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Thread: Constructing Potential Reversal Zone

  1. #1
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    Constructing Potential Reversal Zone

    Fibonacci Measurements methods


    There are 4 types of common Fibonacci measurements in harmonic trading.




    Internal price retracements
    Internal Retracements are retracements of less than 100%. This can be seen as a correction to the prior trend. Most common ratios for internal retracements - 38.2, 50, 61.8, 78.6%.

    Constructing Potential Reversal Zone-fibonacci-internal-price-retracement.png



    External price retracements
    An external retracement, since it is greater than 100% of the swing that is retraced, can be seen as part of new trend. Most common ratios for external retracements – 127, 161.8%.

    Constructing Potential Reversal Zone-fibonacci-external-price-retracement.png



    Price expansion
    Price Expansions expand the price swing by a chosen ratio. Most frequent use of price expansions are expansions of wave1 in Elliott Wave Theory to predict the end of the wave3, but can be used in any other case as well. Most common ratios for price extensions – 61.8, 100, 161.8, 200, 261.8%

    Constructing Potential Reversal Zone-fibonacci-price-expansion.png



    Price projections (APP)
    Price Projections (also called APP-alternative price projections) are measurements which compare swings in the same direction. They project trend swings with trend swings and corrections with corrections. We simply take low to high swing and project it from different point on the chart.
    Most common ratios for projections – 61.8, 100, 161.8, 200%

    Constructing Potential Reversal Zone-fibonacci-price-projection.png
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    Fibonacci cluster, confluence, convergence or Potential Reversal Zone




    Using combination of retracements, projections and extensions we can build a Fibonacci cluster also referred as Fibonacci confluence, convergence or Potential Reversal Zone. Closer and more lines from different measurements stronger PRZ, meaning higher probability it will work as support or resistance level and will allow a trader to enter into low risk and high probability trade.




    In practice we look for minimum 2 Fibonacci price relationships coming together with a relatively tight range. When a price enters the PRZ we expect that this area will stop the prior market move and act as Support or Resistance. We observe the price behavior at this level, a trigger that will tell us to enter the market.




    Similar to Fibonacci price measurements we work on Fibonacci time measurements. Time clustering will allow us to identify time when the price hit the support/resistance level and retrace.




    Fibonacci measurements and creation of the price and time clusters deserve a separate post.
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    example:


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    Trading would be too easy if by placing retracement, projection and expansion on the chart we would see them all clustering on 1 PRZ. No. Usually you will get number of clusters, number of potential levels where price will stop and retrace. How to choose the right one? … hm, that is why you have other confirmation techniques.




    Note that very often in a books or articles you can see charts with marked PRZ, presenting just couple of lines, all meeting in very tight price level. Keep in mind that all the other lines were removed and chart most often prepared post factum. Picture below presents all measurements while looking for the potential Gartley pattern. The one where price turned was one of the candidates, but not the only one where clusters were visible.





    Note also that after sometime working with the method you will discover that some out of 4 measurements types are less reliable than the others. You will also decrease number of Fibonacci ratios you apply. Simplification comes with time.

  5. #5
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    on this video tutorial, You can see, how to combine different Fibonacci Measurements with trading harmonic patterns. Fibonacci Retracement Levels create a fibo-cluster, which is high-probabilty turning point on the market:

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    X-A retracement entry zone Gartley

    Hello to all of you,

    I'm pretty new in this matter and today I have placed some BUY orders on an emerging Gartley.
    Can someone confirm this BUY entry zones or criticize them please?
    The first zone is the 0,786 retracement of X-A
    The next zone is the 0,886 retracement of X-A

    I am of course well aware that an ideal purchase zone does not exist, but...

    Thanks for your participation.

    Gilbert (Belgium)
    Attached Thumbnails Attached Thumbnails Constructing Potential Reversal Zone-ger30_h1.jpg  

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    Hi Gilbert, if I can suggest something: the very first place when I would consider an entry point - that would be also 78.6, but only if AB=CD (for me CD can be longer than AB, but not shorter) But to be honest: I actually never enter the trade so soon. I look for a fibo cluster around 88.6, or simply enter on 88.6. I do that, because it simply gives me a better risk/reward ratio.

    The second thing: when You set a pending order, it's always good to set Your Stop Loss too because You don't want the price to shoot down and ruin Your whole day:P
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  8. #8
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    Quote Originally Posted by ziemo View Post
    Hi Gilbert, if I can suggest something: the very first place when I would consider an entry point - that would be also 78.6, but only if AB=CD (for me CD can be longer than AB, but not shorter) But to be honest: I actually never enter the trade so soon. I look for a fibo cluster around 88.6, or simply enter on 88.6. I do that, because it simply gives me a better risk/reward ratio.

    The second thing: when You set a pending order, it's always good to set Your Stop Loss too because You don't want the price to shoot down and ruin Your whole day:P
    Ziemo, thanks for this quick reply.
    This is precisely the answer I was waiting for.
    If I understand correctly, it is more a matter of patience and disipline.

    To be continued…

    Gilbert.

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    Reversal zone...

    I did not take the long position on the GER30 (see chart) due to the conditions (rules) but would have taken a long (buy) on the AUX200 instead (next chart)

    Next time, I will do so...

    Gilbert (Belgium)
    Attached Thumbnails Attached Thumbnails Constructing Potential Reversal Zone-ger_h1.jpg   Constructing Potential Reversal Zone-aus200_h1.jpg  

  10. #10
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    Bearish Gartley & Crab on JPN225-index

    Today I had a bearish Gartley & Crab on JPN225-index on my H1 chart.
    As I know, the pattern rules must be reached first to fit...
    that is wy I drew a future D-point where AB=CD @ 8600
    It is remarkable that the 8600 value is exactly between the fib's 88,6% and 78,6% of AX (D-point)
    So, I wil wait untill price reach 8600 to sell...next week.
    My Profit target is 127% of leg A-D @ 8165 wich is about 5,33% gain.

    Please feel free to post your constructive comments.

    Chart is included in this post.

    Gilbert (Belgium)
    Attached Thumbnails Attached Thumbnails Constructing Potential Reversal Zone-jpn225_h1.jpg  

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