EUR/CHF Update (3)

In am still in this trade...with my stop at break even.

You can see that the trend line that was acting as resistance has now been violated which is not necessarily good for the outcome of this trade.

However, note also that the price reacted at the "D" point of a bearish Gartley pattern which is positive for the trade...and we are now back in the 1.2050 region....again!.

Of course, with my stop at break even, the emotional side of the trade is MUCH easier to deal with....so...once again, I apply my trade plan and await the completion of the trade, one way or another.

TESCO..LONG TERM VIEW

I am looking for a long term entry on Tesco.    This is for a SIPP account where income is an important part of my investment strategy.   The recent sell off in Tesco shares caught my attention and I've been into my market geometry and timing analysis mode.   The share is yielding 4.5% at current levels.

You can see from the chart that the price action is heading towards a very important Fibonacci retracement level ( of the March 2003 to November 2007 swing)...the golden mean of 61.8%.   This is creating a confluence zone with the 50% retracement level (of the November 1993 to November2007 swing), which W.D.Gann suggested was a very important level.  This has created a "confluence zone" which is particular interest to me.
As a result of further analysis, I have noted the following "edges":-
1).  The confluence zone can been seen to have been a significant area of resistance in the past(red zone)
2).  The confluence zone has proved to be support twice in the more recent past (yellow zone with green circles)
2).  The gold  AB=CD shows the price action reacting to equal swings up.
3).  The blue   AB=CD gives a projection which should react at some point around the confluence zone.
4).  The time taken from the low of November 1993 to the low of  March 2003 was 113 bars.   At the end of February 2012, the time taken is 108 bars.  Is this the second 10 year cycle?....The difference between 113 bars and 108 bars is only 5 bars over a period of 221 bars which equates to 2.2% variance over a period of almost 20 years......that's pretty close in my book......and , of course, the nearer we get to 113 bars on the second cycle, the less the variance gets.

As ever, timing your entry is the difficult part.    So, I watch and wait.  However, given all of the above if the price action gets to the area of 290p, I will revisit my analysis and expect be a buyer for the long term.

EURCHF Update (2)

It's Friday......7pm....I've looked at the price behaviour of this trade...and, as you can see, progress has been made.   There is a downtrend line which has acted as resistance 6 times and three bear flags.....so whilst I was considering closing the trade before the weekend, technically, there is no reason to do so.....I shall therefore leave it running and hope for further progress on Monday.   I have, however, moved my stop to break even.

Geometry in the Markets

I am a very keen user of  both geometrical and time patterns in trading.   The chart below shows a simple AB=CD pattern.     The D completion point was on 22nd December and ideally one would like the price to be at the completion level at that time.  In this instance it was just 7c below it.   That was enough to attract my interest.     If you follow the dotted line across from the D point you can see that the price reacted at the level on 4th January and again on the 10th January before finally collapsing.   This gave added confidence to trade a reversal funnel.   the price fell 15% in 6 days.

EUR/CHF Update

I am still in my EURCHF trade.   The price action so far has been encouraging even though the breakout hasn't been spectacular.

The yellow area shows that the price reacted at my previously predicted "congestion" area.   The green circle is a classic action with this pattern...where the price retraces to the funnel level (sometimes it goes into the middle of the funnel or even to the top)....I refer to the green circle level as " a second chance entry" and sometimes I look for these as entry points instead of the initial breakout).

So.....technically speaking, there is no reason to take any action today.   However, as today is Friday,  I will monitor the trade and make a decision later today as to whether |I should leave it running over the weekend or close it before COB tonight.

I make extensive use of Fibonacci numbers and ratio's in my trading endeavours.   I was mentored by Larry Pesavento (of Gartley & Butterfly patterns fame) and his colleague, Costas Vayonis.

Leonardo Da Pisa Fibonacci

Have you ever wondered where we got our decimal numbering system from? The Roman Empire left Europe with the Roman numeral system which we still see, amongst other places, in the copyright notices after TV programmes (1997 is MCMXCVII).

The Roman numerals were not displaced until the 13th Century AD when Fibonacci published his Liber abaci which means "The Book of Calculations".

Leonardo Fibonacci c1175-1250.

