27 Oct 11 - GBP/JPY - M15 - Potential Bullish Shark Pattern

It has been a very nice week for GBP/JPY where this pair has been very harmonic where it offered plenty of trading opportunities.

For today, it seems that might be another trading opportunity where a potential Bullish Shark Pattern is forming. The PRZ for the pattern in this case is between 120.827 to 120.903. Upon a successful test of the entire PRZ with a RSI validation, there will be an opportunity for a long position.

Update:

As a result of the EU news whereby they have come with a plan solve the debt problem, GBP/JPY soared before even testing the PRZ which resulted in a pattern completion failure. As a result, the trade was aborted.

26 Oct 11 - GBP/JPY - M15 - Bullish Shark Pattern

As I continue to monitor the GBP/JPY as it moves down again to test the PRZ of the potential Bullish Shark Pattern, the pattern was invalidated when one of the warning signs showed itself.

There was an extreme price action seen on the Terminal Price Bar followed with a continuation move in the predominant trend which moved beyond the Stop Loss Limit of the pattern which invalidated the whole setup.

I was monitoring this pair closely after it tested the entire PRZ but when I noticed a continuation move in the predominant trend, I decided to walk away as it has already played out one of the warning signals of Harmonic Trading. In addition, there was no price stabilization seen after the pattern completion and that itself was another warning signal to stay away.

Update:

As I continue to monitor this pair along the way and as the bar after the Terminal Price Bar closed, it happened to form a hammer where the body of the hammer was within the range of the Terminal Price Bar which somehow made it a borderline case where the pattern was apparently still valid.

A few considerations were made here where the Primary (M15) and Proximate (M5) timeframes' RSI were in support of the trade.

As seen in the attached M15 chart, the RSI rolled out from the extreme oversold area which made the setup valid and the long hammer was also indicative that there was a limited downside for this pair.

I did take this trade in this case, but I guess the trade management aspect employed by me in this trade was a very conservative one which resulted in a slight loss of 1.4 pips where there was a slippage when my protective stop was triggered.

A lesson learnt in this case was to give the trade more room to work itself out or to wait for the price action to exit the PRZ before we employ a protective stop.

Nonetheless, this shows the beauty of Harmonic patterns and how well they work in the markets.

26 Oct 11 - GBP/JPY - M15 - Bullish Shark Pattern which failed to complete

I was initially looking for a Bullish Shark pattern to be validated on the GBP/JPY today to continue to go long on it as a continuation signal in a rising channel.

In this posted example, it shows the importance of waiting for the whole PRZ to be tested before executing a trade. It might be exasperating sometimes to be monitoring a setup for a few hours only to be it invalidated, but face it, this is trading. Therefore, discipline and patience are key in trading.

As a result, the trade was aborted and I will have to wait for another signal to come in again.

Although price reversed nicely before testing the whole PRZ, this will be one of the cases where we will just ignore it even if price runs as we are only looking to trigger a trade in a zone (PRZ) where we expect the price action to reverse. Other than that, we will not do anything despite the RSI having an early validation signal.

I was also thinking if a short could be taken when price moved up and formed a possible Bearish 5-0 pattern, but then, i realised that the 1.618 AB extension was not tested in the first place and thus invalidating the setup. In most valid patterns, we want to see precise ratios tested before we would consider a trade.

As in this case, it highlights the importance of respecting the structural signals. Once a point of out of structural alignment where it exceeds the pattern's limit or it is shy of the pattern's minimum ratio, we do not do anything. We are looking at precision here and therefore it will be okay to stay away.

GBP/JPY - A very harmonic pair for the week

It is interesting to note that this pair has been the only pair which has been very harmonic for the week.

As in the case of today, there were 2 completed patterns, of which one has a very little potential while the second has a very nice classic textbook setup.

The first pattern completed was a Bullish 5-0 pattern which lacked the RSI validation on the M15 (Primary) Timeframe. See attached chart.

As seen in the attached, there was no RSI extreme test which indicated that there might not be a great potential in this trade though. However, when we zoom into the M5 (Proximate) timeframe, there was a nice signal for entry which might have prompted a light long on this trade. See attached chart.

