Ratios & Harmonics: a Different Way to Trade

I wish. Drinking a shot of whisky sounds a lot better then sorting out veneer sheets. I was doing the ladder. HaHA They just put up a spiffy new 2000$ camera right behind me but don't worry that hasn't refrained me from dry humping the equipment and riding the brooms around like a donkey.

Wish I could of got back in the saddle today tho. If I was at my chair , I think I would of played it like this today


Oh yeah !!!!

YM

Couple thoughts this morning.

We've retraced near 100% of this last main leg up. If we get back up to this fuchsia zone then I'll watch for how price tests it for a possible short.



Then again, I'm keeping the whole picture in mind. This leg down has only retraced just past the 382 of the entire move up so it's possible that more up is coming.



We're also 99% net short.

Will keep these in mind and watch orderflow.
We've retraced near 100% of this last main leg up. If we get back up to this fuchsia zone then I'll watch for how price tests it for a possible short.

Didn't trade today. I made the same mistake I made Friday - waiting for a good reversal long setup to present itself, which it never did.

I don't know why I have an issue playing continued strength to the downside. Clearly shorting was the way to go today but for some reason I felt the smart thing to do was to wait for selling to let up and look for a long. This is incorrect and a waste of time.

I need to figure this out because I've missed some great opportunities because of it.

This is the conflict between the revert to the mean trader in you vs the breakout/momentum trader. I think it is normal after the summer we got where the range was small and a lot of the time fading a level was the name of the game. You're not alone, it takes time to adjust to new participants and increase of volume.

In general, I have the same problem. I am often looking for an opportunity of a trend change and whereby missing some nice initial trend moves.

Today, I came late to the charts and could only catch +5 (with a long).

You're right, I think that's part of it. This summer it was hard to see follow-through in any one direction.

Reviewing some of my trades, it appears I'm using the orderflow to wait for a reversal and take that contrarian trade. There have been a lot of scenarios over the past few weeks where the market is very net long or net short and then more so in RTH which is causing me to abandon going with the orderflow and wait for the reversal as I'm thinking it is the higher odds play to burn shorts or melt longs.

Obviously this logic is throwing me off when we actually get a strong follow-through day. The thing is that I'm aware that the odds are on the trend to continue and that playing the reversal is just not smart in most cases.

I think I need to get better at recognizing when we are going to have continued strength but even looking over yesterday's price action that was kind of a bitch to figure out as we were getting some weak NSL's.

Nice job Evo, glad you were able to come away with some pts.

YM

We made a weak NSL and then came back up and made a retest, however momentum on this leg back up is a lot weaker than the prior up leg.

Not sure how I'll look to play this.

YM +51

Notes on chart.

I should have looked to play the short off the 113 fail.

YM +9 on this one = +60 for the day.

Notes on chart.

Since I had to go in middle of your first move, I could only pick +15 (long). However, this is enough for a nice dinner and more.

Congrats Jmezz

Evo - nice job. Which long did you take?

I was looking at 2 other longs today but ultimately didn't pull the trigger.

First attachment - We made a weak NSH so was expecting deep pb. I had a demand box outlined and wanted to see price hit it to start looking long. There was fib confluence in there as well structure and the daily open. Price didn't hit it so I stayed out. You can see later in the session that price did come in to touch that confluence zone and while price made a small bounce, there was no sustained move upwards.

Second attachment - Price made a nsh on the short term so I thought that price was realigning with the long term and we could get a pullback to get long for a NSH on the long term. We got the pullback into demand but by this time it was just after 11:30 and I didn't think it was necessary to take on the risk. It would have been a profitable trade however the expectation of price making a NSH on the long term failed.

Hey jmezz,

You did an excellent job and got some nice results. Very happy for you. I was wondering it is not always easy to follow your fib levels i was wondering is it possible to find a way to identify the swing hi/low that correspond to a measurement and perhaps hide the diagonal line when there are many. Maybe i am asking too much, it is just that i learn quite a bit from your posts on how to use the fib tool. What i find hard to grasp is the levels that extend below the 0. Anyway, i must the only one that has this request so take it with a grain of salt. Thanks

Thank you Crixus.

Lol, yeah sometimes I get lost in those diagonals myself. If I have a lot of those going on then I've started changing their color to black but appears I forget on some. When I share charts here, I'll try to be mindful of making sure they're not on there making the chart too busy.