Fibonacci, or more correctly Leonardo da Pisa, was born in Pisa in 1175AD. He was the son of a Pisan merchant who also served as a customs officer in North Africa. He travelled widely in Barbary (Algeria) and was later sent on business trips to Egypt, Syria, Greece, Sicily and Provence.

In 1200 he returned to Pisa and used the knowledge he had gained on his travels to write Liber abaci in which he introduced the Latin-speaking world to the decimal number system. The first chapter of Part 1 begins:

These are the nine figures of the Indians: 9 8 7 6 5 4 3 2 1. With these nine figures, and with this sign 0 which in Arabic is called zephirum, any number can be written, as will be demonstrated.

Fibonacci sequence

Fibonacci is perhaps best known for a simple series of numbers, introduced in Liber abaci and later named the Fibonacci numbers in his honour.

The series begins with 0 and 1. After that, use the simple rule:

Add the last two numbers to get the next.

1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987,...

You might ask where this came from? In Fibonacci's day, mathematical competitions and challenges were common. For example, in 1225 Fibonacci took part in a tournament at Pisa ordered by the emperor himself, Frederick II.

It was in just this type of competition that the following problem arose:

Beginning with a single pair of rabbits, if every month each productive pair bears a new pair, which becomes productive when they are 1 month old, how many rabbits will there be after n months?

(Answer: Imagine that there are xn pairs of rabbits after n months. The number of pairs in month n+1 will be xn (in this problem, rabbits never die) plus the number of new pairs born. But new pairs are only born to pairs at least 1 month old, so there will be xn-1 new pairs:   xn+1 = xn + xn-1
Which is simply the rule for generating the Fibonacci numbers.)

The Golden Section

A special value, closely related to the Fibonacci series, is called the golden section. This value is obtained by taking the ratio of successive terms in the Fibonacci series:

Ratio of successive Fibonacci terms.

If you plot a graph of these values you'll see that they seem to be tending to a limit. This limit is actually the positive root of a quadratic equation (see box) and is called thegolden section, golden ratio or sometimes the golden mean.

The golden section is normally denoted by the Greek letter phi. In fact, the Greek mathematicians of Plato's time (400BC) recognized it as a significant value and Greek architects used the ratio 1:phi as an integral part of their designs, the most famous of which is the Parthenon in Athens.

The Parthenon in Athens.

Last night I entered a new trade on EUR/CHF.   I went short at the breakout of a funnel pattern.   Sometimes these patterns drop quickly to their target...other times they meet "congestion" on their way...often at forecasted levels.   We'll have to wait and see.   If it works, my profit take order is already in place and  it will be a nice trade in terms of RRR.   If not my stop is in place and I'll be taken out.

Today I've spent a lot of time back testing the "Fibonacci funnel".   This helps me gain more confidence in the pattern and also helps me develop an eye for the pattern, as well as improving my actual execution of each trade.

I am hoping for a pull back in the stock market in general to be able to start establishing some more set-ups.

In the meantime, there's always the Forex market....that provides opportunities on a daily basis.

Good Trading!

Schroders' 1 hour chart

Here is an example of a "Fibonacci funnel" on a 1 hour chart of Schroders, LSE.   The trade was a success and it gave a RRR 4.77 to 1 ahhhhh...if only they were all like that!

Another complete pattern

This is another "Fibonacci funnel" but this time on a 2 hourly time frame.   You can see that the price traded to within 2 ticks of the target.  (I always set my limit order to be filled a little below the target...- "shading it") and this trade produced a RRR of 3.1 to 1 in a matter of 6 calendar days / 4 trading days.

A nice completed pattern

One of the patterns I look to trade is a "Fibonacci Funnel"....a breakout trade.   It's a good pattern to trade providing ALL of the set-up criteria are met.   It works on any time frame and gives clear stop and profit targets.   This is a pattern (Marks & Spencer PLC) ( LSE: MKS) which completed a couple of days back and as you can see, it hit it's target perfectly and the price has now retreated somewhat.  I like trading this pattern as you can place buy (or sell) orders with stop loss and profit take orders all at the same time.......then let the trade run its course ( subject to normal trade management, of course).  This trade produced a RRR (Reward to Risk Ratio) of 2.2 to 1.