That break out play led to a new low once it dropped 82 pips after the breakout, followed by a rise and a new nosedive that started 9 hours ago on the back of new disappointing data out of China. We now have the contour of a on the hourly, with the above mentioned low (printed after the break out play of the ) as the B point and the printed high after the surprise rise that followed as the C point. Price has traveled 40% from C towards the potential reversal zone and is edging towards the B point.
When defining the PRZ for a , we look at the projection of three levels. I: the of XA, II: an extended AB = CD pattern (in this case 1272 AB = CD) and III: a BC expansion (in this case 2000 BC ). This defines a clear zone, about 25 pips wide, represented by the orange lines in the chart. There is nothing imminent about this trade, but it’s an interesting trade candidate to keep an eye on.
Should the price drop enough to eventually test the PRZ, stabilise and reverse convincingly, I would enter long in spite of the . I am simply playing a pattern recognition probability game and harmonics are a high probability reason to enter a trade. We have some US data coming out later which might give an impulse to this pair. SL goes 10 pips behind the next . TP1 = of AD and TP2 = of AD.
There are 140 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.5!
UPDATE1: PA has passed the B point and is edging lower, towards the PRZ.
UPDATE2: PA tested all levels of the PRZ, stopped and reversed convincingly. After a strong rally TP1 has been reached for 77 pips. I moved SL to break even and am now in a risk free trade, hunting for TP2.
UPDATE3: TP2 has been hit for 128 pips.