Lecsó or Lechon Manok – that’s the question here

What is an Echo?

It is a failed rally / sell-off.

Why does this happen?

In trading, you never have any use for a why. You just need to notice when it happens and act accordingly.

How does it happen?

There are two factors, duration and location.

As for duration, the great majority of these runs is 2-3 hours in length. The zone to fail is typically a 21-pip range where the third candle should print a high/low and retrace more than 1/3rd of the current hour’s action. The zone itself is most often from inside the 30-sample HL2 hourly BB by two pips to outside by 19.

The failure high/low is often final but allows for a fake out for up to 10 pips. This displacement I call the moratorium zone. I don’t have any examples where the market managed to walk into the zone by more than 7 pips before reversing for good.

You would likely find that the first hour spent at least a little time on the other side of the hourly 8 EMO.

Confirmation

An ECHO is still pending upon the 3rd hour’s failure. The 4th hour closing towards the 8 EMO is the first confirmation. The second confirmation is not taking out the high/low made by the 3rd candle in hour 5. At this point, confidence is in. Further confirmation would be starting to print closes on the other side of the 8 EMO.

The one disqualifier (muter) I have is if the 30 sample BB width is less than a fluctuation size or 32 pips. In this case, I gray out the Echo print.

The Black or BB echo is a version where the 8 EMO is out of reach. This move also starts from inside the BB, the failure zone is the same as well, but it requires a print outside the BB right before the Echo count starts in exchange for no 8 EMO.

I also implemented an early “heads up” marker with the same system of Yellow for pending and Green or Red for some directional confirmation, but one hour earlier. The rugged edge circles I’m talking about. Some of these never turn into an ECHO.

I did invent the Push and Echo coupling for the Weekly chart. Over there a Push is defined by a move outside the 14-sample Window Envelope with a week-on-week progress being at least 50% more and the time limit for an echo is 2 Weeks (2 more candles), but can happen in 1.

As you can see, the hourly Echo definition is different, it can happen almost anywhere and does not represent more than a turn. It is not necessarily a major swing you are looking at, but a failed auction nevertheless. A trade that would be on until a Black or White Echo prints in the opposite direction.

There are very simple mechanics at play.

Here the market is trying to fail…

…but it does not get confirmed in the first following hour.

Now an Echo is out of the question, but a BB Echo is a possibility 2-3 hours from now or it would have to reconnect with the 8 EMO first and start a new count.

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Album #24 up to listen

…potential BB Echo, will know in 3 more hours for sure. The current candle would have to close down 1/3, the next candle would have to be red and the candle afterward would not be allowed to take the high by the settlement.