Fibonacci Retracements

This is a video summary of the Live Forex Trading Room session on October 26, 2007.

Today’s Summary, by Sunil Mangwani:

Lets go over the long term things first which we’ve been following. On the GBP/USD, we were looking for a breakout on the daily timeframe from a Bullish Flag Formation. Price has been moving with lots of upwards momentum, and so far has remained above the mid channel of the flag. We were expecting a breakout this week, but it has not yet taken place. We have a penetration, but not a close.

On the intraday timeframes we did have an indication that today we might not get the close that we are looking for, because we had a Bullish 1-2-3 Formation. As I always say, “give me a 1-2-3 formation, and I can give you the targets”. We plotted Fibonacci Expansions to determine our targets, and price was rejected at the 127 level, so we do expect some retracement. Today is just not the day for the breakout. Lets see how it goes. Monday we do expect strong upmoves on the GBP/USD. (more…)

This is a video summary of the Live Forex Trading Room session on October 25, 2007.

Today’s Summary, by Sunil Mangwani:

Lets start with one of the trades we were following since yesterday’s recap – the GBP/CHF on 30 min timeframe. The trigger was a Bearish Divergence. Price made higher highs, while stochastics were giving lower highs. We consider this an aggressive “Class A” divergence. The entry for this trade was determined by certain Fibonacci Retracements, and price did go down beyond our target of 2.3940.

We also use the Andrew’s Pitchfork in different ways to confirm the entry. In this case, the price broke through the midline of the APF, and came back to retest it as a resistance. This is another strong confirmation that a downtrend is in progress. In our room we do like to twist around the technical tools available to give us better results.

Lets go over an intraday trade we ended up taking today. The GBP/JPY, one of the most popular pairs in our room, had a Long trade, though the extent was not too large. As I always say, its the technique and methodology which is always more important than the result. (more…)

This is a video summary of the Live Forex Trading Room session on October 19, 2007.

Today’s Summary, by Sunil Mangwani:

Just one confirmed trade taken today, but a few interesting points for discussion. Fundamentals are beginning to affect the forex market on a longer term basis – yen crosses, carry trades, interest rates, etc. The Dow Jones is having an effect on the yen crosses, the equity markets getting correlated… All these things have to be kept in a deeper perspective.

But we are technical traders – as soon as we find a setup, and it confirms our technical analysis, we go into a trade. More often than not, this works. We look for higher probability trades, with a greater chance of success.

On the GBP/JPY intraday, one of the favorites among the carry trades, we had a technical pattern of a Bullish Divergence, with price making a low and a lower low, Stochastics making initial low below the 20 level. When your second lower low on the price takes place, your stochastics do not have the momentum to carry forward to the oversold zone. This is a very aggressive divergence, signifying that a change of trend is due and a significant reversal could take place. (more…)

This is a video summary of the Live Forex Trading Room session on October 16, 2007.

Today’s Summary, by Sunil Mangwani:

As I have mentioned often – its not the trade that is important, it is the method, and the tools you use to analyze your trade. We have an agenda here in the Live Trading Room – to train our members to analyze the markets in the correct fashion. Once you can do that, you are well set on your way, and correct trades should follow.

Lets jump straight into the intraday activity of today’s session.

We have been following the USD/JPY at a longer timeframe, and having been Long on a swing trade, we still expect the price to go further up. Today on an intraday basis we had entered into a Short trade. When you have a trade which is against the main trend, but you have sufficient confirmations, there is no harm in taking it.

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This is a video summary of the Live Forex Trading Room session on October 12, 2007.

Today’s Summary, by Sunil Mangwani:

There are a couple of intraday trades which we will follow up today. As I have said before, the method of analysis is more important than the result of the trade. Mind you, the result better be good – we are here to make money after all. But if you know which techniques to apply to which situation, you are more than halfway through.

Every situation warrants a different tool and a different set of techniques, and traders must be aware of what is going on around them. That is what we practice here in the Live Trading Room – chart time, chart time, chart time! The more you do it, the more familiar you get with it, and results follow.

GBP/JPY on 30 minute timeframe gave us a Regular Bullish Divergence, with the price making lower lows, and stochastics (or any other oscillator) giving higher lows. According to our “Rules of Thumb”, this is a kind of divergence we label as a “Class A” divergence. This type of divergence warrants an aggressive trade. (more…)

This is a video summary of the Live Forex Trading Room session on October 8, 2007.

