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.
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.
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
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:
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:
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:
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.
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!!!
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:
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.
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:
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…
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.
Usually, I don’t publish my work in progress in here; however, a few days ago I deleted by accident more than a dozen of my working charts, and that really upset me.
What good is a forex journal if you don’t keep in it the things you don’t want to lose?
Therefore, I’m back to the messy website I used to run.
The thing I haven’t decided yet is whether to keep it open to the public or make it private.
I’m not sure my journal is still of use to anyone, and I have been growing aware that my main motivation to keep it running open to visitors’ viewing is more for ego reasons that anything else.
Anyway, I’ll decide on that later.
Back to the initial reason for this post.
These are my thoughts for next few days….
And next few months….
Both fractals are bearish butterflies, so they imply possible moves on the downside; but in order for them to be completed we have to go up first.
of a top in USDCHF?
When USDCHF reached the 0.9770 high, forming a bearish butterfly, I assigned it only a 25% chance of it being the top, since it was at odds with my wave counts.
When it reached the 0.9970 high completing a bearish crab, I gave it only 50% probability since still the wave counts were not convincing.
However, I have given that said high a 75% when price action broke the 0.9420 support line.
So, can we say that we have our very long term top yet? No, not yet…
This currency pair is holding up supported by the ascending trendline shown on chart.
Wave-wise, I still have both a bearish and a bullish count, and on top of that, there’s the possibility of a bullish and a bearish fractals completing in next few months. So there’s nothing written in stone just yet.
I will post the charts with the counts and the fractals in future posts. For now, suffice to say that either 0.9604 or 0.9237 need to be broken for one of the sides to prevail.
So, the line in the sand at 0.9420 gave way. Now we know the swing from 0.9970 is NOT a wave 4 but, what is it then? I’m not ready yet to answer that, but this much I can tell you: it still doesn’t look like an impulsive wave to me.
Then, I’m leaving the wave counting for a brighter day. The gift that the charts gave us today was of a different flavor: a Harmonic Fractal, in the way of a Bullish Bat. Actually it is the bat that failed a couple days ago, but in a modified and very rare version that I have seen only 2 or 3 times.
I don’t know if this bat is going to do the trick of a correction up but I thought of posting it just in case.
Just a heads up. A Bullish Bat has been in the charts since last Friday.
I didn’t published it back then because I was waiting for the point D to be clearly defined. However, almost a week has passed and Price Action hasn’t been able to get pass the 0.9501 low, so I’m officially calling this low the point D, although the PRZ runs from 0.9510 down to 0.9455
It’s hard to say what is going to happen, with NFP due tomorrow. We may yet have a marginal new low within the PRZ or we may start to reverse up in full force from current levels.
USDCHF has found what could be a stroung support area from which to launch the final attack to parity.
0.9537 touched the 0.786 Fib retracement from the 0.9420-0.9971 upswing, along with an ascending trendline (dotted orange line) AND the lower limit of the bullish Ichi cloud; additionally, the Chikou Span rebounded after hitting the upper limit of the Kumo, confirming there might be room for one last leg up.
I’m treating now the downswing from 0.9971 as a corrective wave 4, as long as 0.9420 holds.
If we indeed reverse up from 0.9537-0.9420, then the work of the Daily TF Bearish Crab is done already.
In my last post I indicated that I finally decided to go short again on USDCHF, and explained the reasons for it. I didn’t attach the charts to visualize said reasons though, so I’m publishing them on this and next post.
First, the big crab. It barely touched the lower reversal zone, at 0.9770 but it’s finally done:
Second, the smaller, companion crab, visible in the 4hr chart, which too just touched its own reversal zone:
If you remember the previous fractal, a bearish butterfly, that helped to carve the big crab, I said back then that said fractal wasn’t the real deal, and that there was only a 25/75 chance of it being THE TOP.
So, now that the crab if completed, is this the top? I wish I could say I’m sure, but the odds are about 50/50 of this one being THE TOP.
Why so much hesitation of my part lately? As I mentioned in previous post, the crabs are at odds with one of two possible Harmonic EW counts I have in mind. I’ll publish them in coming post.
That’s the time that imho it will take for this correction on USDCHF up from 0.70xx to be finally over.
First, let’s review the charts of our last 2 posts and see their updates.