As in this case, I may consider this trade as the trade would have been executed in the direction of the predominant trend, which is to say that we have the wind at our back which would have increased the probability of the trade. As seen in the attached H1 (Distal) timeframe, we can actually see that the pattern completed in a rising channel and there was a support at 0.382 retracement level at 121.272.

Since I was not very keen on taking this setup, I decided to avoid it while documenting it as this is part of the education when it comes to trading. As I monitor this pair was the day passes, the market presented another nice opportunity and in this case, a nice classic textbook setup which pointed to a very high probability trade.

In this setup, there was a Bullish Shark pattern completion which allowed us to have a better entry and at a better price as compared to the earlier Bullish 5-0 pattern as there was a nice RSI validation at the completion of the pattern when the price action tested the whole PRZ.

Firstly, for this Bullish Shark pattern completion for the second setup of the day, the price action traded to the bottom of the rising channel which became a support in the distal time frame and this happen to coincide with the 0.50 Fibonacci Retracement level seen on the Distal timeframe as show in the attached chart.

Knowing that the setup was in the direction of the predominant trend, the pattern completed on the Primary timeframe (M15) nicely with a valid test of the PRZ with a RSI validation which was a nice textbook setup. However, in this case, although the Terminal Price Bar was a little extreme which might point to a warning, the RSI exit from the extreme oversold area was an indication of a valid entry. In addition, the following price bar after the Terminal Price Bar did not violate the low of the Terminal Price Bar which gave us added confidence as seen in the attached chart.

On the completion of the pattern, we would have to sync the Proximate timeframe with the Terminal Price Bar completion and with that, there was a nice setup for the trade to be triggered, which turned out to be a nice trade.

In the case of the Proximate timeframe, there was a nice bullish engulfing pattern which occurred after the RSI exited from the oversold extreme area and that was the signal to go long within the PRZ.

As we can see from today's example, there will always be an opportunity in the market so long as we give ourselves a chance. Patience and discipline is key to trading success and it is okay to miss trades sometimes. This will always happen and we will just have to wait for another opportunity to come along.

29 Apr 11 - Bearish Gartley Pattern on GBPJPY - M15

This has been a wonderful week where there were plenty of opportunities to trade despite me missing out some of the profitable. Nonetheless, the performance for the last week was great where I saw a growth of 27.66% in my trading account which far exceeded my weekly target of 5% of my trading account.

Then again, there is no room for complacency as I am treating my trading account as an investment vehicle where I am targeting a weekly appreciation of 5% for my assets. Compounding a weekly asset appreciation of 5% weekly may seem to be a small amount per week but when we project in the long term, it does give us some room and less stress to perform. Therefore, in the recent months, when this realization hit me while I was almost drifting into dreamland one night, I sprung up and started working on my laptop to project this effect of compounding a weekly gain of 5% and voila, I suddenly got an answer to what I ave been searching for and from there started planning along this strategy of growing account in a very comfortable manner. Forget the get rich fast mindset as this will bring greed and fear into the picture and in no time, when the "get rich quick" mindset, you will probably see more drawdowns than gains since the approach was wrong and this is probably a trap which most traders commit and I have to admit that I was once in this group.

When it dawned upon me that growing my assets to a desired outcome was possible with certain strategic plans in place, I was relieved that my move out of the rat race was possible and that patience was key in attaining the goal. With me writing this reflection on my blog today, I hope that it brings a certain message across to the reader while reminding myself of the path which I have started to embark on.

Having said that, this is analysis of the GBPJPY.

W1 Chart

For the whole of last week and the week before, it seems that the emotions on this pair was mixed as they were seen as dojis. The prior trend for the pair previously was predominantly down until the mid of 2010 where prices has since been seen to be consolidating, i.e. box range.

However, on the week beginning on 03 Apr 11, the candle closed above a resistance at the 137.764 region and failed to make a further move up and then came crashing down and closed below it. With this price action, there was a certain bearish implication as this is often referred to as the "Falling Off The Roof" which pointed to the pair's weakness.

Price proceeded to move later the week after the candle closed below the resistance and the closed higher for the week beginning on 17 Apr 11 which prompted further monitoring as there was no clear indication on the pair's movement.


D1 Chart

On the D1 Chart, it seems that this pair might be making resuming its downtrend as price was moving down. Then again, a close below 132.972 may send the pair down to test the 126.725 region (lower band of the box range) again.

