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Chapter 19, Part I. Harmonic Approach to Recognizing a Trend Day Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Patterns that could be found on trend days

    Next we have to discuss what to expect and how we have to act on a trend day. It’s obvious that since the trend day has started, the market will likely not show deep retracements. If there is a strong trend most retracements will not greater than 0.382. If the trend is not so unstoppable, then retracement could reach 0.5-0.618. If this is a really trending day, the market should not show retracement deeper than 0.618. Two major patterns, that you will get during trending days are AB=CD and consolidation pattern. A consolidation pattern usually takes form of classical pennant or flag. But the size of these patterns is strictly harmonic with major harmonic number of EUR/USD – 37-40 pips + 2-3 pips for entry/exit (you have to remember than entry order should be placed slightly ahead the level while stop order - beyond) Hence, retracement could be: 1. 37*0.618 ~ 23 pips 2. 37*0.5~ 18.5 pips 3. 37*0.382 ~ 14 pips. Second, you will not get many chances to enter with AB-CD pattern. It will be luck if you will get couple of them during the whole sessions. So use them! Third, price action during trending days tends to repeat the depth of retracement in value. It means that retracements should be close in term of depth – for instance 18-23 pips for consolidated patterns and 37 or 60 pips for AB=CD. If this is does not hold, then probably trend power is not perfect. Here is nice example of trending day on 5-min chart:

    Chart #4 | Trending day on 5-min EUR/USD

    See – we have just single AB=CD pattern with 1 harmonic value retracement to 0.618 right in the beginning of the trending period. That’s very common. All other retracements holds 0.382-0.5 support levels and not exceed 0.618*37-40 pips ~23-25 pips. Although we can see 27-28 pips retracements inside the consolidation. But think to yourself – this is just 3-4 pips difference! Other retracements were even lower, as we said 14-18 pips. That is quite common for a trending day – harmonic retracement not deeper than 0.382-0.5 Fib retracements.
    Pipruit: But commander, I do not see the gap here.

    Commander in Pips: That’s right, because that was on Tuesday. Most times we will see gaps only on Mondays, if we see them at all. Gaps on Forex are quite rare stuff. But keep an eye on other hints – first great acceleration before AB=CD to the upside, second great acceleration to new highs with strong up bars and without any pullback…
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