A-B-C-D Trade - page 54
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U.S. had 3-day weekend.
We had mentioned about a week ago to look out for the EUR/USD break of trend line/channel. Here are parameters for the 1-Hour chart that shows price action with break.
1) Channel Fib Tool:
1st line = Sept 14th 16:00 high 1.3033 to Oct 3rd 21:00 high 1.3806
2nd line = Sept 21st. low 1.3063
The 61.8 diagonal fib has just been hit.
***
2) Retracement Fib Tol:
LOW = Oct 5th 03:00 1.3636
HIGH = Oct 7th 13:00 1.4028
61.8% = 1.3786 (just hit)
***
3) ABC Plot:
A = Oct 11th 07:00 high 1.3974
B = Oct 12th 01:00 low 1.3844
C = Oct 12th 02:00 low 1.3857
FE 61.8 = 1.3802
FE 78.6 = 1.3781 (just hit)
FE 100 = 1.3754
EUR/JPY 5-Min Chart Oct 12th
A = 00:05 high 114.14
B = 04:50 low 113.56
C = 05:35 high 113.75
FE 78.6 = 113.28
FE 100 = 113.18
FE 127 = 113.04 (hit 06:25)
What is the chart telling us? After this extension played out during Asian, it retraced and came back down.
Euro session opened and pair revisited low at 08:45.
Plot retrace fibs from last pivot down.
High = 07:35 113.48
Low = 08:45 113.00
61.8% = 113.28 (target)
Bounce now pushing to 100% full retrace. AND will bounce.
No major data out today during Euro session.
"We had mentioned about a week ago to look out for the EUR/USD break of trend line/channel. Here are parameters for the 1-Hour chart that shows price action with break.
1) Channel Fib Tool:
1st line = Sept 14th 16:00 high 1.3033 to Oct 3rd 21:00 high 1.3806
2nd line = Sept 21st. low 1.3063
The 61.8 diagonal fib has just been hit."
****
Further our last post regarding the channel fibs for EUR/USD on the 1-Hour chart.
Plot Fibo Fan Pointing Down:
Oct 7th 13:00 high 1.4028
Oct 12th 08:00 low 1.3774
The 01:00 candle jus hit resistance provided by the channel's upper line and fib fan's 78.6% fib.
We can add an ABC pointing up as well:
A = 13:00 low 1.3796
B = 16:00 high 1.3882
C = 18:00 low 1.3836
FE 100 = 1.3922
FE 127 = 1.3945 (hit)
FE 161.8 = 1.3975
Let’s look at EUR/USD, just prior and after the FED Minutes, which was released on Oct. 12th 18:00 GMT. Hopefully, you can take something useful out of this extensive list of plots, as well as our overall observations
Session times:
Asian session = 00:00 – 07:59 GM
European Session = 08:00 – 15:59 (U.S. overlaps
U.S. session 2nd half = 16:00 – 22:5
1) The downside ABC that formed Oct 12th near the end of Asian:
A = 05:35 high 1.3879
B = 06:25 low 1.3807
C = 07:15 high 1.3849
FE 100 = 1.3777 (hit at 08:50)
There was GBP data at 08:30. Pair bounced off Point B end Asian before hitting its FE 100. GBP data was mixed with the big one, CPI, coming in as projected.
Although we are not fundamental traders, we believe the GBP would have booked some gains against major currencies had it not been for the impending FED Minutes.
2) We also plotted a retracement set of fibs from Point A to Point B. This allowed us to see the retrace S&R after it retreated from the FE 100.
We watched EUR/USD chop its way up into a full 100% retrace by the U.S. session. Pair proceeded to pivot sharply just ahead of FED Minutes. As expected, the FED Minutes confirmed FED is very willing to enact QE2, which sends EUR/USD up.
3) This is where upward ABC is plotted.
A = 13:55 low 1.3796
B = 16:15 high 1.3882
C = 18:05 low 1.3888
FE 100 = 1.3922 (about same price as the 161.8 fib from plot #2 above)
The spike post-FED Minutes (at 18:20) hit the 23.6% fib on the retrace fibs based on the
4) 1-Hour, plotted from Oct 5th 03:00 low 1.3636 to Oct 7th high 1.4028.
5) Oct 13th early Asian reacted to 23:00 hour data. Yen positive and GBP negative. EUR/USD resumed its upward movement, probably due to Asian reacting to FED Minutes.
We plotted an upward ABC:
A = 00:55 low 1.3920
B = 01:50 high 1.3966
C = 02:10 low 1.3953
FE 61.8 = 1.3875 (same as FE 161.8 from #3 plot)
FE 100 = 1.3989
FE 127 = 1.3999
1.3875 became resistance during Asian. A good bounce opportunity presented itself at 04:40. We believe bounce down driven by low level French data released at 05:30.
