THE IMPULSE LEG
A impulse leg is a strong move in price action to the upside.
The impulse leg can be a mixture of and candles, but must have a overall direction.
The start of the impulse leg should be marked as X and the top of the impulse leg should be marked as A.
B LEG RETRACEMENT
Now that you have identified your X to A impulse leg you are now looking for the B leg, which is a retracement of the X to A impulse leg.
Take your tool and draw from your X leg to your A leg.
The crucial Fibonacci levels you are looking for are the 61.80% and 78.60%
Price action must at least touch the 61.80% retracement but cannot touch the 78.60% retracement.
As you can see by the illustration, the candle does not need to close below the 61.80% retracement but must at least spike through.
The pattern will be invalid if price action touches the 78.60% retracement of the X to A move.
C LEG RETRACEMENT
Once you have identified a valid X to A impulse leg and a B leg retracement, you are now looking for a valid C leg retracement.
Take your tool and draw from your A leg to your B leg.
The crucial level you are looking for is the 61.80%
Price action must at least touch the 61.80% but cannot spike above the A leg resistance.
The candle does not need to close above the 61.80% but must at least spike through.
The pattern will be invalid if price action spiked above the A leg resistance.
D LEG COMPLETION
Now that you have a valid X, A, B and C move you are looking for the final leg in price action at which point you will buy the chosen currency pair.
Take your tool and draw from your B leg to your A leg.
You are looking for a 1.272% which will now give you a valid D leg completion of the pattern.
PLACING YOUR TARGETS
When looking to take targets on the Pattern the first step is to use your tool.
With your tool draw from the A to D leg, you are looking for target 1 at the 38.20% and target 2 at the 61.80%.
To protect the profits you have accumulated at target 1 it is advised you move your stop loss to breakeven once the 38.20% target 1 has been attained, thus giving you a risk free trade to target 2.
KEY NOTES & RULES:
When trading the pattern, the pattern is meant to be traded at 1.272% D leg completion only.
If you believe the pattern is unfolding but price is only at point B, be patient and wait until price reaches the D leg completion.
The power of the pattern comes from converging Fibonacci levels of all points from X to D.
Point B must at least touch the 61.80% retracement but cannot touch the 78.60% from the X to A move.
Point C must touch the 61.80% but cannot spike above the A leg resistance.
Point D is complete when price action touches the 1.272% retracement of the B to A move.
Stop loss must be placed below the X leg .
Stop loss must also be a minimum of a 1:1 risk reward to the 38.20% target 1.
Target 1 at the 38.20% retracement of the A to D move.
Target 2 at the 61.80% retracement of the A to D move.
This pattern like any other is more profitable with certain currency pairs, you should do your own back testing on this prior to trading the pattern.
Blue = Candle
White = Candle
Please note I am only providing my own trading information and techniques for your benefit and insight, you should do your own due diligence and not take this information as a trade signal.