Read It Like I Would

Analysis, my way.

Think of potential = distance to go uninterrupted.

1. comfort levels – location & the road traveled

EU00

The reason you would be looking for a lower high is the fact, that price first traveled from the top of the upper reversal zone (shading) to the overbought neckline (thick black), and then you had a long retracement into the deeply overbought line (thick coral).

2a. the conditions to be right

EU01

The distance traveled back up to the deeply overbought line is in excess of a normal, single discharge of the 4H energy, which is about 165 pips. That’s a strike. RSI 8 above 85, that’s red hot, ideal to sell into. As time progresses, a root point gets justified by a higher high with a lower strength divergence.

2b. support-resistance readings highlighted by Skid Rock

EU02

In order to take a trade, the probability of the next move is only half of the story. You need to have little to no obstacles to ensure uninterrupted progression & length.

3. consolidations

Travel fuel can be ensured by sufficient consolidation. The following image shows where the 4H price movement has reached high levels of consolidation (>51 on a 14-sample CI).

EU03

I put the same black line up to remind you of the 160+ pips that started with a high energy, consolidated state, and was forced to make another consolidation after it got thoroughly exhausted by the distance / steepness.

Your best entry is upon leaving the consolidation zone. For a full reversal, you should have the divergence made first (Root point). You could had taken a short anywhere after price went below the root point, but to define your risk, and to keep it low, the perfect entry would had been a short stop at 1.2349 with a stop at 1.2369. 1.2349 is a little over 20 pips away from the middle of the consolidation – and you should not be expecting a fall back after the strength was proven by reaching this distance from it.

As for the potential, you should see the first move reaching 1.5x daily ATR, which is around 100 pips (add an extra 15 pips for extra surprise), given the 3-days average of EUR/USD movement.

EU04

The lime lines are the milestones. A reaction is likely, so it is a good idea to cover around them, and then either go with the same direction if price surpasses the swing-point by 12-15 pips.

There were a number of good entry points, i.e.

the pull back towards the swing low – with low risk, 20 pips again,

and when the consolidation was printed, the upper border and the presence of the overbought neckline was sufficient for another low risk entry.

The opportunistic long – upon having traveled 2 milestones in one direction, was the beat of the low set primarily by the mile stone. Symmerty is something you should be thinking aboutof and looking for; the fist move got the sell started, the second ended it.

You are currently above the root point, a reversal had taken place. Wait for another consolidation to form to take a new position – or re-utilize a previous one.

This certainly looks like a re-utilized consolidation high:

EUR843

I should mention that it improves your odds to trade in a direction if you are far away from the LEMA quad (colorful lines above).

 

The current move up would qualify for a Wave 1 up (as soon as Fractal is printed). A pullback would be a buy (a drop to 1.2095 perhaps or to the 1H root point at 1.2080, for sure). I would expect a reaction coming from around the 1.2156-1.1269 area (1H oversold neckline / half way mark between the roots and is the lower end of the previous consolidation and a 161.8 extension). You could play this counter move down for 50-55 pips, for the current Wave 1 (or Wave A) likely would be utilized for a buy when penetrated. The continuation move down I would expect to come from the green river that would have dropped to/below 1.22 by the time of the rendezvous.

EUR845


//the logic for the consolidation, the outer limits & the label placement

// line 1 is the weight of the last consolidation

//line6 is the high of the last consolidation (weight + 18 pips)

//line7 is the low of the last consolidation (weight – 18 pips)

for (i=300; i>=0; i–){
line1[i]=line1[i+1];
if (ChoppinessIndex(14,i+1)<51 && ChoppinessIndex(14,i)>51) line1[i]= (iHigh(NULL,0,i)+iLow(NULL,0,i))/2;
if (Close[i]<line1[i]) line6[i]=line1[i]+.0018;
if (Close[i]>line1[i]) line7[i]=line1[i]-.0018;
if (line6[i]==EMPTY_VALUE && i<200) line6[i]=line6[i+1];
if (line7[i]==EMPTY_VALUE && i<200) line7[i]=line7[i+1];
}

 

deletetxt1(“txr 11”);
deletetxt1(“txr 12”);
deletetxt1(“txr 13”);
deletetxt1(“txr 14”);

for (k=0; k<=50; k++){

if (line7[k+3] != line7[k+4]){
ObjectCreate(“txr 11″+line7[k], OBJ_TEXT, 0, Time[k], line7[k]+.0005);
ObjectSetText(“txr 11″+line7[k], “Low:”+NormalizeDouble(line7[k],4), 16, “Arial Black”, White);

ObjectCreate(“txr 12″+line7[k]+”S”, OBJ_TEXT, 0, Time[k], line7[k]+.0022);
ObjectSetText(“txr 12″+line7[k]+”S”, “STP:”+NormalizeDouble(line7[k]+.002,4), 16, “Arial Black”, Black);}

if (line6[k+1] != line6[k+2]){
ObjectCreate(“txr 13″+line6[k], OBJ_TEXT, 0, Time[k], line6[k]+.0016);
ObjectSetText(“txr 13″+line6[k], “High:”+NormalizeDouble(line6[k]+.001,4), 16, “Arial Black”, White);

ObjectCreate(“txr 14″+line6[k]+”S”, OBJ_TEXT, 0, Time[k], line6[k]-.0002);
ObjectSetText(“txr 14″+line6[k]+”S”, “STP:”+NormalizeDouble(line6[k]-.001,4), 16, “Arial Black”, Black);}

}