"always an apprentice"

Posts tagged “Fibonacci Fractal

Reversal or Correction?

There’s a confluence of bearish Harmonic Pattern and a Harmonic EW count finished at 1,600.

Now the big question is whether this is the anxiously awaited top and the reversal has already started, or it is only a correction.

Hard to tell at the moment. I’m weary of calling a top especially since in order to perfect a Harmonic EW count on the higher TFs it would preferable another 5-wave move in the 4HR TF after a correction. Or if this is a regular EW count then we are done… LOL nothing’s for sure at the moment.

What seems to be a guide is the 1,575 level. It has been alternately resistance/support/resistance and it happens to be the 0.382 Fib retracement of the 5-wave upswing. If that level is broken and there’s follow through I think the chances of this being a real trend change would greatly increase. If this level holds then we might see a further 5-wave move up to the 1,620-40 area.

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SPX 05.01.2013

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Tight rope to walk

I should have know by now that trading during the December holidays is not a good idea.

Last week was very rough on me. My long trade on USDCHF  at 0.9250 was stopped out at break-even, and my return to trading EURUSD hasn’t been better. I have had to endure some losses there, but so far I have managed to stay afloat.

OK, enough whining. What now?

Elliott waves (in their 2 variations) haven’t been too helpful lately (or is it me who haven’t interpreted them right?)

Then we have my old good Fibonacci Fractals…but wait..they have been rough on me lately too LOL

I ran some Fibonacci ratios on several charts and diff TimeFrames and the results are more confusing than ever. Anyway I’m posting them for future reference:

Chart 1 is the 4H USDCHF: We got our bullish Bat AND our Alternate Bat… however the last fractal can as just easily morph into a Butterfly or even a Crab. See, this is the hard part of having a fractal with its B point on a 0.382 Fib ret: that the fractal can take many shapes.

Chart 2 is the Daily USDCHF: Apparently there’s nothing there. Well at least there is none of my regular fractals. But I have been reading some new material last few weeks, and it seems like I need to update my knowledge of Harmonic patterns. If the new research regarding this is correct, there are 2 fractals there: a fully formed Cypher and a potential Shark. The confusing part is that these 2 patterns are very similar in their points of origin, only differing at the end. So here we have a situation similar to the Bat/Alternate Bat conundrum.

Chart 3 is the Daily EURUSD: I thought EU could shed some light on UC, but it only made things worse: There is nothing there, be it regular or new fractal. We are at a point where we should have a Cypher in there, but some of the Fib ratios to make it a valid pattern just don’t match. A much better option would be a Shark, which would have all its Fib rations in order, but for it to be completed PA has to keep going up to around 1.3320

Chart 4 is the Daily EURJPY: A comment from Melbgirl, saying that if EJ tops then there’s a better chance of EU topping, made me take a look at this ccy pair, and indeed there is a Shark fully formed in there. The Fib ratios seem to be OK, but there is also the chance of it morphing into its Alternate Shark. (man these new patterns made the Harmonic landscape more confusing, even though richer).

So, after studying all these charts: where do we stand?

Imho there’s as much chance of the 3 ccy pairs to start reversing as there is chance of all 3 or 2 of them keeping on going to meet their ultimate targets.

To make a summary, right now we have:

1. 4H USDCHF: Alternate Bat

2. Daily USDCHF: Cypher

3. Daily EURUSD: Nothing

4. Daily EURJPY: Shark

What these patterns may morph into if PA keeps going in main direction is:

1. 4H USDCHF: Butterfly or Crab

2. Daily USDCHF: Shark

3. Daily EURUSD: Shark

4. Daily EURJPY: Alternate Shark

In light of all these many possibilities, and the fact that we are entering the last 2 weeks of December when trading turns very dangerous on thin volume conditions, I’m cutting back on my trading positions.

The prudent thing to do would be to simply stop trading altogether, but I know I would be cursing myself is indeed I’m right about the first scenario and all 3 pairs reverse from current highs and I didn’t get in.

There’s also the 50% chance of at least 2 or all 3 of these ccy pairs to reach more extreme levels… and that’s why as soon as the Asian session opens on Monday I’m reducing my short positions on EURUSD to between a 4th or a 5th of their usual position size. If I’m right then I’ll start adding up as price reverses. Regarding USDCHF I am flat since I was stopped out at BE, and I may stay flat until I see what’s going on there. EURJPY, I am not touching it at all… I don’t know this pair but by the looks of it, it seems things can go crazy real quick in there. I’ll keep an eye on it though to gauge the possibility of EURUSD topping with it at the same time, as suggested by Melbgirl.

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Collaboration

We people in Forex know that trading is a lonely business. It just has to be. However, that doesn’t necessarily have to apply at the analysis part of it.

It is better for us to keep to ourselves the decision process and actual trading: opening, managing and closing positions. But we can help each other in the analytical part of this business.

Before I go to that point, let’s recap a little my view from last week and what happened Monday/Tuesday afterwards.

First off, the little crab in EURUSD indeed completed forming, making a duo with the already finished bearish bat.