H4 Chart

This is where things get a little interesting where it highlights the mixed emotions on this pair. Price was seen retracing upwards and respecting a rising channel while a possible bullish flag might be seen forming as price moves down to the lower band of the rising channel.

A break below the rising channel would push the biase to a bearish one.

In the case of the price action here, the Bearish Gartley Pattern was seen forming on the upper band of the falling channel and it sets up a short term selling opportunity.

Things will look a little cluttered here since the pattern was identified on a M15 chart.

H1 Chart

This is just a zoom in to see the pattern on the H1 Chart in a short term downtrend for now.

M15 Chart

On the M15 Chart, it can be seen that the price action created a false break above the upper band of the short term falling channel and failed to hold above it. With this, it also set up a selling opportunity on the completion of a Dark Cloud Cover on close. Thus, in the short term, which the pattern pointing to a bearish move, the short term view on this pair is bearish.

In this example, I did a trade on this pair on the validation of the pattern and decided to close the trade on a small profit when the move was not great initially and that the market was due to close in an hour or so. However, I have decided to post this example as it has once again highlight the importance of multiple time frames in addition to Harmonic Trading in the direction of the predominant trend.

27 Apr 11 - Bullish Bat Pattern on GBPUSD - M15

Another nice trade which happened this week, but the difference is that I am on the boat this time round. : P

This is a great example which shows the importance of patience where we will have to wait for a nice pattern to form which will allow us to capitalise on the market's move. In essence, quality trades will usually be better taking multiples trade (i.e. quantity) since the more times we are in the market, the more risk will involved. Therefore, in the recent months, I have switched over to looking for quality trades which have greater potential and higher probability of success. With this, it makes trading less stress and fun.

Having reflected on my recent trading style, the following will be the analysis for GBPUSD and the reasons why this trade was taken. Similar to the example of the EURUSD example posted yesterday, this trade also highlights the importance of multiple time frame reconciliation.

W1 Chart

With reference made to the attached chart, the pair made a new high close last week above the 1.63995 region. With some basic knowledge of technical analysis, one will look to buy on dip this week since the new high close of the previous week will most likely indicate that the bullish momentum of this pair will continue this week.

In addition, the pair is moving along a rising trendline with higher highs and higher lows formed along the way since the middle of 2010.

Since price has broke above its box range, the likely resistance will probably be around the 1.68760 to 1.70412 region.

D1 Chart

On the D1 Chart, it seems that the pair was having a short term retracement which might indicate a short term breather for this pair. In technical analysis, this pair might be having a bullish flag forming and traders may look to buy on a bounce of the rising trendline though.

Currently, the road map for this week will still be up since the pair is forming higher highs and higher lows.

H4 Chart

This is where the analysis of this pair gets interesting.

After closing above the  resistance at 1.64263, price went through a short term rally which then retraced  to test this level. In technical analysis, this is also known as the "Change of Polarity" where previous resistance becomes support. With the, the trading range became a box range for this period of time as the market takes a break and then probably make its move again.

With this, the Bullish Bat Pattern was seen forming at the bottom of the box range and this is when the setup comes for me to go long on this pair.

The above chart shows the "Change of Polarity" where the previous resistance was acting as a very nice support for this pair.

The following 2 charts attached will show where the pattern was formed in the box range and since the pattern was drawn on the M15 Chart, things will look cluttered but nonetheless, they show where the pattern was formed in relation to the box range and how the trading opportunity presented itself.

M15 Chart (Entry)

With reference to the chart attached below, the Terminal Price Bar was also the Setup Bar to go long in this case. The Setup Bar was a Bullish Engulfing Pattern which prompted me to go long on the open of the next candle after the PRZ was completely tested. I will usually prefer the PRZ to be tested completely before considering taking up a trade though. This will inevitably mean missing out on some trades but then again, this is trading and I just got to stick to my rules. And if I miss out on an opportunity, I will just have to wait for another opportunity to come. This is sometimes frustrating and thus to keep our emotions in check is one of the most important thing we should do when we are trading.

In addition to the confluence of the 3 Fibonacci Ratios which validated the Bullish Bat Pattern, the presence of a support derived from the H4 Chart at 1.64263 ("Change of Polarity") gave added confidence for me to take this trade.