About a month and a half ago a bearish butterfly showed up. I said back them that its effect would be limited, and the downside would be confined to a narrow area (lower yellow triangle). This is the updated chart:
USDCHF indeed bounced from the expected area and now it’s well on its way to parity.
While there’s not serious obstacle for this ccy pair to head directly to parity, I’m inclined to think there will be a little pullback before the final high. This conviction comes from Harmonic Elliott Wave:
Also on the same post from June, a chart was shown with the most probable count for this upswing. In next chart we see a corrective wave 4 indeed developed, and we are by now in the middle of terminal wave 5.
In Harmonic EW impulsive waves are made of 3 swings, not 5… so if we just finished subwave -a-, we should have a pullback in the form of subwave -b-. While it can be very small, I think it will be medium sized and it will take the whole or most of next week to develop. The following 2 weeks should see the formation of subwave -c- of 5…. that would conclude this series of impulses waves that form part of a bigger wave C of A of higher degree…but I’ll talk about that in a month or so.
The important thing here is that we are in what I believe to be the final stages of a big corrective upswing… and once it’s done in 3 weeks or so, then we will have the opportunity to get short again and stay bearish for the long term.
There is more evidence that USDCHF is preparing to reverse instead of blasting through parity, and that’s in the form of the now often formation of alternate bearish/bullish/bearish fractals of several sizes. When they appear in this alternate way and in a consistent basis..that’s a warning that the prevailing trend it’s about to change.
One said fractal is the Bearish Butterfly whose updated chart was just posted above, the other is the Bullish Bat that formed after it. By the way…here’s the update to that chart:
This small Bat actually caused a bigger reversal relative to its size than the much bigger Butterfly… this is because this bat goes along the prevailing trend while the butterfly went against the trend. Besides..in Elliott Wave jargon, the butterfly was due to cause a corrective move, while the bat was due to cause an impulsive wave. So… position relative to the Trend and relative to Elliott Wave count is important to calculate how big a move after a fractal can be.
Which brings me to the last fractal formed… it finished just today, and it is a Bearish Butterfly:
This bearish fractal and the possibility that we are not done with the wave 5 just yet… is what prompts me to postulate there will be a pullback before the final top. Since said downmove shuldn’t go beyond the start of wave 5, the area for the end of this pullback is confined to the yellow rectangle, roughly between 0.9700 and 0.9600
Only 2 final thoughts:
1. both bearish butterflies…the big and the small one, have the potential to morph into crabs, and with their point D ”by coincidence” at about parity in both cases. So there’s a good chance this will be the price target for the long awaited reversal.
2. however, experience has shown me that we shouldn’t be so rigid with our expected targets, so if we try to widen our target area for reversal… we can have 0.9916 and 1.0065 as our lower and upper limits for the possible reversal, and we can even widen this area further…in fact we can already have our top in place, once we went over 0.9850… although that’s a slim possibility.
I can expand on point 2 and explain from where I took those targets and numbers, and also mention other clusters of resistance… but this post is already too long.
If I feel it may be of value to post that info later..I will do it at the proper time.
For now… let’s be patient for 3 more weeks or so. Or you can always just go short now…but you gotta have at least a 300 pips-wide StopLoss, something that most short and medium term traders aren’t even willing to consider lol…such is the Forex world today…
It seems like the wave 4 in USDCHF it’s done or in the process of ending, after 2 weeks of see-saw. While there’s no guarantee of it until it starts rebounding, there’s a signal in the form of a Bullish BAT in the 4H chart, that just completed with the dip to 0.9420 at market open. Besides, this dip is a weekend gap, and most of them are retraced.
While I’m trying to curb my enthusiasm for entering into contrarian trades, I just can’t deny my nature, so I entered some longs already, but I’ll wait for a clear reversal confirmation before adding more… well that’s a start for me lol. I’m trying to be what I would call a “delayed contrarian”, if such classification ever exists lol.
My dear friend Melbgirl posted in her blog last week the ongoing formation of a bearish butterfly on USDCHF.
I have to say I’m completely in accord with her. In fact I had been watching this development for a couple months already, only I expected the harmonic pattern to be a Gartley, with price stopping at about 0.9450 area.
USDCHF had other plans however, and here we are above previous 0.9594 top, and just completing the butterfly already spotted by Melbgirl:
The thing is, I’m not jumping in happiness though. You may be wondering why, if that’s what I have been waiting for in the last 3 months: a signal to go short.