By extension, the bigger bullish bat in the USDCHF also was finished. I really didn’t want it to complete this soon because that implies a very likely new low under 0.9213 after a relatively small bounce.

That didn’t go well with my long term view in UC which calls for a high over parity in this ccy pair.

My mind was trying to come with ways for USDCHF to avoid a lower low under 0.9213 while at the same time allowing the EURUSD a higher high above 1.3007; hence the thoughts on the last part of Saturday’s post. But honestly, the locked peg of EURCHF makes that highly unlikely.

Here’s where the collaboration between Forex traders can really help, in the way of shared analysis.

First, there was a comment from Melbgirl on Twitter turning my attention to an old gap in USDCHF which hasn’t been closed yet @ 0.9183

https://twitter.com/1hourworkweek/status/272229132685942784

Then, Master Stryker on DailyFX Forum turned my attention to the possibility of USDCHF going down as far as 0.9175ish before any significant retracement/reversal can take place:

http://forexforums.dailyfx.com/eur-usd/513426-discuss-eur-usd-h2-2012-a-21.html#post1443916

Two similar views from 2 of my most respected Forex analysts couldn’t be lightly ignored. Still, stubbornly I stuck with my expectation for USDCHF not to break 0.9213, although at least allowing their view as a Plan B:

http://forexforums.dailyfx.com/eur-usd/513426-discuss-eur-usd-h2-2012-a-20.html#post1443997

However, their comments got stuck in my mind, and after one day of pondering and considering alternatives, I came to accept their viewpoint as the most likely scenario, therefore making it my Plan A.

The things that made me turn around were first, the ironclad peg in EURCHF already mentioned, that for now makes USDCHF to dance to the tune of EURUSD, and since I’m also of the idea of EU making a new high, over 1.3007 sometime on December, I had to consider a new low under 0.9213 for USDCHF.

Second, there is a way to allow the low and still have a reversal: an ALTERNATE BAT, which although rare may happen from time to time.

Third, this Alternate Bat in a lower low would form part of another, huge fractal in the Daily TF charts… This is a fairly new Harmonic Pattern, called a Shark. And it is because of its newness that I always forget to look out for it in charts. Anyway, this Shark would allow me to have my cake and eat it too, ergo, to allow a new low and still have a reversal up to above parity.

Fourth, at the same time the Alternate Bat will be formed as UC touches 0.9175ish, a Regular Bat of about the same size will finish forming in EU around the 1.3070-80 area.

So, everthing falls into place!

If this scenario turns out to be the correct one, then all we have to do is to wait for the current correction to finish in both ccy pairs and then witness how these Fibonacci Fractals are finished.

I know an image it’s better than words, so here’s how it would look.

The RED trendlines are all Stryker’s lines, taken from his charts. The rest (green lines, blue fractals and yellow rectangles) are mine. You can see here how they complement each other nicely:

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The smaller rectangles correspond to the area where I think is more likely for EURUSD & USDCHF to turn and head for their new extreme prices. Timewise, it can be anytime from Wednesday’s London Open to Thursday’s NY Close.

Note: I made the thick green line to hit the middle of the little rectangles, but indeed the reversal point can be anywhere within the rectangles.

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I want to thank again Stryker and Melbgirl for helping me see the light, and see this more likely scenario.

Thank you guys! you Rock!!!


updates

The Trading Journal I opened in DailyFX forum on September has proven to be time consuming, and I have neglected my main Forex Journal in here.

Therefore, this post is a kind of catch-up with USDCHF latest moves.

The butterfly spotted in the 4hr chart and published 2 posts back finally completed:

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And it indeed caused a good reversal. In fact too good, since now is threatening to take out the low of 0.9213, which would erradicate my long term view of a final high over parity.

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The slope down is really scary, but if PA stalls at the 0.886 Fib ret then we might have our reversal up. Alas, If the resulting bat is not strong enough we migh have a new low and the probabilities of price over parity again would diminish greatly.

There’s a clue as to possible next waves, coming from EURUSD, which already has a bat of its own fully formed, although smaller:

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There is a conflict of interests with these 2 ccy pairs that I don’t know how will be resolved:

While USDCHF needs to start the reversal within an already tight space, the EURUSD still has a lot of room to the upside for its own correction to keep developing.

One of the ways this conflict could be resolved is that USDCHF completes its bat early next week and start rallying, whitle EURUSD lags and eventually makes a higher high while USDCHF only makes a higher low at the same time… then both can start moving in lockstep again.

This may happen but that would imply the small bat on EU would get invalidated; although a bearish butterfly on a smaller scale would take its place.

Another way to resolve this is that both ccy pairs reject current momentum and correct for a week or so, and then both go down/up again, and while UC would complete its bat, the EU would complete another fractal of a bigger scale, probably a Gartley.

Monday is going to be interesting…


Deep Crab H1

First bump on the ride up for USDCHF.

It comes in the form of a Deep Crab in the hourly TF.

I expect the retracement to be well contained between the Weekly Pivot & R1; then PA should continue up to complete the butterfly at the 4hour TF.

NOTE: This is a regular Crab, not the Deep version. I was half slept when I drew it lol.


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