It has always been my endeavor to make the traders aware of the “other factors” involved in trading.
I would call these factors of “Money Management factor”; “Mind factor”; “Trade management factor” as “Other” factors, since most traders are not even aware of the importance of these….unfortunately.
With this in mind, we had planned a special topic for the ‘Free access open day’ held on Fxstreet on Thursday 26th Feb.
Unfortunately, due to technical reasons we could not complete the entire session.
Hence I am planning to repeat this same topic on the free webinar that we regularly have on Mondays on FxStreet.
http://www.fxstreet.com/live/sessions/session.aspx?id=09153e3c-e3cc-4584-9a20-852e76567d6d
Hence this will be the new topic on Monday 2nd March (10.00 GMT)

Technical analysis is NOT the trading plan.
Use the tools of technical analysis as a path to manage your trades.
A Trading Plan is often the thin line between success and failure in the markets.
Not having a plan simply means that the trader is entering market blindfolded. The Trading Plan must incorporate the 3M’s (Money, Mind & method…in that order).
In this webinar, we will attempt to use “Method” to enable us to prepare an effective trading plan.

It would be great to see everyone there.
Sunil.

Hello everyone,

We had recorded a webinar which we conducted on FxStreet on the “Flag pattern”.

The recording is available for download in the ‘Transcripts’ section of FxStreet, along with thye PDF of the lesson -

http://transcripts.fxstreet.com/2009/02/the-flag-chart-pattern.html

Sunil.

Hello everyone. I have been out of the cyber space in the last 2 weeks due to technical issues.

The hard disk of my laptop crashed….in short my life crashed -:). Then my back up PC had some technical issues and in addition, we had a major breakdown with the internet server.

Whew…all at one time -:((

I managed to recover over 80% of my data, and am in the process of organising things again. But I could not post anything here, as I had lost my login links and of course, was completely out of touch with the markets.

We are back on track now and we will start with the harmonics once again.

Sunil.

This is with reference to a question, on how to calculate the price objectives of the “Butterfly” pattern. Following up from the previous post

http://blogs.fxstreet.com/forexology/2009/02/08/a-harmonic-pattern-at-the-time-of-nfp-data/

we can see that price movement has gone in the anticipated direction…so far.

The harmonic patterns have very specific price objectives, but as a trader one must manage the trade to lock in profits at every step.

Hence we maintain the correct technical levels leading to the ultimate price objective…just in case price decides to go against us.

The following chart shows the 3 price objectives, calculated from the reversal level “D”. These should be used to manage the trade efficiently.

Target.1 - The measured move distance of wave “B-C”.

(This has been clearly explained in the previous post  http://blogs.fxstreet.com/forexology/2009/02/08/technical-analysis-is-a-path-to-enable-us-to-reach-our-goal/ )

Target.2 - The fib projection 78.6 of wave “A-D”

Target.2 - The fib projection 127.2 / 161.8 of wave “A-D”…which is the ultimate target of a harmonic pattern.

Once again, one can never be completely sure of achieving all the targets. As traders, we are here to make money & I would keep taking profits when the market gives it….and yet remain in the trade for further moves.

After all, that is what trade management is all about.

Sunil.

Trading the NFP data, or for that matter any important fundamental new release, is not something I do…and definitely not something that I would recommend.
I believe some traders swear by it, but I look at it as something of a gamble, as there are too many odds stacked against you.
And If I want to gamble, I would rather go to a casino -:))
Anyway, it’s just a personal opinion & let’s get down to the subject at hand.
I was looking at the USD/JPY on the 4hr, where a harmonic pattern was under way and the price movement, post-NFP pushed it to the required fib level.
Now again let me clarify, that this was not traded.
I wanted to put this as another example of how price respects technical levels….fib levels, previous support/resistance levels, pivot levels, and even dynamic trend line levels.
Basically I want to infer 2 points from this example -
1.) Whatever is the reason that causes price to move (the NFP data in this case), we can estimate the extent of the move. Now doesn’t that give you an edge??
2.) Price action always gives you clues & you do not need indicators. Now this does not mean that one should not use indicators, but always use them as a secondary factor…rather than a leading requirement. If only one can take the efforts to study the price structure…and understand the logic behind the forming of chart patterns…one will be ahead of the pack.

So, let’s get down to the trade.
I was looking at a bearish Butterfly pattern, where the first 3 waves had formed at the correct fib levels.