There are a number of reason I’m reluctant to call 0.9770 THE top. Each of them alone wouldn’t make me doubt, but taken together they spell caution:
1) Momentum. The upswing has been just too wild, too strong, as pointed out in previous post.
2) Price Attraction. We are just too close to parity now. That is acting as a magnet for price action to touch it before turning south. Besides, long term players surely are stacking their SL for their shorts there by now… an invitation big sharks, ahem, banks, can’t resist.
3) Another Fractal. The butterfly just completed has good and valid Fibonacci ratios and has already started to affect price to the downside. However, its point B sits on a 0.618 ret of the XA leg, which is far more common in Crabs that in Butterflies. This points out to the possibility of us dealing with a possible two-right winged fractal, with the second righ wing eventually forming a Crab if price reaches parity.
4) Harmonic EW. The breaking of 0.9594 has altered my count, and I’ve been forced to shift from Traditional Elliott to Harmonic Elliott once more, and so what I thought would be a wave C is a wave 3, so waves 4 and 5 are still to come, meaning in plain language a higher top is coming.
Taking all these factors together they make a convincing case to still be cautious at this point in the game.
Where does the butterfly fit in the scheme of things then? Maybe instead of being the trend-change trigger we were waiging for, it is just the force to temporarily halt the USD train, to carve corrective wave 4, and to serve as warning that the rally from 0.7065 is almost over. The crab, if formed, would be the real deal though.
The only thing for certain for now is the line in the sand for one scenario of the other: If the butterfly is just the trigger for the wave 4 instead of the signal to go all nuts shorting, then said wave 4 shouldn’t break the lower limit of wave -b- of 3 (about 0.9366). If that line is broken, then there won’t be wave 5 and we are on our way to sub-0.80 levels already…
I really hate to be the one crapping on the party when I really want to go short by now, but just can’t recommend doing it at this point in the game. At least not shorting massively anyway.
Maybe this fractal is showing the direction for next few days…
As I wrote in my last tweet, I think the Medium Term bottom in the USD is already in place.
My affirmation is based on Harmonic Elliott for USDCHF and the 3 Geometric Fractals depicted in next 3 charts, all of which signal a coming reversal.
I have been following the formation of the USDCHF bat for weeks already, so no surprise for me there. But looking for a kind of support to my pov I looked for reversal patterns in the EURUSD and GBPUSD, and there they were
The line in the sand for my HEW count and the success of the Bearish Bat in USDCHF depends on 0.9297 holding.
Lately I have been checking out the Ichimoku analysis system, to see how I can integrate it into my toolbox.
The verdict so far? While it is a great way to get the general idea of the state of a ccy pair, it’s not going to replace my entry/exit system anytime soon -with all respect to Ichi fans -.
One area where it can be really useful though, it’s in finding probable areas of support/resistance to a established trend, so I’m definitely including it into my forex tools
Let’s see an example with the following USDCHF chart, which by the way is a follow-up to the AB=CD fractal that prompted me to go short 2 weeks ago.
I tried to make the chart self-explanatory but it ended a mess of words lol. Anyway, you can see why I’m not giving up Fractal Geometry as my main decision tool regarding entry/exits: While I went short at the completion of the bearish AB=CD and a TEW Flat (wave 4), the break of price over the Kumo 2 days later was indicating a bullish stance.
Price went down later, and I added shorts in a rebound to 0.99 based on Fibonacci retracements and Elliott; in this case Ichimoku didn’t signal shorts either, since price was inside the Kumo, and you’re not supposed to trade inside it.
Finally, I opened some hedge longs under 0.9600, again based on Fib and Elliott (Harmonic version in this case, more about it in another post) in anticipation of a pullback for the next 2-3 days. And again, Ichi didn’t provide any signal here. Well, at least not the signal I was waiting for :D; there is a Kijun-Tenkan cross inside the Kumo, the first valid signal in the Ichimoku system to go short. I place a vertical line to relate it to the correct candlestick. If I had followed this to the letter, I would have opened my first short position 500 pips and 12 days after the top… mmmhhh, not very efficient if you ask me.
Even a conservative break-out trader would have opened a short earlier, at the start of the day, when price broke the ascending trendline at about 0.9680
Don’t get me wrong, I’m not trying to trash Ichi, I’m just trying to assess its correct place within a trading system. And here it is imho: Ichimoku is an excellent way to find the most probable points of support/resistance to an established trend, and as confirmation for trades opened earlier by your own entry system, when Ichi finally gives its own signals.
