Daily GBPUSD

Note: So lets look at the Sterling's move down from the latter part of last week and see how Thursdays (10/08) to Fridays (10/09) move progressed. (The pair has been updated through 10/17/09) The Daily Sterling Chart -as follows is set up with nothing but price bars (no I do not use candles.)

Daily Sterling Chart

Note: Probably the first observation I make is too look left of the current price structure and see what stands out. The yellow consolidation box pretty much picks up most of the price structure. Obviously price punched its way out of the consolidation box (Denoted in a charcoal background) and (note*) price did not test the top of the consolidation box on its way up which set it up to return to that very area. Subsequently price did drop though that upper boundary and back into consolidation. Price did come back to test that upper consolidation box marked with a red circle and yet closed well below that mark. Now - Price having established a high to drop from - one should be ready to short the pair.

GBP Daily Consolidation

Note: Now that we have established this pair wants to stay short we see price drop and eventually create a double bottom (red Box.) Price shoots up to catch a previous pivot high (red arrow) by leaving the consolidation box to establish the upper boundary of a down trending channel. Price drops back into the consolidation box and attempts to test that upper boundary of that box (yellow circle) signaling a short bias. Price drops pretty quickly. Looking to take out the low of the double bottom, price finally does take the double bottom out and establishes a new low (green arrow.) Price moves into consolidation where we find ourselves making the highs an lows of the consolidation box.

Pivot High and the Drop to the Bottom of the Box

The World As We Know It… I have placed a line (yellow) to represent the current pivot low to get past in the quest for price to drop. The line has been breached but ever so slightly. (In my opinion not really leaving a signal to play but rather…) …the bar closed well above that line. Price moved higher to establish a consolidation top and fell to the mid level area to close. Now note all the closes and how they follow one another. Price tested the upper boundary line of the consolidation box and then fell with a very long bearish bar. One might think about a short based on this bar but I would caution the expanding Pivot and the bottom of the descending channel boundary. Which, you should note that price is getting closer to the intersection (white circle) of the down trending channel line and the pivot low (yellow line.) Price did hit the lower boundary of the consolidation box on the present candle (red arrow.) Now? Simply a wait and see game. It is like the move has run out of steam. Will price drop and if so lets watch to validate a new resistance line. Will price move up and back into consolidation to continue generating that expanding pivot?

Tops and Bottoms and Expanding Pivots

Moving Back…. Suppose we move price in progression…The next chart shows the original box of consolidation.

Consolidation

2 X Now if we double the first area of consolidation and place it above the first… We see how price is encompassed in the progression of price up to a limit of the consolidation box.

2x the Size…

3x…Really? Lets take the same amount of space and place it below the original area of consolidation… Hmmm…, seems to fit well on the next chart.

3x’s….Really

4x’s….why not? By placing another equal consolidation area below the current consolidation area we are able to “perhaps” prognosticate the movement of price to the next level. (By the way - this is not a trade signal to trade on. We are trying to have some fun here and see how well we may follow price.) Time will bring the truth.

Lets try for 4x’s…why not?

Lets Try Something different… Rather than capturing price as it happens lets do something that might project price with a high probability of accuracy. Andrews Pitchforks not only projects price in a certain direction but gives a high probability of price hitting the median line of the fork. (80% of the time price hits the median line…T Morge.) I place the fork on a high – low - high pivot (or visa versa) and get price to test the lines Note how price catches the line between b and c. Price then tests (red arrow) the upper line and drops. I use the test and retest of these line for entries, but on smaller charts. Price drops down to the median line (center line) several times (blue arrows = line is well tested.) Price eventually makes it back to the upper median line (green arrow.) At this time I would be looking to smaller chart for an entry short and an eventual target of the median line off this chart. As price progressed to the right my target would also shift (white circle). Note: See how price dropped to the median line. The target would have been hit. Now we wait for a new signal. Lets move to a smaller chart for a clue.

The Pitchfork

240 chart Placing the fork on the 240 chart certainly sets up a great move and price falls right to the median line. Really - for this trader the move was short off the “c” corner shows no signals to trade, at least to me, on this chart Lets move further down in chart size. We will attempt to setup levels by placing horizontal pivot lines as described by price.

240 Minute chart

Moving for Opportunity Lets move further down in chart size. A 377 tick chart (1444 tick chart in tandem) is used for its superior signals to minute charts. We will attempt to setup levels by placing horizontal pivot lines as described by price. Other tools may be used such as ema’s, consolidation boxes etc. As you can see the move dropped short off divergence (red lines) and thus created the c point of the fork. The path of price left behind shows very clearly and simply several opportunities to enter a trade based on ones particular method of entering the whole time keeping the median line as a target. Stop placement is very small and the win loss ratio is high. Special Note…the mechanics of the trade is worked off the larger charts while the “simple stuff” is actually used to trade off the smaller charts. While some theory is left out I think one might get a general idea of how this pair may be traded with simple techniques.

Trading chart

The GBPUSD progressed to make a low then move up and back into the weekly consolidation area where the bar closed at the end of trading Friday. Knowing when to get out and get long is every one's most sought after signal. Just this idea alone submits to the idea – “of boxing price in to a manage price.” The consolidation channel (red) has been drawn to catch price in a horizontal Fashion. Adding and duping a trend line to catch the move is also evident.

Catching Price

Down Trending channel The down trending channel based on the duped trend line has been colored in to emphasize price and it’s “potential intent.” By approximating price to a line we should then go through a series of “events” to potentially grab price when it breaks above or bounces below. Another possibility is to ignore the trending channel and continue in the consolidation pattern.

