A-B-C-D Trade - page 42
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Attached is 5-min chart, with data arrows, fib extension and retracement.
Volatility and major move occurred during the Asian session. Reaction to that move was during the first half of the European session.
ABC parameters during Asian (not breakout of Asian):
A = 04:00 low 1.2662
B 05:30 high 1.2692 (red horizontal line)
C = 06:10 low 1.2671
FE 100 = 1.2702
FE 127 = 1.2710
FE 161.8 = 1.2720 (target)
FE 236.2 = 1.2743 (hit)
Asian High = 1.2735
We also have the following:
Previous day's Asian High (red horizontal line) 1.2742.
Fibo fan: high = Sept 9th 13:25 1.2765 and low = Sept 10th 0610 1.2671.
Plotted after top was reached to provide S&R going forward.
Retrace fibs:
Low = 04:00 1.2662
High = 08:00 1.2742
23.6% = 1.2722
38.2% = 1.2711
50% = 1.2702
61.8% = 1.2693
78.6% = 1.2679
**********
Comments:
Surprising long activity with EUR/USD and EUR/JPY, especially ahead of cluster of lower-impact European data releases 06:00 - 09:00, with GBP data thrown in there as well at 08:30. No problem, just dinner topic.
The extension reached its 236.2 fib which was also the area of the previous day's Asian High. Since this was just 7 pips from the current Asian High, we always wait for it to confirm above that, to be conservative.
That means plotting a new ABC based on the new pivot. That was not necessary as it reversed from that level, per retrace fibs.
We can see the first hit on the FE 236.2 at the 08:00 candle. It bounced down back to the FE 161.8 (and 23.6% retrace fib).
This is when we adjust our fibo fan, moving the low to the Point C location. This "fitting" of the fibo fan resulted in its 78.6% diagonal fib as resistance at the top.
Not our style to jump in there during all of the data releases. Thus it was a choice of staying on the sidelines, waiting for a possible bounce trade from the top, or shaving a few pips between fibs after things calm down from the 11:00 data.
We identified Point B 1.2692 as support area (red horizontal line). Pair probed 6 pips below that but managed to bounce quite nicely. In fact, it worked its way back to the FE 236.2.
Point B support was also the 61.8% retrace fib, a major consideration.
An ABC plot from the top as Point A, resulted in the FE 127 price = 1.2694. Not on attached chart, but you can see swings easily to plot yourself.
BUY entry 1.2696 including spread.
Targeting take-profit levels, plot retracement fibs (not on attached chart):
High = 11:55 1.2729
Low = 13:00 1.2686
23.6% = 1.2696
38.2% = 1.2702
50% = 1.2708
61.8% = 1.2713 **
78.6% = 1.2720
** The 61.8% price level is also the location of Point B from the ABC on top.
The fibo fan's 61.8% diagonal fib is also there at 14:15 GMT.
Stop-Loss Options:
- Just below 00:35 previous session pivot high of 1.2687
- Just below FE 161.8 price of 1.2682 from ABC on top.
- Arbitrary 10-15 pips
If a trader entered prior to probe below support of 1.2692, and used a stop-loss of only 10 pips (from entry price of 1.2696), that was exact probe distance (1.2686).
Since it was clearly not worth trading only to the 38.2%, we had 12 to 17 pips as the targeted reward to the 50% or 61.8%. That makes it an easy decision to use a stop-loss a little larger than 10 pips, and still keep the risk/reward to 1:1 or better.
Looking at the DAILY chart. We had previously posted several plots including fibo fans pointing up and down.
As mentioned, we can often slide the low or high point to keep pace with the movement of the market, in order to get more diagonal fibs.
LOW = June 7th 1.2876
HIGH = Aug 6th 1.3333
1) Moving LOW to July 13th low of 1.2522 allowed us to:
- have support on Aug 13th - 19th
- have resistance on Sept 3rd - 5th
2) Keeping the above LOW point at June 7th, the 61.8% fib caught the pivot on Aug 24th. We married that with the 50% horizontal retracement fib, plotted from the same LOW to HIGH.