I'm not sure what I can do to identify a swing that corresponds to a measurement but I'll take a look when I get back on the screens tomorrow.

Regarding fibs that extend past 0 - can you identify a chart of mine where you see this? I just want to make sure I have the right idea.

Tomorrow I'll make a post detailing the types of fibs I use and how I use them. I touched on that briefly over the weekend but will go further into detail.

I'm glad you brought this up because I was wondering to myself recently if my posts and charts are coming across clear. I'm sure there are some others who get confused by my charts, there's never just 1 person haha.

YM

Interesting pattern I noticed on the 4hr.

Test of the 161.8XA and the 261.8BC followed by bounce and retest of the 161.8XA, now starting to put in a HL. This 4h candle now looking pretty weak though.

Would be a hell of a move...



Back to 233 tick chart, we've had an order flow change and now a pullback however keeping in mind that on session is net long.

Patience at the open.

Jesus, market was very nervous at the beginning on YM. I could get out with (long) +16. However, I was only lucky. I prefer to stop trading today.

Good luck to all of you.

YM -4

Yeah this morning was choppy and tough to gauge.

Notes on chart.

YM

Not quite there but not a bad move off that 161.8 retest right?

I took 0pts of the move up, amazing. Sometimes you just have to laugh.

I know what you mean (happens enough to me to think, why did I not take profit on this). With hindsight, a lot of things appears obvious. Today, I expected a nice move up, but the rodeo (look at 15min chart) at the begin, made me unsure and the moves where simply to quick for me. Finally, I decided to quit with my profit and to enjoy the rest of the day ( for me the evening). However, when looking the chart afterwards I tell to myself that I should have stayed in. But ok, I prefer to secure capital. If I were trading with 1eur per dow point, I would certainly act differently.

PS: my post was directed on your last post. Something went wrong with my mobile phone writting.

Ok I'm going to make a post to better explain how I use fibs and hopefully it will make my charts a little easier to follow.

Below, I've drawn pics of how I use the fibs and then follow each concept up with pics of real price action.

First I'll start with what Damian has taught here in the thread.

What we've learned in this thread is to look for an ABC move then we project the 1:1 and bring out fib extensions. So our process starts with bringing out the fib retracement tool, looking for your ABC move, projecting the 1:1 from C, then bringing out the fib extension tool so we can look to the 127 / 138 / 161 extensions for areas of exhaustion. Damian uses 2 fib drawing tools to accomplish this: the fib retracement tool and the fib extension tool. We use the fib retracement to draw from Point A to Point B then wait for price to retrace to an area which we think will be Point C. The fib extension actually uses line AB to project the fibonacci ratios that we use for exhaustion.

There are a few ways to draw these AB extensions:



#1 - This is the type of fib drawing that I use in order to project AB extensions. This drawing is both the fib retracement and also the AB extension in 1 drawing. It accomplishes the same extensions as if you were using 2 drawings like Damian does however I prefer this method to cut down on chart clutter. When you look on my charts you will notice that the majority of the time I will have only the 127.2 extension showing. I rarely use the 161.8AB extension.

#2 - This is 1 way to draw the AB extension only. Even though we are drawing an extension, #2 is created by using the fib retracement tool. I use 2 different templates for the fib retracement tool: 1 template has the retracement ratios (382, 50, 618, 786, 886) and the other template has all extension ratios (113, 127.2, 141.4, 161.8, 200, 224, 261.8, 361.8). Even though it's the same tool, where you choose to plot your first anchor is what ultimately decides whether you get retracements or extensions (note the 0% and 100% are flipped between #1 and #2).

#3 - This is the drawing that Damian uses to draw his extensions. These are created by the actual fib extension tool. Note that there are 3 anchors on this tool vs 2 anchors on #1 and #2. I believe that Damian uses the 138.2 instead of the 141.4 however this comes down to preference.

Also note that #1, #2, and #3 extensions all line up together. They all convey the same info, AB extensions, what it comes down to is which method you prefer to use.

Next I am going to use a typical ABCD pattern to illustrate how we've been taught to analyze them as well as how I use BC extensions to create a PRZ.