Today’s Summary, by Sunil Mangwani:

Mondays are usually slow days and don’t really have too much movement. We are still waiting for the dust to settle from the opening of the trading week, and this time doesn’t usually give immediate trades.

Lets have a look at a couple of intraday setups that did fit into our desired patterns for an entry. We don’t enter into a trade until we see a technical pattern – something which conforms to our techniques, and lets us formulate a trading plan:

• Where to enter
• Where to exit
• Where we would take partial profits
• The amount of risk we will accept
• … and so on

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This is a video summary of the Live Forex Trading Room session on October 4, 2007.

Today’s Summary, by Nader Moustafa:

Today was a medium volatility day, with few trades taken. However, our main focus and concern today were the market setups that we see forming.

We will start with GBP/USD. So far as we have been saying for a good while now, there is an uptrend in progress, and just as we expected yesterday, a retracement retested the 61.8% fib level at 2.0266. Prices went to 2.0280 before continuing to retest the 78.6% level, before reaching a high of 2.0426.

So far we are expecting even further upmove, as prices are subscribing back to the middle channel of our daily uptrend line. However, we are expecting some sort of retracement from the 78.6% level, or a little higher, back down to the trendline, and then will re-assess the whole situation.

We also see a potential Bearish Divergence forming on the daily charts, with higher highs on the price, and lower highs on the stochastics. It might take some time to materialize, or might simply be beached as the stochastics curl upwards, disqualifying our Divergence setup. However, if this happens, then the breach of the 76.4% level and a close above would trigger our next Long position, with targets around 2.0605 and 2.0675, respectively.

On the same pair, on 4h charts, we have another development occurring. An interception downtrend is taking out the highs, and if breached, we will be continuing in the uptrend we have been building. So far we have a conflict with the daily charts – we are seeing several interleaving Bullish Divergences on the 4h charts, and we could be seeing prices moving to the upside.

On the EUR/USD we have a somewhat similar situation on the daily chart. In our long term view, we are seeing an upmove taking place thus far, however it has been peaking around the 1.4280 level. A Fibonacci Retracement plotted to cover the entire upmove from 1.3360 to 1.4280 gives us significant levels around the 23.6% level of 1.4063.

If prices continues the move upwards, the probability of making the highs at a target, or even a newer high, would be valid targets, especially from an Elliot Wave perspective. We are probably looking at a Wave 5 in the making. If this view proves valid, we are looking at a target of 1.5000 so far. It won’t happen this week, and probably not next week.

Lastly, on the GBP/JPY, after a few weeks of brief range trading, we are just breaching the 50% Fibonacci Retracement level of the whole downmove from 251.09 down to 219.24. The 61.8% level is inbound as it is approaching us from above at 238.92. Although its a fib level, its a lot more important than that – its a very important resistance and support level for a good while now. Breaching this level would not be an easy task.

We do expect some retracement back to the 50% level for some momentum, and it should give the Stochastics a chance to relax, as they are seriously overbought right now. That could be our next long entry on this pair.
Enjoy the video!

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This is a video summary of the Live Forex Trading Room session on October 2, 2007.

Today’s Summary, by Sunil Mangwani:

One excellent trade, one wrong trade, and one non-conforming trade today.

Lets have a look at GBP/JPY, on the intraday charts. This is our “excellent” trade. This is the kind of Bullish Divergence on which one can take aggressive entries – its a so-called Class A Divergence, giving very strong signals with a higher low on Stochastics, starting in the oversold region, and lower lows on Price. This is an excellent confirmation that momentum has definitely changed towards the upside.

We use a double confirmation in Divergence-based trading – Fibonacci Retracement projections to give us an estimate of the targets, with a target at 161% level at 236.25. This was an excellent trade of about 95 points of profit. More importantly, this was followed up step-by-step with our money management strategies.

There are more than one ways to skin a cat, as they say – and more than one way of following money management principles, which ever methods are most comfortable for the trader. We went with the ones most comfortable with us. Profits may be less than the trade’s full potential, but we can feel confident that we are protecting ourselves from losses at every moment of the trade, and are totally in control of our equity.

The advantage of the Live Trading Room is that trades in progress are observed and managed together with our students – everyone sees what we do and hears what we think. Nobody trades alone.

