Triantus Shango
Sergeant Major
- Messages
- 1,371
what happened today with my trade on CHFJPY reminded me how far i have come along this road to FX hell and back, and how i used to face the same issue in the beginning and i suspect many people still wonder about this particular issue. so i got lucky today with CHFJPY and would like to use this as an illustration. i've included the links to the chart--a textbook example. but first, a little explanation re the context of what happened.
i was using tradingview.com and for some reason their system had a hiccup and my study template could not be attached to a new chart anymore. so when i opened the CHFJPY i couldn't attach my technical indicator setup. and i couldn't be bothered to do it manually, again specifying the different inputs and so on.
so suddenly, i was trading a naked chart for the very first time!
and that's when i spotted this structure on H1/M30. then i dropped down to M15 to have a clearer view. ok, long story short, as you can see, we have a butterfly buy that is particularly harmonic.
Link to chart: https://www.tradingview.com/v/teOdfSNI
Link to image of chart: https://www.tradingview.com/i/teOdfSNI
now, the point i want to make is not that this is proof that such structures should always be trusted to work because unfortunately they fail miserably at times (as sive is fond of saying ).
what i'd like to do instead, is draw your attention to the point where the structure was completed.
3 main issues here:
1- how do we know when to enter long?
2- where the hell do we put the SL?
3- when is the move over and where should we close?
to answer (1), i'd like to say that first we need to know where the significant S/R (support/resistance) levels are. in this particular case, the lime green line where the butterfly completes (a little under it) is a 61.8% fib retrace level drawn on H4 on a major move up that ended where the butterfly's A point is. so we have a classical S/R (in this case R or RSST) level.
and what happens at the 61.8% SPPT (support) level? there is a stop grabber (pinbar candle) that drops through the 61.8% fib, the 1.272 extension of XA, past the 1.272 projection of the AB=CD structure inside the butterfly and stops right before the next fib projection of 1.618. that space, defined by the all these fib levels is what Scott M Carney calls the PRZ, or Price Reversal Zone. but the key is: do we have a significant S/R level there? if we don't, that's when usually the pattern fails or the pinbar candle or stop grabber doesn't mean much.
in this case, we do. and accordingly, after the pinbar appears, market completely reverses and rockets back up, first 70 pips or so, then more.
the answer to (2) is more tricky. some people put their SL right after the 61.8% and their LIMIT BUY order right in front of the 61.8%. that's why there is a stop grabber there, trying to nab those stops on the other side of the 61.8% level. the strength of these levels seem different on different instruments. on XAUUSD, we can easily see 70 pip long stop grabbers reaching all the way to the next fib level, 78.6%. so, to be safe, after seeing the depth of the pinbar, i'd put the SL right beyond the last fib projection price has touched or come close to, in this case, the 1.618 level. also note that the 105 handle is in this PRZ. if wrong, fine, the stop is only 10 or so pips away. no big loss (as long as you don't over-leverage.)
as regards (3), take a look at the top of the chart. what do we see where we have another lime green line (another significant 61.8% retrace level drawn on a higher time frame) and the agreement area where we have the 1.272 fib extension of the CD leg and the COP 61.8% level is as well (as defined by Joe DiNapoli in his book 'Trading with DiNapoli Levels' and not shown here so as not to overwhelm the chart)?
we have another stop grabber, the candle with the very long wick. a 2nd attempt to pierce the level with a bullish engulfing candle, then an immediate reverse bearish candle, and market drops from there 40 pips. so that could have been target 2 and the lower 61.8%/AD fib the first target. whether or not market will continue its move up beyond that agreement area (where the pink line is) is irrelevant for this trade. the stop grabber piercing the level beyond the A point is our signal that this has been the run. for now. time to take stock again.
this is textbook. amazing. i only wish it always were like this on all pairs. nonetheless, the key take-away is:
always determine where the most significant S/R levels are as it will give more strength to harmonic structures and validity to stop grabbers. then your potential TP become clearly visible and where to position your SL also becomes evident.
i was using tradingview.com and for some reason their system had a hiccup and my study template could not be attached to a new chart anymore. so when i opened the CHFJPY i couldn't attach my technical indicator setup. and i couldn't be bothered to do it manually, again specifying the different inputs and so on.
so suddenly, i was trading a naked chart for the very first time!
and that's when i spotted this structure on H1/M30. then i dropped down to M15 to have a clearer view. ok, long story short, as you can see, we have a butterfly buy that is particularly harmonic.Link to chart: https://www.tradingview.com/v/teOdfSNI
Link to image of chart: https://www.tradingview.com/i/teOdfSNI
now, the point i want to make is not that this is proof that such structures should always be trusted to work because unfortunately they fail miserably at times (as sive is fond of saying
). what i'd like to do instead, is draw your attention to the point where the structure was completed.
3 main issues here:
1- how do we know when to enter long?
2- where the hell do we put the SL?
3- when is the move over and where should we close?
to answer (1), i'd like to say that first we need to know where the significant S/R (support/resistance) levels are. in this particular case, the lime green line where the butterfly completes (a little under it) is a 61.8% fib retrace level drawn on H4 on a major move up that ended where the butterfly's A point is. so we have a classical S/R (in this case R or RSST) level.
and what happens at the 61.8% SPPT (support) level? there is a stop grabber (pinbar candle) that drops through the 61.8% fib, the 1.272 extension of XA, past the 1.272 projection of the AB=CD structure inside the butterfly and stops right before the next fib projection of 1.618. that space, defined by the all these fib levels is what Scott M Carney calls the PRZ, or Price Reversal Zone. but the key is: do we have a significant S/R level there? if we don't, that's when usually the pattern fails or the pinbar candle or stop grabber doesn't mean much.
in this case, we do. and accordingly, after the pinbar appears, market completely reverses and rockets back up, first 70 pips or so, then more.
the answer to (2) is more tricky. some people put their SL right after the 61.8% and their LIMIT BUY order right in front of the 61.8%. that's why there is a stop grabber there, trying to nab those stops on the other side of the 61.8% level. the strength of these levels seem different on different instruments. on XAUUSD, we can easily see 70 pip long stop grabbers reaching all the way to the next fib level, 78.6%. so, to be safe, after seeing the depth of the pinbar, i'd put the SL right beyond the last fib projection price has touched or come close to, in this case, the 1.618 level. also note that the 105 handle is in this PRZ. if wrong, fine, the stop is only 10 or so pips away. no big loss (as long as you don't over-leverage.)
as regards (3), take a look at the top of the chart. what do we see where we have another lime green line (another significant 61.8% retrace level drawn on a higher time frame) and the agreement area where we have the 1.272 fib extension of the CD leg and the COP 61.8% level is as well (as defined by Joe DiNapoli in his book 'Trading with DiNapoli Levels' and not shown here so as not to overwhelm the chart)?
we have another stop grabber, the candle with the very long wick. a 2nd attempt to pierce the level with a bullish engulfing candle, then an immediate reverse bearish candle, and market drops from there 40 pips. so that could have been target 2 and the lower 61.8%/AD fib the first target. whether or not market will continue its move up beyond that agreement area (where the pink line is) is irrelevant for this trade. the stop grabber piercing the level beyond the A point is our signal that this has been the run. for now. time to take stock again.
this is textbook. amazing. i only wish it always were like this on all pairs. nonetheless, the key take-away is:
always determine where the most significant S/R levels are as it will give more strength to harmonic structures and validity to stop grabbers. then your potential TP become clearly visible and where to position your SL also becomes evident.
Last edited:
