C price 1.3009 + 4 pips = 1.3013. Risk = 48 pips
Since our rule is if distance between A-B is more than 45 pips, we target the FE 100.
Once again, based on our entry rule, risk/reward was not sufficient. This was due to distance from Point B and entry (16 pips).
Ideally, Point B and the Asian high or low shall be the same. We can handle a certain amount of variance, depending on the pullback/retrace % (Point C).
If the pullback to form Point C was small, say 38.2%, there would be more profit due to distance from C-D.
The 15/15 would have lost unless stop-loss was moved to at least break-even. The gross gain was 15 pips. However, after subtracting spread, it was 12 pips.
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So there you have it. What was learned from these 2 examples? Well, at the very least, I think we learn to avoid certain set-ups. In both of these examples, we would have joined an extension-in-progress. We can tell by looking at the price level of Point B in relation to the Asian high or low (breakout point).
Since the ABCD patterns work on Fibonacci ratios, we can anticipate that in most cases, the extension will stop at the FE 100. Therefore we can assess our risk/reward based on that highest probability.
Knowing these fib levels gives us an advantage, as well as more confidence. We also are more patient, not forcing trades and realizing there are always subsequent opportunities.
Main point is we are seeing the market VERY clearly.
Cheers
No breakout of Asian range during July 28th European session.
As shown on the first attached chart, there was a breakout of U.S. High, during Asian session which produced 16 net pips to the FE 100, and eventually halting at the FE 127. Extension failed to exceed previous day's high of 1.3045, which acted as significant resistance.
Second attached chart is the Daily, which gives us the big picture. Some of the tools used were mentioned in a previous post. We have:
- fibo fan pointing down: high = April 14th 1.3677 and low = July 29th 1.2151.
- fibo fan pointing up: low = July 7th 1.1876, high = July 27th 1.3045
- ABC: A = July 7th 1.1876, B = June 20th 1.2467, C = June 29th 1.2151
FE 100 = 1.2751, FE 127 = 1.2914, FE 161.8 = 1.3123
EMA-50 & EMA-200
After the July 28th action, we can see the 61.8% retrace fib holding as resistance, which is in the psychological 1.3000 area. Pair failed to close above that mark thus far.
Breakout to upside very clean. ABC very clear, with target to FE 161.8 producing about 25 net pips. Fast (large) breakout candle, required stop-loss placement to be reasonable to ensure 1:1 minimum risk/reward.
A = 06:10 low 1.3006
B = 06:45 high 1.3045
C = 07:50 low 1.3023
Asian High = 1.3045
FE 100 = 1.3062
FE 127 = 1.3073
FE 161.8 = 1.3087 (target - hit)
Entry BUY = 08:15 5-min candle open price 1.3059 + spread = 1.3062
- Reward = 25 pips
Stop-loss options:
- Just below FE 61.8 1.3047 - risk = 15 pips
- Just below Asian High 1.3045- risk = 17 pips
- Just below23.6% retrace of A-B 1.3036 - risk = 26 pips
- Just below Point C 1.3023 - risk = 39 pips
- etc.
15/15 technique also winner.
Cheers
There is an American term "After Party" used to describe a party after the party. Usually, it is limited in its guest list.
We can attend these from time to time in the Forex market. Attached is the 5-min EUR/USD, where we can see the action after its extension to the FE 161.8, as described on the last post.
Point B on this chart is where the exit at the FE 161.8 occurred with the last trade.
As we can see, it pivoted to form a Point C. We use our fib expansion tool again and it happens to plot the (minor) FE 61.8 at 1.3100.
This trade set-up is for trading a "Bounce". We can trade off of significant highs and lows (support/resistance). The market reacts to psychological levels such as round numbers.
We use the fib retracement tool and pull:
Low = 08:15 1.3023 (denoted on chat as #1)
High = 1.3100 (anticipated) denoted on chart as #2
Retracement levels:
23.6% = 1.3082
38.2% = 1.3071 (target - add spread & cushion = 1.3075)
50% = 1.3062
61.8% = 1.3053
78.6% = 1.3040
As we can see, the pair probed slightly above 1.3100, to 1.3106. We then can readjust the retracement fibs and arrive at a slightly different target price at the 38.2% fib (1.3074).
Stop-loss:
- Simple number of pips above 1.3100 (or probe above). Say 10-12 pips.
- Those that like to allow a little more room can use a fib. Pull from top 1.3106 to Point C. The 138.2% fib = 1.3124.
- One can also use the FE 100 1.3126.
Watch the risk/reward ratio, especially on the last 2 options.
We use 10 pips above 1.3106 = 1.3116.
Entry SELL:
Set automatic entry on trading platform. Click Pending Order instead of Instant Execution. Set for "Sell Stop" at a couple/few of pips below 1.3100. Let's say 1.3097.
We can also set the stop-loss if we are using a certain number of pips above 1.3100. This can be readjusted after a probe.
We set the take profit for the initial 1.3071 target + 4 pips spread and cushion = 1.3075. This would later be adjusted to 1.3078.
Risk = 19 pips
Reward = 22 pips (initial)
Reward = 19 pips (after adjustment)
It's O.K. if we're over 40 and didn't recognize the term After Party. Cheers