The Down Trending Channel

The “Fork” With an 80% probability(T. Morge) price will drop to the median line of the fork. The fork on the next chart is tested by price hitting the b to c line. Also, the upper median line is hit multiple times to test the line. This is the same line as the upper down trending channel line. We are able to see that price is about half the distance to the 25% line of the fork. Testing the upper median line with separation down would signal a potential short of this pair. The fork used at this time is a Modified Schiff fork.

The “Fork”

“Micro-ing” the Trade The next chart, moving down to a daily chart, shows a pitchfork placed to capture price very well. Price dances around 2 sides of the fork including the median line. Price eventually falls to the pivot represented by the horizontal dark line by breaking out of the expanding pivot to create the low. Interestingly price makes a new high at the upper median line. Note that price has not surpassed the previous high (pivot) as represented by the black line. A “slot” line is drawn parallel to the upper median line to capture the move and be used to test price. Although the expanding pivot was taken out by the low in price we need to be cognizant of price not making the median line on the last move down as a sign of weakness in the fall of price. Price moves back up to the slot line where we sit at the end of Friday’s close.

Daily Fork

The Trading Chart The trading chart for this trader is a smaller tick chart with superior signals. An example of signals for this trader will be seen in subsequent slides. The following 377 tick chart shows how price is corralled an how the pivot lines lead to great test and retest for a signal to go long with great stop placement.

Trading Chart

The Lower Corner of the Fork The fork is place and tested with the very next bar. Really not a signal to take a long trade (or is it) we will wait for the next horizontal line as an embarkation point and a solid “”spot” for stop placement.

The Signal: Taking the trade long we need an area to push “off.”’’ The horizontal pivot (2) affords the long with the close of the low bar above the previous close, then drops to a 2x bottom and netry

Reaching the Median Line The First Target The median line (yellow line) of the fork is my first target..80% of the time price will get to the median line. (T. Morge) As price continues to move up I find price structure to move my stop to lock in profit.

A little help please? While several attempts to get long seemed to setup I use a stochcastic to roll into the long position. (4) The double bottom confirms the entry signal off a pivot and the median line.

Old Price Pivots The original move short was not wasted as a pull back during that run provide us with a line to enter another entry with a tight stop. The triple top at the old pivot line represents good resistance and the break above therefore shows momentum. The break of the line and the test of the line through identified resistance signals another entry for this trader. The stop is placed at spread +3 under the pivot line. Price continues to the upper median line of the fork which is the second target.

Action and ReactionLooking to continue long… My first entry at (red circle) with a stop below the pivot line at The double bottom at (6) looks to be a good entry signal but the stop is to deep for this trader. Entry would be at and stop under structure like the 2 X bottoms would have been A difference of 18 pips. Price moves up through the first reaction line (1 st target) through it then ….

The trading chart as completed as of Friday We see how price mobved from the low on the lower median line to the target at the median line then further to the upper median line and then through two reaction lines off the median line to a Pivot Line from and old pull back of the previous short move. The trade was terminated at the pivot line.

The Completed Long as of Friday

Consolidation Zones Price moved back up through Zone 3 after being rejected at the pivot line. Interestingly price tested the bottom of Zone 2 in its move long.

Consolidation Zones Daily Chart

The Daily fork Capturing Price in real time is essential. Learning to test a line is simple but when would one want to enter the trade? Perhaps a simple retest of that same line. Note the arrow and how price retested the line leaving a great signal to short the pair. Current price has not quite filled the Gap between Pivots after bouncing the lower pivot and again catching the Upper Median line. Without taking out that upper Pivot Line I would be biased short.

The Daily Fork

Patterns, Pivots and Forks A Bearish Gartley pattern is like looking at the price structure is 3-D and frankly a little more advanced than just bouncing between 2 Pivot lines. But - bouncing between 2 pivot lines is simple and if it works why make in more complicated? Therefore I simply use the Gartley to understand where price is located. This means - are we between B to C or X to A? The current move lines up as a D to E extension of the pattern. The D to E extension rules are different than say the C to D leg of the Gartley and these should be kept in mind when looking for a home run… The following chart shows the Gartley Pattern. Pivots are represented by horizontal lines and the D to E leg is encompassed by a fork that increases the quality of the pattern structure.

Patterns, Pivots and Forks

Fibs, Really? The same chart as above has Fibs added to show the relationship of the Price Pivot Lines to where the Fib levels fall out. As we see price dances to the Pivots and not the Fibs… The.618 level has been hit several times but look at the Price Pivot at that very area. When I see price respect the Price Pivots versus the mostly non respect of the Fibs I pay closer attention to the Price Pivots. This is simply a personal choice of this trader. For me the Fibs are handicapping when price does not always use those levels to catch price. A warning line has been added above the fork to catch a potential break to the upside as a precaution.

Fibs, Really?

Being Safe Just the thought of price continuing its move up should trigger the idea of placing a fork to catch any price break out. The following chart show the new fork but price has not tested the lower median line and therefore is just a “prop” at this time until I get a signal to continue using this fork. I am still biased to use the down fork.

Being Safe…

Targeting the Structure… Red circles have been placed as potential targets and labeled. Price is on its way to #1 it seems. #2 is not far away and certainly has been tested several times previously. Stacked price pivots are found at this level indicating effort will be needed to move beyond them. Once beyond stacked pivots …a much larger gap is evident with a great trading opportunity up to #3. A short move would catch price falling first to number 4 where we have stacked pivots and price has been rejected previously. # 5 also ends in stacked price pivots. Clearly the move down has obstacles to get through.

Targeting the Structure…

In conclusion… Simply, filling the Gaps between daily Pivots is what this trader does best. Understanding price structure and how price would or could play out, understanding fork theory and how we use the fork for direction and to enter and exit trades - leads to high probability trading. Knowing how “most” everything relates is a simply a blessing. Entry theory should be exact and one should never trade without targets and stops.