11 May 12 - USD/CAD - H4 - Bearish Bat Pattern Type 2 Reversal

Patience for the week pays off as USD/CAD was set up for a short position when a Bearish Bat Pattern was validated on a Type 2 Reversal.

The initial Type 1 Reversal was avoided as the pattern completion was too early that it did not even fulfil the minimum 0.382 alternate time projection.

Breaking the whole setup down:

H4 - Primary Timeframe

This was the timeframe which showed the setup clearly. Despite a slight expansion seen on the Terminal Price Bar and a following candle which tested the high of the Terminal Price Bar and which closed bearish, there was an early signal of price stabilization which hinted that a possible reversal was likely. In this case, I would still consider the setup to be valid as the price action did not close above the 1.0 XA retracement level which was the stop loss limit for a Bat Pattern.

In addition to the price rejection above the 1.0 XA retracement level, preceding the completion of the D point, the RSI has previously hinted a weakening in USD/CAD following an exit from the overbought level which gave this setup more weight.

Since the Type 1 Reversal occurred out of the permitted alternate time projection zone, I decided to monitor this pair for an opportunity, which later presented itself as the Type 2 Reversal, and that was my cue to go short on this currency pair.

D1 - Distal Timeframe

In the case of the Distal Timeframe, it can be observed that this pair was consolidating following a downward move and it was a very beautiful setup when the Bearish Bat Pattern completed at the resistance of the box range which was ideal.

H1 - Proximate Timeframe

Since there was a stalling behaviour within the PRZ, a short was executed slightly above the PRZ when the Type 2 Reversal occurred within the alternate time projection.

Following the execution, the trade did go through some heat where price continued to move up and finally took a plunge later.

The 1st batch was closed when the price hit the 0.382 AD retracement level, gaining a profit of 67.0 pips. The 2nd batch was left open for the price action to assert itself.

Reflection

In this trade, I have learnt that patience and discipline are important to the success for a trader and that I will only trade on the clearest setup and avoid some awry trades. It is important to note that not all setups will present an opportunity to participate in the action though and thus it is crucial to be patient and neutral when it comes to trading. 

I would say that this is a nice trade and since I have been busy with work, this is a good chance for me to learn that I do not have a need to trade and that I will only trigger on the more promising setups.

04 May 12 - EUR/JPY - H4 - Invalidated Bullish Bat Pattern

It has been a while since my last posting as I was away and it has been a very busy period.

The market has been quite erratic recently as there are some fears going on in the market. As such, volatility has come into play. With my recent busy schedule, I have sort have gone up the timeframe to search for patterns on a larger timeframe which offers a stronger signal and less false positives to complement my working time.

It is interesting to note that despite there are some nice moves in the market, there were not much H4 Harmonic Patterns showing up which I guess is attributed to the erratic market which does not give me a strong setup and which is also a time to learn on the patience and discipline aspects of trading.

After a long wait, there was a potential Bullish Bat Pattern on EUR/JPY which was later invalidated as the bullish setup was in a new downtrend seen on this pair.

Going into details on the Bullish Bat Pattern which was invalidated:

H4 - Primary Timeframe

There was a nice B point at an almost 50% retracement which hinted a possible Bullish Bat Pattern in the play and thus defined a PRZ at 104.995 region.

The zone was later defined to be at 104.961 to 104.995 which was considered to be very harmonic as this was a tight zone.

However, the bullish setup was later invalidated when the Terminal Price Bar completed as am extreme range price bar which warned of a pattern failure. In addition, the Terminal Price Bar closed below the Stop Loss Limit defined for a Bat Pattern which prompted me to switch from a bullish perspective to one which is neutral.

As we zoom out from further, there is only so much which we can expect from this possible bullish setup as this currency pair was in a new downtrend which will probably allow us to gain a small profit from its initial reactive move since it would have been a counter trend trade if the trade would to materialize.

I would not even consider this setup to morph into a possible Bullish Crab pattern for a simple reason. At the point of the pattern violation, the pattern's symmetry has already gone near the 1.618 Alternate Time Projection which would reduce the success of a pattern's playout and thus it would be best to just leave it and wait for a more valid pattern to present itself.

D1 - Distal Timeframe

As seen in the attached chart, it can be seen that the pair has recently broke below a rising trendline and formed a new lower low and lower high which could be indicative of a new downtrend.

As such, the Bullish Bat Pattern was have been a counter trend setup which sort of reduces the probability of success and which in this case did not even materialised at the pattern was invalidated.

H1 - Proximate Timeframe

There is nothing much in the case of the Proximate Timeframe as the pattern was ultimately violated following the Terminal Price Bar's completion.

However, I have decided to take a screen capture of it as the price action following the violation of the pattern's Stop Loss Limit could point to a price continuation in the predominant trend as the PRZ has turned in a possible harmonic resistance.

Therefore, in this case, it is imperative to respect the warning signs and only react after the Terminal Price Bar has been established with signs of price stabilization following its completion. As such, I have decided to make trading as a source of investment where I have made it a point to only trade when there are nice setups. This simply will mean that I may have no trades for days or weeks but I will be hanging on patiently for a valid and profitable setup to present me an oppportunity to profit from it. It has been clear to me that I do not need to have to trade everyday but I will have to be disciplined and patient and trade only when clear valid patterns show up.