As we can see, the wave B-C had formed at the fib 61.8 and it was time for the NFP data on the first Friday of the month.
It would have been “make or break” for the pattern & there was no way that one could estimate that price would complete the last wave C-D….which it did.
Once again, the point here is that the sharp moves due to the NFP data, found resistance precisely at the Fib levels of “D” -
(a)    The 127.2 % fib projection of wave “X-A”
AND
(b) The 161.8 fib projection of wave “B-C”

Now, tell me that Fibs don’t work -:)))

Now this completes the bearish Butterfly and one would expect price to change trend to the downside, to fulfill the price targets of this harmonic pattern.

But, repeating my Mantra once again.
We never assume anything & wait for price to confirm.
There are certain rules and conditions for a proper entry into a harmonic pattern & we wait for these conditions to fulfill.
The beginning of the new week could bring some surprises & new moves, so we wait.
Once again, I wanted to show this setup, as an example of how price respects fib levels…regardless of the circumstances that cause the price movement.
Sunil.

Let’s have a look at a harmonic pattern that did not work.
Things don’t always go as planned, but the technical tools that we use should give us an edge in this business of probabilities.
The following harmonic pattern did not fulfill the target objectives…which we could have seen coming.
GBP/USD -1hr.
We could identify a bearish harmonic pattern and would have expected price to turn down to fulfill the bearish targets.

Now, looking at the longer term picture, price was in a pretty strong bullish trend and thus one would be very careful of bucking the trend.
But then, the harmonic patterns are pretty accurate…right?
So, we would take the trade, but with a conservative entry.
The thumb rule for price objectives of a harmonic pattern says that the minimum price objective is often a measured move….of the wave B-C. (Marked as the blue line in the chart, and plotted on the high of “D”)
So, one would wait to see if price has the momentum to break this level. If it does, then one would expect further bearish moves and target the 127.2 fib projection of wave A-D.
But then, look what happened -

Price found support at precisely that level…thus keeping us out of a bad trade.

This brings me to a very important point.
Technical analysis is NOT the goal of a trading plan.
One must use the tools of technical analysis as a path to enable us to reach our goal…..of becoming a profitable trader.
This simply means that we use technical analysis to manage our trades better.
As we did in this example.
We could plan our trade as per the rules of technical analysis.
Sunil.

Gold does not seem to be co-operating with me recently -:)

It is in a consolidating phase & not much patterns forming.

On the daily time frame, we have a bullish 5 wave structure, which tells me that one should remain long on this…till we get some bearish indications.

Keeping in tune with that, I have been following a bullish flag pattern on the 1hr time frame, which again, seems to be in a consolidation.

Am waiting for this bullish price objectives to be fulfilled and looking for a trigger to re-enter a long…if possible.

In any case, let us have a look at the flag pattern.

The down sloping channel (the flag) has formed quite well and price had broken out of the flag channel to the upside. We are looking at a pullback, which has not yet negated the bullish flag pattern.

For the expected price objectives, we measure the distance of the Flag pole & plot it on the level from where price breaks out of the channel.

Price is expected to travel this distance to fulfill the price objectives.

In this case, the expected price target is appr. 960.00, but we can expect some more moves to the downside, before price resumes the uptrend.

So, we remain bullish & wait for a proper entry.

If we dont get a trade, well we can always look at something else -:)

Sunil.

Let us have a look at an interesting situation that we have been following on the Eur/Cad.
The daily time frame has formed a harmonic pattern - a bullish Gartley.

One can see in the chart, the waves of the harmonic pattern have formed with the precise fib ratios…so far.

Now let’s put a twist to this pattern.
If we take the current wave “C-D”, and examine it in detail on the 4hr time frame, we can see that this wave has formed a perfect bearish Elliot wave.

Now, keeping things very simple, we know that if we have a 5 wave structure, it indicates the direction of the existing trend.
In this case, it means that the overall trend is down, which puts a spanner in the works of the harmonic pattern.

So, again, at the risk of repeating myself…..as a trader one must remain flexible and follow price…instead of trying to predict it.
Let’s examine the alternatives that we have here -
Option.1 - The bearish Elliot wave.
The thumb rule for the Elliot wave says that after completing a 5 wave structure, price should give an ABC correction to the upside, which usually travels to 50% to 61.8% of the entire Elliot wave.
Price then resumes the downtrend again.
This down trend could continue deeper or it completes the harmonic pattern and finds support at the D level. (This has yet to be fulfilled)

In any case, if price finds resistance at the expected level, we should be looking for shorts.

Option.2 - Price does not follow any of our analysis & keeps going up.
Well, we are not looking for longs over here & we may miss out of some long moves…if at all.
In that case, we have only spent some time in the analysis…but have not lost anything from our capital.
There will always be other opportunities.
Sunil.