6) Plotting the retrace for bounce down:
Low = 00:10 1.3917
High = 03:25 1.3978 (slight overshoot of resistance)
23.6 = 1.3964
38.2 = 1.3955
50 = 1.3947 (hit) this is near FE 127 from plot #3.
7) After retrace halted we plot another ABC upward for break of 1.3875 resistance. Note that there was 07:15 negative CHF data driving this breakout to the upside. Negative GBP also followed at 08:30
A = 06:45 low 1.3493
B = 07:10 high 1.3974
C = 07:25 low 1.3955
FE 100 = 1.3986
FE 127 = 1.3995
FE 161.8 = 1.4006
08:05, extension halted at plot # 5 FE 127, also at round number 1.4000. Asian high was 1.3987. This was an extension-in-progress per above plot, therefore we can pass on this breach of the Asian high. The formidable round number was also looming as a negative impact to a possible trade.
There were 08:30 and 09:00 GBP and EUR data.
After 3 attempts to break 1.4000, EUR/USD dropped back below Asian High and below support of 1.3975 around 11:00 GMT. The next question is where will it go?
8) Retrace fib plot from
Low = 06:45 1.3943
High = 08:05 1.4000
23.6 = 1.3987
38.2 = 1/3978
50 = 1.3971
61.8 = 1.3965
78.6 = 1.3955
100 = 1.3943
138.2 = 1.3921 (hit)
161.8 = 1.3908
9) Switch to 15-min to see swings better. We plot an ABC downward
A = 09:45 high 1.4000
B = 12:0 low 1.3951
C = 12:30 high 1.3974
FE 100 = 1/3943
FE 127 = 1.3911 (hit 14:00) this was also support level seen during U.S. after FED Minutes.
Note Asian Low was 1.3917. Pair bounced and climbed back up to Asian High near end European.
10) And last, we point out the moving of our 1-Hour FIBO FAN low to 23:00 1.3912. This produced capture of high during Oct 13th early European by the 78.6% diagonal fib. The plot for fan’s high was Oct 7th 13:00 1.4028, as previously posted
This change in the low should have happened after the 07:00 candle exceeded the last fib from the previous low plot at the 18:00 candle. We slide low to next pivots as pair moved upward.
11) As we are posting this, EUR/USD just broke resistance at Asian open for Oct 14th. We took European session High to Low retrace fib plot and arrived at 161.8 = 1.4054 (hit 00:15 GMT).
EUR/USD just hit its FE 161.8 of 1.4095. Switch to the 15-min to see the swings better for ABC plot.
Further last post on EUR/USD, pair managed to hit the FE 127 of 1.4115 at Asian session end. Market subsequently behaved within FE levels and the regular 161.8 extension price of 1.4054 (plot = Oct 13th Euro High to Low) acted as support.
We mistakenly referred to the FE hit as the FE 161.8 instead of the FE 100 on the last post.
5-Min Chart
A = 00:00 low 1.3980
B = 00:15 high 1.4056
C = 01:15 low 1.4041
FE 100 = 1.4094
FE 127 = 1.4115 (hit 07:50)
FE 161.8 = 1.4142
Here is the bigger picture:
EUR/USD 1-Hour Chart
A = Oct 12th 18:00 low 13836
B = Oct 13th 08:00 high 1.4000
C = Oct 13th 14:00 low 1.3912
FE 100 = 1.4077
FE 127 = 1.4122 (hit 08:00 candle)
FE 161.8 = 1.4179
EUR/USD Weekly Chart
Fibo Fan:
High = July 13th 2008 1.6038
Low = June 6th 2010 1.1876
61.8% = high of 1.4121 (approx.) hit
ABC:
A = June 6th low 1.1876
B = Aug 1st high 1.3333
C = Aug 22nd low 1.2587
FE 100 = 1.4025 (hit)
FE 127 = 1.4413
FE 161.8 = 1.4914
Retracement Fibs
Nov 22nd 2009 high 1.5143
June 6th low 1.1876
61.8% = 1.3895 (hit)
78.6% = 1.4444
Bounce trade may be upcoming on EUR/USD previous significant high of 1.4121.
Target can be retrace fib or pivot, such as 1.4086.
Note there is 09:00 and 12:30 data.
Price action with ABC has FE 100 at 1.4125, thus we don't panic if overshoot 1.4121 accordingly.
If trading bounce, must exit ahead of 09:00 European data.
Before we get into a valuable lesson on the next post, let's recap EUR/USD for Friday Oct 15th.
Pair did not make it to the previous high per last post, ahead of 09:00 data. Therefore it was a no-trade. It consolidated ahead of 12:30 Canadian and U.S. data, including a scheduled speech by U.S. Fed Chief Bernake.
Although Bernake reiterated the FED's readiness for QE2, market had some profit taking for end of week. This sent pair down in 2 ABC patterns, with each hitting its FE 100. The swings are very clear, so no need to post parameters.
1st ABC went for 60 gross pips, while 2nd ABC achieved about 48 gross pips. All we need is something to drive the pattern, and it was there for us.