3) Moving the LOW to the pivot on June 23rd low of 1.2208 captured Friday's (Sept 10th) low with the 78.6% fib.
Moving the horizontal retracement low also provided a 61.8% fib for Friday's low. See attached chart.
4) Using the June 29th low for the fibo fan low also had its 78.6% fib catch Friday's low.
Our Sept 10th bounce trade scenario off of support at 1.2692 area failed to mention the 1-Hour retracement fibs:
Low = Sept 10th 06:00 1.2671
High = 08:00 1.2746
23.6% = 1.2728
38.2% = 1.2717
50% = 1.2708
61.8% = 1.2700
78.6% = 1.2687 (hit)
This explains the probe below 1.2692.
Attached chart also plots the 50-EMA (exponent Moving Average) and Ichimoku.
Support at 17:00 - 19:00. 50-EMA was same area as bottom of Ichimoku cloud.
Several instances when 50-EMA and Ichimoku cloud edges provided S&R during Sept 10th European and U.S. sessions on 1-Hour chart.
The 50-EMA was in range of 1.2610-13 throughout the 2 sessions. This was the targeted exit area for that bounce trade.
The reason EUR/USD spiked down during the last hour on Friday was the release of news pertaining to the bailout of a large European real estate firm. Our previous post on the fibo fan caught the bottom of that sell-off.
Attached are 2 charts of USD/JPY.
1) 5-min chart with demo entry order line and take profit level line.
A = 00:15 high 84.28
B = 03:15 low 84.06
C = 04:05 high 84.18
FE 100 = 83.96
FE 127 = 83.90
FE 161.8 = 83.82 (target - hit)
Detected volatility in Yen during Asian. Entry a little late as we wanted good confirmation of dip below Point B. Filled 83.99. Exited manually at 83.84, for + 12 net pips after spread.
2) Split screen chart with 5-min and1-Hour charts of USD/JPY.
1-Hour had fibo fan which was near exit level for additional confirmation.
Fibo fan plot:
Low = 03:00 82.34
High = 19:00 84.43
the 61.8 fibo fan line caught the low near exit.
1-Hour ABC had FE 127 at 83.81, basically same price as our target.
***
Careful with Yen crosses as they have an election going on for Prime Minister, with tomorrow as the big day. One candidate is threatening to intervene in the Forex market to weaken the Yen, as it is considered too strong for economic growth.
EUR/USD started new week with strong upswing from opening moments. From what we've gathered, this was attributed a revision of the European Commission's economic growth forecast for 2010.
There also seemed to be some relief with the Basil III banking regulatory meeting's regarding period in which banks are allowed to comply with proposed new regulations.
Breakout of Asian High occurred during late European session.
A = 05:50 low 1.2783
B = 06:30 high 1.2833
C = 10:05 low 1.2793 (78.6% retrace of A-B)
Asian High = 1.2833
FE 100 = 1.2843
FE 127 = 1.2857
FE 161.8 = 1.2874 (hit)
Due to the large pullback to form Point C (78.6%), trading to the FE 100 was not worth it. The distance from A to B was 50 pips, exceeding our "under 45-pip rule" which we use to trade to the FE 161.8.
After the extension hit the FE 100, it bounce back down below the Asian High and to a support level at the FE 61.8.
Thereafter, pair ratcheted up to meet both the FE 127 and FE 161.8 just prior to end of session.
Virtually no data during this period, and what little came out was of no impact from what we can see.
The 15-15 pip technique should have been a winner, as dip back into Asian range was only 9 pips.
Daily chart tells us pair's next significant resistance level at 1.2815/22, which was reached several times.
Continuing our comments on USD/JPY and our SELL trade.
Cross currency pair correlation involves the relationship between pairs. During the Asian session, we were monitoring:
USD/JPY (down)
EUR/JPY (choppy)
EUR/USD (up)
YEN strength pulls down USD/JPY. During Asian, this also meant USD weakness which contributed to EUR/USD strength (up).
The EUR/JPY was getting pulled in both directions and resulted in choppy action. Therefore, we did not want to trade this pair.
