Great day to learn something, today; we will understand how to use corrective structures to develop a setup on any chart.
a) There are 3 types of Corrective Structures, Zig-Zag (first example), Flat (Second Example), Triangles (third example). Use them as an archetype to spot them on a chart.
b) Now that you understand the types of corrective structures is time to look at one on the chart ( you can see a Flag Pattern on the real chart)
c) Should I trade all the corrective structures I see? NO, YOU DONT! You need Context. Your corrective structure must be well-positioned on the chart, it can be a Trendline, or it can be a Support. Never trade isolated patterns.
d) Then you need a clear path in the direction you are expecting. In this case, we are at All-time Highs, so we don't have any Resistance
e) How can I calculate my target? Use Fibonacci Extensions. Draw it from the base of the impulse towards its top (where the corrective structure starts) and then take it back to the impulse's bottom. Pay attention to 2 levels only 1.27 for Break Even, and 1.618 for Target
f) Only take setups with a risk-reward ratio higher than 1.5
Great job, a question, why do you say 1.27 for breakeven? breakeven of what?
johnxmccain
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@Phantom_007, I think breakeven of risk. After you have earned your Risk you adjust your stop-loss to this point. Afterwards there is no gamble anymore and you can let it run to your goal riskfree.
ThinkingAntsOk
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@Phantom_007, Exactly as @johnxmccain explained. Suppose the price goes in the expected direction and reaches the first Fibo Extension; you can move your stop to the entry-level. And your trade will be Risk-Free
Moshkelgosha
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ThinkingAntsOk
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@Moshkelgosha, Thanks for sharing. A clear continuation pattern ready to be traded towards the next resistance zone
jimbo_715
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Great Analysis! $ 276 very soon!
XForceGlobal
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Excellent post man. Salesforce was definitely on my list!