Trade Details

Date & Time: 27 Apr 11, GMT 08:15
Entry Price: 1.64583
S/L: 1.64230 (35.3 pips)
T/P: 1.68500 (391.7 pips)

The reason for the ambitious target was on the basis that the trade was done in the direction of the predominant trend. The target might or might not be reached, but the rationale of this approach is to reap as much profit as possible for the 3rd batch of this trade once I have covered the first 2 batches of the trade, while having a trailing stop such as the 0.382 trailer in place to cover the trade when the price retraces more than 0.382 of the reversal. Another check in place would be to cover the trade on a reversal trendline break.

Trade Management

I was initially looking to cover the 1st batch of the trade at the 0.618 AD swing at 1.64882 region but on a news release, price shot up and my 1st batch was closed at 1.65013 on 27 Apr 11, GMT 08:30, netting a profit of 43.0 pips while the 2nd batch was closed at 1.65301 on 27 Apr 11, GMT 08:35, netting a profit of 71.8 pips. (The blue zones in the chart attached were the areas where I covered my 1st and 2nd batches of the trade).

The move was very fast for the first 2 batches and once they were covered, the 3rd batch was left to maximise my profits while having a protective stop at 1.64900, protecting 31.7 pips and allowing the 0.382 trailer to trail the stop. This is a very nice trade done and there will be more to come.

Seeing that there is an upside potential for this pair and when price broke the reversal trendline, I decided to divide the last batch in 2 separate batches while protecting my profits.

The 3rd batch was closed when price broke below the rising reversal trendline. The 3rd batch was closed on 27 Apr 11, GMT 11:18 at 1.65615, netting a profit of 103.2 pips.

On added, a nice reversal should usually posses a steep reversal trend line and this trade exemplifies the reversal characteristic. In addition, since the reversal is relatively steep, we should expect it to be broken quite fast since the market will not be able to sustain such a steep move. With this in mind, this was one of the reasons why I divided the last batch in 2 batches to squeeze more profits out of the market. It is important to know what you are doing and react accordingly when you have a valid reason behind your trade management.

As for the last batch left running, the trade will be closed when price closes below the 0.382 trailer.

An update for the last batch running for this pair. Apparently, this pair was taken out when price closed below the 0.382 trailer before resuming its rally. Then again, with a trading plan and rule in place, there is no regret when the trailing stop was triggered. I will just have to respect the market. Having said so, this is not a bad trade after all since I have managed to farm quite a fair amount of pips from this trade.

The last batch was closed on 27 Apr 11, GMT 15:00 at 1.65194, netting a profit of 61.1 pips when price closed below the 0.382 trailer.

Note: I have mentioned a "close" below the 0.382 trailer and there is a meaning to it. If price tested the 0.382 trailer and did not close under it, it would not mean much to me since the shadow will only mean a test but not a breach. From my experience, a close above or below a resistance or a support will mean more to mean than a shadow above or below a resistance or support as a close will indicate a breach of support or resistance to mean whereas a shadow is just a test and a rejection above a resistance or a support. In fact, when a shadow tests a support or resistance and failed to close above a resistance or below a support, it is usually a nice signal to go short when price failed to close above a resistance or long when price failed to close below a support. This technique is however a rough guide and it will have greater importance if this is supported by other signals, such as a Harmonic Pattern. The example on EURUSD and the setup on the GBPUSD showed this methodology combined with Harmonic Trading.

26 Apr 11 - Bullish Butterfly Pattern on EURUSD - M30

In this example posted, it exemplifies the importance of multi time frame checks which will point to the road map of a pair's move. With such a check in place, it will usually allow us to weight out the risks involved as to what we should do if we are taking a counter trend trade or a trade in the direction of the predominant trend.

With the road map identified, I will usually be more ambitious in trailing my target up (in a long position) or down (in a short position) when I have secured a portion of the profit when I am doing a trade in the direction of the predominant trend while remaining conservative and not change my target when I am in a counter trend trade.

In the case of EURUSD today, although I missed the entry opportunity, I thought that this would be nice to post as a learning example as the trade opportunity when it presented itself was in the direction of the predominant trend and the trade, if taken was working out beautifully.

Getting down to the technical analysis of EURUSD for this week.