I am going to borrow from my earlier post on this:

When using the BC projection to create a PRZ you are taking into account how far the C point retraces into line AB and then using a fib extension of BC to project the PRZ. To understand the correct ratios to use for the PRZ, you use reciprocal ratios:

C point = BC projection
38.2 = 261.8
50 = 200
618 = 161.8
78.6 = 127.2
88.7 = 113

What this is saying is that if you have a move retrace to the 618 then you should expect price to touch the 161.8 BC projection where you *could* see a pause or correction. If your C point retraces to between the 618 and 786 then you should expect price to hit between the 127.2 and 161.8 BC projection.



So here we have an example:

#1 - This pattern shows how we'd gauge the retracement and then apply AB extensions to locate exhaustion points as Damian has instructed us.

#2 - This pattern shows how I'd use Line BC to project fib extensions in order to locate the PRZ. Notice the anchor points on the BC extension (cyan).

Now going back to our reciprocal ratios and using this example - C point retraces to between the 618 and the 786 of the AB move (1st gold box). Using the reciprocal ratios above, you come up with an expectation that price should hit between the 127.2 and 161.8 BC projections (2nd gold box).

It's good to keep in mind that 1:1 extensions will usually place price inside of the PRZ.

So this is how I create a PRZ. Which method you choose to use is up to you. I actually use both as I take into account the 127.2AB extension (sometimes the 161.8AB extension although much less often) in addition to the BC extensions.

See:



Sometimes you will be able to locate an X leg to use in conjunction with your ABCD that is forming:



For these examples I disabled some of the fib levels in order to keep the chart clean and information clear.

#1 - This shows how I might look use an XABCD pattern to get back in the direction of the prevailing trend. Price creates an ABCD pattern and hits the PRZ which happens to be within the 618-786 of the overall leg down. In this example the ABCD is a corrective pattern against the X leg.

#2 - In this example, price blows through the PRZ and goes on to take out the X point. Depending on the strength, when PRZ's fail I will then look to XA extensions (as pictured in this example) for a possible reversal.

See:



Also this:



#3 - An XABCD could present itself where the PRZ is beyond the X point. When this happens I will try to look for XA extension and / or AB extension confluence to try and build a stronger zone.

See:



Price is not always as clear cut as the examples that I've given so far. Sometimes when you are following the orderflow and waiting for a pullback to get in, price gives you a complex pullback:



#1 - In this example I've drawn out a complex correction. Using this example, if I still have a bearish bias then I am going to look for a confluence zone for price to hit and put in a rotation. When building the confluence zone I will usually start with structure and then move on to drawing the fib retracement. Then I've recently started doing something that I've picked up from Rocky: I'll take the very first impulse leg and throw the fib extension tool on it (magenta), so credit to Rocky on that. Then I will see where a 1:1 ends up and then watch price from there.

See:

http://i.imgur.com/3XxUX4z.png

And sometimes price will correct very strongly in 1 leg, in which case sometimes I'll use the extension tool like this:

http://i.imgur.com/2hpcXW8.png


See:

http://i.imgur.com/ud6zeRe.png

I want to say that even though I've mentioned XABCD's I don't keep track of them in the traditional sense. I don't monitor if the ratios fit for the specific patterns (bat, butterfly etc). I try to stay with the long term orderflow (despite my trouble with this lately lol) and use smaller patterns to take reversals to align myself with the prevailing trend. However, when price has an extended move then I will look to take a reversal at XA and / or BC extensions (against orderflow) as reversals in these areas can provide a great opportunity to make profit. Otherwise, I'm just looking to arrange fibs in a way where there are multiple levels of confluence in areas of structure and then watch how price action acts once it nears these zones.

In regard to PRZ's, I do not trade them rigidly, and what I mean by that is that if I have a PRZ mapped out and price starts to weaken before reaching it, I will absolutely look to see if an good opportunity arises to take the reversal before price hits the PRZ. A lot of times you will be able to tell that price will not make it to the PRZ. When I suspect that price will not make it then I start looking around for structure and fibs and wait for price action to give a signal.

I think this pretty much covers how I use fibs. A lot of it is basic fib usage and I bet most of the people who read this thread already know all or most of what I've detailed here. I may have missed something, if I did then I'll just throw an edit into the post.

I think it's time I invest in a mic, making a video would have taken a fraction of the time it took me to compose this post lol.

If anyone has any further questions then post in the thread and I'll help out as best as I can.