As an example I highlighted in yellow circles the area where I think price may rebound in coming days; which coincides with the Senkou Span A (lower boundary of the bearish cloud) and ascending trendline. At about the same level the Chikou Span would encounter resistance from the Kijun Sen.
Now, if I were a “renegade” Ichi trader, I could use the early signs of the Ichi chart to enter (failure to go up much beyond the Kumo first, and the resistance offered by the Kijun Sen to price action inside the Kumo), but that would still leave us with the problem of the EXIT, besides I’m not sufficiently proficient on Ichi to start bending its rules and guidelines. So, I’d rather be a renegade Fibonacci trader
In short, Ichimoku is a great way to get a feeling for the state of the market and to find support/resistance, but as it is a lagging system, it will only be a supporting tool in my trading decisions, but hey, all the help I can get is welcome
There is a bearish AB=CD pattern in the USDCHF pair. If it holds it would signal the resumption of the downtrend for this ccy pair.
This is not the only scenario. My good friend Asher pointed out a week ago the lately bullishness of the USD, but he also reminded us that the weekly TF is still bearish. So at this point in time it could go either way.
OK, people… finally I have some time to sit and write a real post.
First of all, an apology to the few people (maybe two? hehe) who still come everyday and check my website. I have been rather busy in non-trading stuff since November and that has clearly been reflected in my lack of posts. I managed to write a few posts in the fxroom forum, so people who visit both sites saw some scattered updates there…
Today I want to make a sort of update in the only currency pair I’m still trying to follow and trade with: the USDCHF.
We will start with 2 ”old” charts posted in previous months, just to keep things in perspective and refresh our memory
This bullish “quasi” butterfly formed in 2008 is the main reason for my bullish stance on the USD. I posted this chart in summer of ’09 and it’s still valid, since the USD just dipped slightly below parity in November ’09 and has rebounded since.
However, one of the ‘secondary’ (smaller) fractals didn’t prove to be as effective:
This bullish BAT looked very promising when it formed last year, and I thought it would be the “helper” that the monthly butterfly needed to make USD fly. You know what happened: the CHF took the US dollar below parity in Nov -09, making this bat invalid.
However, there’s always a silver line: the bat morphed into a butterfly, which seems to be the real deal:
The date in the chart should be December 12, 09… my bad.
I posted this chart in the fxroom at the time:
Where do we stand today? Well, price has bounced up to 1.09 in what looks to be the start of a new bullish trend. However, no trend is in straight lines, so maybe the Dollar is due for some consolidation and/or correction before going higher. Looking for clues to this correction I found a bearish fractal in the daily timeframe, which just finished forming last Friday:
A few things to consider, though:
This is a relatively “small” fractal compared to the weekly and monthly bullish butterflies, so don’t expect it to cause the USD to go lower than Nov ’09 bottom.
Even though this is a BAT, which imho is a very powerful fractal, the right wing was formed in a really steep bullish slope, which indicates that the up trend is indeed strong.
In light of that, I’m gonna try to be careful and wait 2-3 days before for some sort of confirmation before going short (by using hedges to my long positions from below parity ) and not go overboard and overleverage or anything too risky.
OK, folks, that’s it for today. I gotta run again now. There’s much more to update and post: EURUSD, stock markets (DJI and SP500) but that will have to wait…
Take care and trade even more carefully!
I was saying in the previous post that the bearish butterfly in the monthly TF EURUSD has some personal history.
OK, here’s what happened last year:
During that summer I had just started learning Fibonacci fractals, and was naive (even more than now, if you can believe it, lol) and perfecctionist. I had seen the possibility of the butterfly to form based in this chart:
The Euro was introduced in 1999. For the previous years the German Deutschmark is commonly used as a proxy for the Euro (which speaks volumes about who’s the Boss within the Eurozone economy).
Taking the 1.4574 high from 1992 to the 0.8220 low from 2002, a new high of approx. 1.6300 at the 1.272Fib ret extension could have been plotted, as in next chart:
The only problem was that the Euro never got that far.
As a new student of Fibonacci theory, I was a die hard perfeccionist, and was expecting for Euro to be taken exactly to 1.63 before going short on the pair. No way the ccy pair would dissapoint me by falling short of my price target. You know the rest of the story, and after going briefly above 1.6030 the Euro hasn’t looked back since.