W1 Chart

From the look of the close of the previous week, the pair made a new high close and thus pointing that the bullish move of this pair is set to continue this week while targeting the high of 2009 at the 1.51430 region as its likely resistance in the long term. This might be a likely target taking into the account of the weak USD in the recent months.

In addition, with reference made to the attached chart, another sign of the pair bullish strength is that the pair has been making higher highs and higher lows which in basic technical analysis is pointing to a bullish momentum.

D1 Chart

As we zoom in to the D1 Chart, there is a very nice rising channel seen on this pair with clear higher highs and higher lows marked. It should be noted however that the price is moving up near the upper band of the channel and a retracement might be expected soon. But then again, for a retracement to set in, we will have to see price action at the upper band to confirm it and thus the outlook is still bullish for this pair.

H4 Chart

When we zoom in to the H4 chart, this is where it gets interesting as we look into the intraday moves. On the D1 chart, it is seen that the price is still on an upward but when we zoom into the H4 chart, it is clearly evident that the price was consolidating (refer attached chart). Price was seen bouncing between the 1.45307 and 1.46476 region and this is exactly where the trading opportunity came in this morning.

The above chart shows the consolidation on the H4 chart which is not seen on the D1 chart while the next chart shows the trading opportunity at the lower band of the box range.

Since the pattern is identified on the M30 chart, things will look a little cluttered when drawn on the H4 chart, but this is to give an idea where the trading opportunity presented itself.

M30 Chart

Since the road map for this pair was identified to be moving up, the pattern setup came in the direction of the road map and thus this would have been a trade with a very great potential and a high probability of success.

Trade Management

A bit on the trade management aspect since this was a very nice trade.

In this case, the 1st batch would have been closed when the reversal moved up to the 0.382 AD retracement while the 2nd batch would have closed at the 0.618 AD retracement (indicated by the blue zones) while leaving the last portion of the trade to run till it is taken out by the 0.382 trailer of a trend line of the reversal.

As can be seen in this example, there are nice opportunities presented by Harmonic Trading and this is just another reason why I am a firm believer of Harmonic Trading as it has shown me tremendous results since I discovered this trading methodology taught by Scott Carney.

Following up on the 3rd batch where 2 methods can be employed in the trailing stop, the trend line breach has occurred.

However, if we are looking at the 0.382 trailer, the trade will still be in progress as price has yet to retrace to the 0.382 retracement level since the reversal.

With this, it covers the Harmonic Trade Management aspect. When it comes to trading, having a solid Trade Management will allow us to profit from out trading while minimizing our risk and in this case, it has shown its importance.

A follow-up on this pair's move. The 0.382 trailer is still working very nicely and in this case, the trade would still be running if I was onboard the trade. Refer to to the attached chart.

This would have been a very nice trade where the we have a low risk, high probability trade with a great potential. On a conservative estimate, the current floating profit for this trade would have been around 300 plus pips!

12 Apr 11 - Bearish Crab Pattern on EUR/USD - M15 Chart

I was looking to short this pair on a potential Bearish Bat Pattern setup initially. However, after the Terminal Price Bar (T-Bar) completion, there was not sign of a reversal (as indicated in the light blue circle) and thus the trade was aborted.

However, after the price action breached the PRZ of the Failed Bearish Bat Pattern, it was met with a intraday resistance at the 1.44726 to 1.44827 region and completed a Bearish Crab Pattern which prompted a short position on this pair.

The setup to go short on this pair on the completion of the Bearish Crab Pattern was the "Dark Cloud Cover" candlestick signal following the T-Bar.

Trade Details

Date: 12 Apr 11, GMT 10:30
Entry Price: 1.44567
S/L: 1.44900 (33.3 pips)
T/P: 1.43890 (67.7 pips), Intermediate T/P at 1.44161 (40.6 pips) region to cover half the position.

Trade Update

The S/L was triggered on this position, resulting in a loss of 33.3 pips.

21 Feb 11 - Bullish Bat Pattern on USD/CAD - H1

This is a nice pattern completion despite the fact that the PRZ took a few retest before finally reversing.

1st Batch profit in this case was triggered while the 2nd batch was closed when the 0.382 trailer was triggered.

The technicals involved in this trade actually increased the potential of this trade. A check with the D1 chart actually showed that the support around the 0.98147 to 0.98305 region was holding as there were no candle closes below this level. In fact when price broke the 0.98305 region and failed to closed below it and a second retest made a new low and then failed to close below this level increased the significance of this level.

