A-B-C-D Trade - page 333
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NFP and Unemployment data missed consensus. GOld spikes up, and USD strength in most pair, with EUR/USD LAGGING.
GBP/USD with strong decline. Next support 1.5720.
It was a busy week for economic data. That means different things to different traders, depending on their style of trading.
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Let's look at a method to plot the Standard Deviation Channel (SDC). Settings are
Deviation = 2.00
Ray = check box (extends channel beyond last plot point)
We want to plot from the beginning of a month to the end.
Attached is USD/JPY 4-hour, with plot points Nov 1st 00:00 GMT and Nov 30th 20:00 GMT.
A hit to the SDC's mid-channel occurred on Dec 14th during the 00:00 GMT period.
We proceeded to align the fib channel tool to the SDC's mid and lower channel levels. If you've followed this thread, you'll know the ratios we like to use.
-.314, -.50, -.686 (interior levels)
For the S/L, we can use .12 or -1.12
This pair has been on the rise due to Japan's Central Bank's dovish stance. Therefore, we need to exercise some caution on shorts.
The bounce off the SDC mid-channel declined to the -31.4% interior level of the fib channel, for approx. 55 pips. The net Reward/Risk is about 2:1.
Note: The fib channel plot was pulled from lower channel to mid-channel. Nevertheless, the -31.4 and -68.6 are both distances of 31.4 from their respective outer channel levels.
That means whether you pull the plot up or down, a distance of 31.4% from an outer channel will be represented by the first interior line.
When applying the HAMA_T3 (not shown), we can see it also acted as support at the -31.4.
Bounces off outer channel lines are also common, and are trade opportunities.
**
A plot from Jan 2nd 04:00 GMT to Jan 31st 20:00 GMT saw price reach the mid-channel today during the 08:00 period.
The bounce up was approx. 70 pips to the bottom of the HAMA_T3, and at at distance of 31.4% from the lower SDC channel.
Depending on when your chart started the New Year, the mid-channel may not be exactly the same as ours/others.
This works on all pairs. therefore, you can trade multiple pairs to increase the frequency of trade opportunities.
Have a nice weekend.
While many players are taking a bearish outlook in the immediate term for EUR/USD, mainly due to ECB Chief's de facto verbal intervention, the TA trader can look at:
Fib channel plot using peak-dip for A-C plot line:
A = Sept 17th high 1.3171
B = Nov 13th low 1.2659
C = Jan 4th 1.2996
Stack twice, meaning place 2 more fib channels on top of this one, with equal proportions.
This reveals trendline S&R at Jan 14 -18 peaks, and Feb 7 - 11 dips. This is at the 100% expansion upward, in diagonal fashion of course.
S/L 10-12%
TP1 31.4% distance as represented by ratio -68.6 (approx. 1.3486)
TP2 50% distance (-50) (approx. 1.3558)
***
On CFD side, SPY at resistance, with observation for decline to 151.06.
Gold stuck in range since Jan 30th, which was retrace of decline, and our last observation.
Any declines to:
1662.00 - BUY TP target +6.00
1652.00 - BUY TP target +10.00
Any rise to 1682.00 - Sell +10.00
EUR/USD currently at 31.4% retrace (1.3429) from Feb 5th high 1.3596. This is most conservative TP.
GOLD blew by support, and initially dragged instruments, that generally move in the same direction, down with it. EUR/USD has recovered/decoupled for now.
****
Here's a tool that can be used to analyze correlation between instruments. This example is set on default, but it doesn't look like inputs can be adjusted. Would need to go into the formula to change instruments.
Main instrument is GOLD. In lower window of chart, indicator CurrencyPairsCorrelation uses USD/CHF (yellow) vs EUR/USD (blue).
We want to look at the cross-over of the 2 currency pairs, and its relationship to GOLD on the 1-hour time-frame. The vertical lines mark the cross-overs and the arrows point in direction of yellow.
As with all cross-overs, there will often be lag. However, since we are not using the subject instrument to plot the cross-overs, we might have less lag.
The large spike candles of course can produce a false picture, as evident by the Feb 7th price action. Otherwise, this sample period responded very well to this correlation.
Cross-over date/time GMT +2 hours:
Feb 4 00:00 BUY
Feb 4 08:00 SELL
Feb 5 12:00 BUY
Feb 6 10:00 BUY
Feb 7 07:00 SELL
Feb 7 18:00 (after whipsaw) NO-TRADE ON BUY
Feb 8 13:00 SELL
Feb 8 17:00 BUY
Feb 11 05:00 SELL
ENTRY AT OPEN OF NEXT CANDLE.
As usual, add money management.
Edit: changing the currency in the input parameters does seem to work but there are some oddities with certain currency pairs selected. Therefore, make sure you understand ramifications. The labels don't change to reflect new currency pair selected.
One of the aspects we attempt to acquire is a leading indicator. Often, certain instruments will lead others, although not 100% of the time.