1) We noticed the large red 05:00 candle on the USD/JPY 1-Hour chart, breaking below a pivot.
2) We plotted ABCs on the 1-Hour and 5-min charts. That 1-Hour 05:00 candle broke and closed below Point B.
3) We determined price target FE level, with additional fibo fan support.
4) We calculated worst-case entry price that allowed us to retain 1:1 risk/reward based on stop-loss just above Point B.
5) Entered just below round number of 84.00, which was also the FE 61.8 on the 1-Hour ABC.
****
After another pullback, USD/JPY hit the ABC's FE 236.2 at the end of the European session.
1-Hour ABC plot:
A = 23:00 high 84.35
B = 03:00 low 84.06
C = 04:00 high 84.18
FE 61.8 = 84.00
FE 100 = 83.89
FE 127 = 83.81 (target)
FE 161.8 = 83.71
FE 236.2 83.50 (hit)
Risk = 11 pips
Reward (projected) = 16 pips
You must add some of the FE levels that are not default on MT4.
Attached on MS Word is the outline of this technique, which we've also copied below. When we have time, we can cycle through the hundreds of posts and attach page numbers to each section.
This may help beginners to "compartmentalize" the various aspects. Since this tutorial is not formal, we can be "all over the map" with our posts. However, I think for the most part, we've seen a steady progression from the basics, to more advanced aspects.
We are currently in the "Advanced" portion of our tutorial. In the next few days, we will continue to focus on bounce trading, trading between the fibs, and cross-pair correlation. After that, we will spend time on candlestick formations and advanced money management.
We hope you have enjoyed our tutorial thus far, and can find some things here useful. We have no hidden agenda. We are not here to sell you anything, or herd you into some chat room.
One analogy, amongst several:
While I don't particularly like to watch this type of documentary or visualize:
We watch the herd of animals (such as Wildbeast) running in earnest in one direction. We, as a handful of lions, are hiding in tall grass. We wait until an opportune time.
Attached as Chart 1 is 5-min EUR/USD, with data arrows, fib extensions.
Chart 2 is the 1-Hour, with ABC plot, with its 161.8 a direct hit during 16:00 hour.
Chart 1
GBP CPI at 08:30 had very temporary cross-pair uplifting effect, until 09:00 negative Euro data, which drove pair to Asian Low. Small pivot and probe below Asian Low was limited to the FE 61.8.
Positive U.S. data (Retail Sales) at 12:30. However, rumors circulated that the Feds will conduct Quantative Easing (QE). This produced a large spike up in EUR/USD, as well as USD cross-pairs.
A = 13:15 low 1.2846
B = 13:50 high 1.2888
C = 13:55 low 1.2873
Asian High 1.2909
FE 100 = 1.2917
FE 127 = 1.2928
FE 161.8 = 1.2943 (target - hit)
FE 236.2 = 1.2976
Chart 2
1-Hour
A = 10:00 low 1.2793 (Sept 13th)
B = 07:00 high 1.2909 (Sept 14th)
C = 09:00 low 1.2829 (Sept 14th)
FE 100 = 1.2845
FE 127 = 1.2976
FE 161.8 = 1.3017 (hit)
******
Spike in volume around 14:10, with no data worthy of mention. Unbeknownst to many, the rumors were spreading with QE. Since breakout was moving very fast, it was difficult to fill near Asian High.
Attached is a more detailed 1-Hour chart on EUR/USD.
Fibo Fan Low = Sept 10th 02:00 1.2643; High = Sept 13th 15:00 1.2890
Fan's 50% caught the pivot to form Point C.
A simple tool many trader use that is not always quite as exact as the ABC calculation;
Use fib retracement tool. Pull from:
High = Sept 14th 07:00 1.2909 (Point B)
Low = Sept 10th 02:00 1.2643
This is the reverse of the Fibo Fan plot.
Result (default levels) are
138.2% = 1.3011
161.8% = 1.3073
When the fib retracement tool is used on the EUR/USD Daily:
High = Sept 6th 1.2918
Low = Sept 10th 1.2643
138.2% = 1023
161.8% = 1.3088 (near 200-EMA)