Here was the twist: Fibonacci retracements/extensions aren’t numbers to be met exactly to the last pip, but rather wide areas of possible reversal, with a leeway of several percentage points to both sides of the Fibonacci level.
Of course I didn’t know that back then, an paid dearly in the way of a wonderful trade missed.
As you can see in the Euro chart from previous post, the Euro did get up to the 122.2% level, 5% below the 1.272Fib ret I was expecting. 5% is the maximum margin of tolerance I usually allow now for drawing fractals, so this butterfly indeed finished forming there.
Since then I promised to myself not to be so damn perfeccionist and allow price action to do its thing, and be on the look out for “not so perfect” fractals that might give bigger rewards, instead of waiting for the “perfect” one to come along, that sometimes does come, but as I have seen many times before, ultimately fails, lol.
Two months ago I published a “quasi” fractal in the monthly USDCHF, and promised to publish its sister butterfly in the EURUSD.
Here it is, along with the Swissy pattern for comparison:
They aren’t exactly twins. For one thing, the Swissie pattern is a big smaller, spanning 13 years from 1995 to 2008, while the Euro butterfly extends within the 1992-2008 period, making it a 16year fractal, the biggest I have seen this far. Both of them are similar in that they ended within the 1.272XA range, but their point B is completely different: 0.886 for Euro and 100% for Swissie.
I chose to publish the bearish Euro butterfly today as a reminder to all Euro bulls that we are actually in a down trend since July of 2008, and while a retest of the 1.60 highs is possible, it is improbable imho. In my view we will have a high between 1.52-1.55 before year’s end, and down we go again.
Also, technically speaking, this fractal pattern is already successful, since it has made price to retrace beyond the 23.6 and 38.2 marks, and touched briefly 0.47 ret, which is already within the area of the 0.50Fib retracement. (This may have bigger implications in years to come, but only time will tell if what I’m suspecting will crystallize).
The story of this bearish butterfly has certain personal importance to me, but I’ll tell about it in next post.
This is a pattern that I’m still reluctant to call it a proper fractal. However, I’m keeping an eye on said patterns because if I see enough of them being successful I will add them to my arsenal.
It is a ‘quasi’ butterfly, with the point B at almost 100% of XA.
It has already made price to rebound to the 0.236 & 0.382 fib levels, so it’s actually already fulfilled minimum requirements for a succesful fractal.
There are several factors that make me think this butterfly won’t make price retrace much from present levels. For one, the slopes of AB and CD legs are really steep in comparison to XA, BC legs, which tells me the momentum is to the downside and the rebound won’t be too high.
Second is the point B itself, as I have pointed out, the 1.0XA tells me the pressure is down.
Third, according to my two EW counts left standing (see previous post) this fractals should cause a retracement in the form of EW corrective wave 2 or 4 that should get to a point between the 3 red arrows area.
4th, The last arrow corresponds to the weekly Fib Pivot Point, that will result in great resistance if the bias is still down indeed.
There is another reason why I decided to draw this ‘quasi’ pattern: its similarity with the monthly fractal in the same pair. Seeing the reaction of USDCHF to this 1hr butterfly can give me clues as to the possible future behavior of this ccy pair in the larger TF.
OK, this is the first of a small series of charts where I try to explain my long term bullish stance in the USD/CHF.
I’ll start with the monthly timeframe.
There is a pattern that spans from May 1995 to April 2008. A period of practically 13 years is huge in the Forex markets, so this figure reserves some careful consideration.
Now, as much as I’d like to call it a butterfly, I just can’t do it. Too many guidelines broken, but the crossed line in the sand for me was the double bottom in January 2005: What should be a retracement of maximum 0.886 is almost 100%.
However, looking at the inverse correlated pair, EUR/USD (chart will be posted later in the week) we see that actually there is a bearish butterfly in the monthly TM. This is an irony since I like the swissie better because it gives more solid fractals than the eurodollar. So I guess this time around it was the EUR/USD who came to the rescue.
Then, considering that the Euro has a bearish butterfly we would’nt be far off the target to take the swissie “quasi” fractal as a possible bull signal.
Another thing that adds to the argument of an eventual strong dollar is the low of 2008 is below parity. I don’t have a charting software going back in time farther, but I would venture to say that is a really low point for this pair if not the lowest.
The other arguments are fundamental ones, but that’s not my forte, so I’ll leave it to the experts in the matter to delve on that…
More charts during the week