The last post uses logic that USD/CHF and Gold generally moves in the same direction most of the time. EUR/USD was used as the pair for a cross.
The attached chart is 1-Hour GOLD using GBP/USD (blue) and EUR/CHF (yellow) correlation cross-overs. It might be considered leading Gold, but we can add another rule.
After a cross-over of blue over yellow, we look for a red or green bar to close on the indicator. We want this to be a "heads-up" on what might be coming up in the intra-day pivots/changes in trend.
In this example, green denotes uptrend coming, and red denotes downtrend coming.
In some cases, price will move against the prediction beyond reason. Therefore, combining other tools will be prudent, whether it's S&R or a momentum trigger that uses a lower time-frame.
An example is the use of RSI (4-Period) on the 15-min. When it crosses its 50 level, entry is effected in the direction of the forecast. Candle does not have to close, if we want to reduce lag, or possibility of being left behind in fast moving periods.
If price is already below the RSI(4) 50 level, a discretionary decision would have to be made. Look at the RSI(4) 1-hour or 15-min (depending on your goal) to see whether it is in OB/OS conditions.
The CurrencyPairsCorrelation indicator REPAINTS.
Therefore, caution as forward testing and visual results are the only dependable data for analysis. NOT previous results as seen on the chart.
This is the traditional way to use the Standard Deviation Channel (SDC). It is plotted on 2 peaks. It's best to make sure the 2 peaks or dips are clearly the choice.
In other words, there should not be other candle periods that are close enough to the high or low, to cause indecision.
The 1st attached chart is on USD/CAD daily. Plot points are high of Oct 4, 2011, and Nov 25, 2011.
We aligned the fib channel (FC) to the full size of the SDC. After that, we drag the FC to align with the lower channel of the SDC.
This provided S&R below the original SDC plot. Price even came back up into the SDC, and adhered to the FC's S&R.
Key trade opportunities are the 50% (Apr 26-30 2012) and 100% (Sept 13-14 2012) expansion levels to the downside.
*****
Chart 2 illustrates another plot that used the 2 dips/lows of Oct 27, 2011 and Apr 27, 2012.
Align FC and stack up.The 50% expansion caught the June 1st high.
If we align the FC to half of the SDC, it provides smaller S&R levels. The zoom-in will see the SELL off of the June 1st pivot high. The 3 interior levels act as take-profit (TP) targets.
Money management dictates that we need at least a 1:1 reward/risk ratio, preferably higher than 1.5:1.
We inserted stop-loss (S/L) of 12%, and it's represented by label of -112 on chart.
Therefore, if we target the 50% (-50 label) for TP, the math is:
50% divided by 12% = 4.2:1 R/R (gross) to give you a quick idea.
S/L = 1.0477
Entry = 1.0436
TP = 1.0276
After cushion, it can look like this:
S/L = 1.0483
Entry = 1.0432
TP = 1.0282
Risk = 51 pips
Reward = 150 pips
Net R/R Ratio = 3:1
Other note(s):
With the channel sloping down, it is in the same direction of this trade. That means the S/L 12% level will decline in risk, and the 50% level will increase in reward.
Some trader would trail S/L from that 12% level. Some will just set S/L and TP and leave it, with the worst profit scenario being a little extra profit was left on the table.
When trading counter-slope, the opposite is true. That should be taken into consideration as time deteriorates R/R. If exit is effected relatively fast, it should not be a big problem.
****
Stacking the FC to SDC works very nicely. As featured in a recent post, we can even stack on top of another FC plot. That is essentially the same as adding a lot of expansion levels. However, that would make the FC levels clutter the chart.
****
We repeat the important ratios for FC settings in fib levels tab:
.314 (Exterior)
.12 (S/L)
-.314 (interior level)
-.50 (interior level)
-.686 (interior level)
-1.12 (S/L)
-1.314 (Exterior)
The SDC is set on Deviation = 2 and box for Ray is checked.
Attached is a script that will delete all objects on the chart. It's very helpful when we practice our plots.
This is the name of script, that needs to be saved into your script folder.
ytg_ObjectsDeleteAll
Here's the pic of the daily chart in which the fib channel (FC) tool was used. We identified the 100% expansion level assupport Feb 8th-11th. That aligned to the peaks of Jan 14th-18th.
The stacks (blue) allow us to keep the FC parameters from cluttering our charts during normal use. We stacked up twice. The last stack allows us to see interior ratios between the high of Feb 1st and low of Feb 8th.
We now add a tight FC (white), using the slope of the original plot. Align the tight FC's Plot Line A-C to slope of the support level described above. Pull Plot Line B to the Feb 1st high.
The resulting interior S&R ratios provided resistance at the -68.6% and -50% during Feb 12th and 13th.
Today's peak also was the precise 68.6% horizontal retrace of the Feb 6th high and Feb 8th low (not shown).