Yeah, this lesson cannot be skipped.
When I first came up with my own, horizontal stochastic plots, I had of course the maximum sample available by MT4 as limitation – which varies per time frame i.e. 1025 on 1H and 1590 on 4H -, and the idea that before a break out would occur, price would pass by the 5% mark from below, similarly, if the new lows/highs are finished, price would have to retreat beyond the 5% mark, so for these reasons I started plotting lines at 5, 15, 25 etc. percents of the total range.
Of course, this did not have the 50% mark, but gave me a few insights, such as: the reversal would most likely take place in the 5-15% zone, which I started calling the reversal zone conclusively. Back then the 5% line was a red line, and I even made a Red Line Reversal EA based on the idea. Your stop loss can be put just beyond the 5%.
These days the comfort levels are at the round 10s, so the pivot, the deeply overbought/oversold levels as well as the overbought/oversold necklines are in the right place, but the issue of the 5-15% not being plotted has been bothering me.
A shaded field would use much of the computer resources, although with the current i7/16GB I’m typing on this is not an issue any more. For other computers though it is a good idea to make the shading with the use of histogram lines instead of objects.
…with further zoom, the gray fields become rows of stripes giving some opacity effect.
I will upload this version of the Comfort Levels later on, but I need to find the header for the routine, and currently I do not even know which laptop has it, the Dell or the Toshiba.
The big question is which time frames should you use this on?
4H is very important, for you just had 3 days spent in the overbought field, which made price embedded (I have written enough about this condition, but Ira Epstein is the originator of this expression), which means, that any dip would be a buy to the neckline and perhaps even beyond, for they can go outside for a day and save it on the next one.
To me it is not a question any more that the target currently is at 1.1986
The 1H puts the upper reversal zone between 1.2011 and 1.2065 and currently has a failed break above the pivot, consolidating just below it.
The 30 minute, as you can see on Fig 1, encompasses the whole move, and the imaginary red line / start pistol is at 1.1863-ish, from where you would be hitting the 5% mark on your way to expanding the range.
Now, FYI the latest threat is that the Dollar would be declining for the next 5-6 years straight, for there is a completely new world starting to shape up where the USD is no longer the world’s reserve currency, and on every bad news people may end up fleeing into other currencies, especially the Euro, for they see the steady growth and know that the ECB would be running out of excuses for keeping the stimulus on pretty soon.
So, where would you be expecting the Euro to come back up to? For starters, to the monthly pivot.
As a bonus image here’s the gap up (on the daily) that made all the rally happen:
Bonus image 2
36 V1.3.2 on 4H, where it was intended for