Next lets go over the one trade that went wrong. On the USD/CAD, we identified a Bearish Wolfe Wave. It is a 5 point chart pattern, and the market fit the setup perfectly. We expected prices to drop to the line 1-4’s target, but it did not, and went up to stop us out. You win some, you lose some. Losses are just a part of trading, and are to be expected.

We were also looking at the USD/JPY to go Long, and on the 30 minute charts we saw a Bullish Hidden Divergence. We were expecting price to go up, but it did not yet confirm our entry of a trendline break on the upside. We expect the entry should materialize some time during the Asian or early London session on Wednesday.Enjoy the video!

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This is a video summary of the Live Forex Trading Room session on September 28, 2007.

Today’s Summary, by Sunil Mangwani:

Before we get into the trade setups, I want to go over a couple of very important points. We had covered several important topics this week – Money Management, Risk Management, Correct Use of Stops, Position Sizing, how much to risk in your trades, and other topics – all of these topics are designed to encourage our members to follow a trading plan and money management policies, incorporating both risk management and money management together in their trading. Without it, your trading plan is incomplete.

Incorporating money management into technical analysis and day to day trading requires taking advantage of technical systems and strategies which enable us to follow these principles. Before you take the trade, you are in control – once you pull the trigger, however, the market takes over and you are no longer in control of the outcome. Trading a game of probabilities – so you should control whatever factors you can. The only factors still in our hands after a trade is initiated are Risk Management and Money Management.

If you have watched our recaps in the past, you will find that we do not place too much emphasis on our indicators. We believe indicators are just that – indications of price behavior, and not an ultimate confirmation. We take advantage of particular characteristics of certain indicators and put them to work on particular pairs, while keeping our various Rules of Thumb in mind.

On the intraday basis, USD/JPY had a Bearish Divergence on the 1h timeframe. Price was making higher highs, stochastics giving lower highs. Use of indicators in this case is restricted only to the Stochastic Oscillator – we use it for determining the presence of Divergence. Beyond this, we do not refer to the Stochastics in this case and limit ourselves to Fibonacci numbers.

We are very big followers of Fibonacci-based tools, and price has an uncanny way of respecting these Fibonacci numbers. Believe me, it would be worth your while to study Fibonaccis. We were anticipating a movement down to the confluence of the Fibonacci Fans and Fibonacci Retracements. Price came down in an A-B-C Correction, and stopped precisely at the confluence level.

Using such technical tools gives traders the confidence that you are getting maximum profit from your trades. You are also well aware of the steps a trade is taking, enabling you to lock in your profits each step, by following your price with trailing stop.

Lets have a look at another example. On the AUD/USD we had a bullish move, triggered by a Bullish Hidden Divergence on 15m. If you are not sure what a Hidden Divergence is, I strongly suggest you study it – join us in our Live Forex Trading Room, and we will show you how to use this powerful tool.

We had a higher low, stochastics pulling down to the same level. The setup was ultimately confirmed by Fibonacci Fans, and we determined our target levels using the Fibonacci Expansions. Price stopped precisely at the 127% Fibonacci Expansion level – Fibonacci numbers really do work, and the charts speak for themselves.

On the GBP/USD, 4h charts, based on Fibonacci Fans, we were anticipating an uptrend. We were expecting Longs, and though we did not capture the entire move, we did capture a large part of the uptrend. We use the CCI in this setup only for a specific purpose – if you used the Stochastics here, you would have seen a completely overbought situation, but with CCI you can see that there is still room for further upwards momentum. Price has stopped precisely at the 161.8% Fibonacci Retracement level.

So you see, you use your indicators only as a first step. Use your Fibonacci numbers, determine the trend, wait for price to give you a confirmation, get into the trend, and believe me, you will walk away with profits.

Next let us look at a trade that did not go as anticipated. It is important to know that not all systems work all the time. There will be times when the market will move against you. We were looking at USD/CAD, anticipating some pullbacks and moves up, an uptrend channel. We did not enter as we were using our Fibonacci Fans as confirmation – if price remains within the fan levels, we would have gone long, but it has broken out and not given us the expected bullish movements, instead conforming to a bearish mode again.

Do you think we would have lost out on a Short trade waiting for a Long to happen? Possibly. But as I always say, I would rather be out of a trade wishing I was in it, than being in a trade wishing I was out of it! Staying out is also a position.

What I have covered today are the basics – the fundamental stepping stones of what we follow here in our Live Forex Trading Room – and next week we will return to cover more trades based on our techniques, more setups, and more interesting discussions.

Enjoy the video!

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