Please read the next post as it can shed some light into the pattern, if you have not grasped it already. I'm sure the details/lessons are in some Fibonacci book somewhere.
Let’s examine a way to forecast the Swing C price in an ABCD pattern.
The numbers below represent EUR/USD on Oct 15th after U.S. Data was released at 12:30 GMT. Listed are 2 ABCD patterns from the top, going downward.
We highlighted that the 2 patterns extended to its FE 100 each time. Note that there is probably a slight difference in the chart’s feed price for the 2nd pattern’s Swing B, which we have adjusted to 1.4002.
**********
Essentially, what we have been illustrating in this thread has been that if we know the price of Swings A, B, and C, we can forecast the price of D. The safety check is that price action must break the Swing B price, toward target of D.
As in geometry equations, if we know the answer to 3 of the 4 numbers, we should be able to arrive at the answer to the 4th.
**********
We applied the fib retracement tool to the previous Asian high and low since the market must project a regular extension. The ABC is a more precise tool that can take up-to-the-minute swings to make our forecast for Point D.
If we applied the retracement fib tool to Pattern 2 Swings B to A, we would also arrive at regular extensions that are good targets. For the purpose of Pattern 2, we'll use the previous Asian session.
We understand that the 138.2 and 161.8 have the highest chance to be met on any regular extension. Therefore, we have 2 possibilities for our 3rd number in the 4-number equation.
Pattern 2
A = 1.4094
B = 1.4002
C = ?
D = 1.3975 (138.2% regular extension)
D = 1.3954 (161.8% regular extension)
We also believe that the FE 100 is the most probable ABC extension.
Therefore we can project the probable price for Swing C for each D probable price.
If 1.3975 = FE 100, what is Swing C?
If 1.3954 = FE 100, what is Swing C?
For 1.3975 = FE 100
A + B = (Total A-B Leg) 92 pips
C-D Leg must also be 92 pips to meet the FE 100 criteria.
If D = 1.3975, we must add 92 pips to arrive at the projection for Swing C.
1.3975 + 92 pips = 1.4067 for Swing C
For 1.3954 = FE 100
1.3954 + 92 pips = 1.4046 for Swing C
**********
Pattern 1
A = 1.4156
B = 1.4052
C = ?
A-B = 104 pips
Plotting retracement fibs, we pull from B to A and arrive at probable prices for D:
138.2 = 1.4012
161.8 = 1.3988
If 1.4012 = FE 100, what is Swing C?
1.4012 + 104 pips = 1.4116 for Swing C
If 1.3988 = FE 100, what is Swing C?
1.3988 + 104 pips = 1.4092 for Swing C
As we watch the market form Swings A and B, we can now anticipate 2 likely prices for Swing C. We also must consider that the pullback for Swing C is a fib number of 23.6, 38.2, 50, 61.8, or 78.6.
Next step for Pattern 1.
A-B leg = 104 pips.
Our probable prices for Swing C are 1.4116 or 1.4092
What are the ratios of those to numbers, as it relates to A-B?
A = 1.4156
B = 1.4052
C might = 1.4116
1.4116 minus 1.4052 = 64-pip retracement
Divided 64 by 104 = 61.5% (close to 61.8% fib ratio)
C might = 1.4092
1.4092 minus 1.4052 = 40-pip retracement
Divide 40 by 104 = 38.5% (close to 38.2% fib ratio)
To verify, simply take 104 and multiply by 38.2 and 61.8 to arrive at the above numbers after rounding.
The utilization of the fib retracement tool to arrive at regular extension levels means that the highest probable retracement levels are 38.2% and 61.8%.
Highest probability is A-B = C-D in length (number of pips).
This is the same as assuming that the ABC will extend to the FE 100.
If the retracement is 61.8%, the 138.2 is the same as the FE 100.
If the retracement is 38.2% the 161.8 is the same as the FE 100.
The smaller the retracement, the larger the potential extension (and profit).
So, after all of this
, we’re just looking for either a 38.2% or a 61.8% retracement of the A-B leg. We can either anticipate those 2 levels to place a trade, or we can wait for it to happen and trade the breakout of Swing B price.
If we anticipate Swing C as a trade set-up for entry, we should look for other confirmation. As mentioned before, it can come in the form of another fib or pivot.
In the case of Pattern 1, Swing C happened in the area of the previous Asian session High. This is a significant resistance level.
In the case of Pattern 2, Swing C occurred at a resistance level from the previous Asian session. Draw a horizontal line and you’ll see it.
If we enter at Swing C, we can
Trade to Swing B price, or
Trade to the FE 100, or
Take partial profit at Swing B price and trade balance to the FE 100.
Footnote: The ABC tool allows us to make projections for retracement in addition to the 38.2% and 61.8%, which is done by the fib retracement tool. The “minor” fib ratios are 23.6, 50, and 78.6.
Cheers and have a nice weekend
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