On the intraday chart, the h1 chart, a nice Bullish Bat Pattern was seen completing and thus a buy was triggered to go long on this trade.

The trigger to go long in this case was when the bullish engulfing pattern was completed. For the case of this entry, the entry price was lower than the preceding candle close and it was entered on purpose to trigger the trade on a better price.

Trade Details

• Date: 21 Feb 11
• Time: GMT 16:09
• Entry Price: 0.98332
• S/L: 0.98100 (23.2 pips)
• T/P: 0.99000 (66.8 pips) 

Trade Update

The 1st batch was closed on 22 Feb 11, GMT 02:57 at 0.98543, netting a profit of 21.1 pips.

The 2nd batch was closed on 22 Feb 11, GMT 05:29 at 0.98472 when the protective stop was triggered when price retraced to the 0.382 Fibonacci Retracement Level of the reversal price move (i.e. 0.382 trailer). The 2nd batch was closed with a profit of 14.0 pips.

Note: In fact, the close of the candle which formed the shooting star would have been a warning to square off the trade already as this is usually a classical reversal sign and in this case, the reversal following the close of this candlestick pattern brought the price back to the PRZ.

15 Feb 11 - Bullish Gartley Pattern on AUD/USD - H1/ M15 Entry

Another trade which resulted in a loss despite a valid signal and trade execution was within trading rules. It seems that this is a tough month where trading has become quite a testing period. Got to press on and persevere.

Trade Details

• Date: 15 Feb 11
• Time: GMT 15:50
• Entry Price: 0.99923
• S/L: 0.99600 (32.3 pips)
• T/P: 1.00500 (57.7 pips)

Trade Update

The trade was closed when the S/L was triggered on 15 Feb 11, GMT 19:23 at 0.99600, resulting in a loss of 32.3 pips for both batches.

Reflection


This is a very trying period as the trading performance is way below my expectations. Then again, when it comes to trading, losing is part of the game and we will have to look forward regardless of a loss or a win.

11 Feb 11 - Bullish Bat Pattern on NZD/USD - H4

In the case of this trade done, there was a harmonic meltdown on this trade done. Anyway, this was due to an ambitious attempt as the trade was done at the end of the week which was risky as there might be weekend gaps and in this case, the price gapped down and continued to move lower.

There was a warning initially as price was moving sideways and there was an opportunity to get out but I decided to hold on though.

Trade Details

• Date: 11 Feb 11
• Time: GMT 16:00
• Price: 0.76056
• S/L: 0.75350 (70.6 pips)

Trade Update

Trade was closed when the S/L was triggered on 15 Feb 11, GMT 09:52 at 0.75346, resulting in a loss of 71 pips on both batches.

10 Feb 11 - Bearish Butterfly Pattern on USD/SGD - H1

I would consider this a tough month where prices are choppy and patterns are invalidated after trade execution.

Then again, losing is part of the business in trading and thus strict risk management will allow us to suffer some draw downs while continuing to trade. This is definitely a very upsetting period for me but then again, I will have to look forward despite a few draw downs and in the case of this trade, it is another loss taken.

As a way of learning and a reference for the future, I have made it an effort to post all my trades be it losing ones or winning ones. It is with this mindset that learning will take place as I get critical with my trading technique and trade management.

In the case of this trade, the short position was triggered when the price stalled and made a reversal before resuming its uptrend.

In the case of this trade and of course on hindsight, the trade would have been a break even at worst when price reversed. In this case, price retraced beyond the 0.382 Fibonacci Retracement Level after the reversal and this would have been a warning that the trade was not going to make it as most reversals will have strong moves and would rarely retrace beyond the 0.382 level. This would have been my warning signal but then again, this new trailing stop was further gained after I read up on some other material and I thought it would have been a nice tool to be added to my trading strategy.

Trade Details

• Date: 10 Feb 11
• Time: GMT 13:00
• Entry Price: 1.27800
• S/L: 1.28150 ( 35 pips)
• T/P: 1.27250 (55 pips)

Trade Update

The trade was closed when the S/L was triggered on 11 Feb 11, GMT 01:40 at 1.28150, resulting in a loss of 35 pips for both batches.