Having had a and now approaching a retracement back into the 61.8% Fib level, we can now look for reasons to short the USD.
Unlike patterns we can't just place BUY or SELL orders in advanced.
Once we have completed the rules of engagement below, we are looking for confluence within a certain area that all coincide.
This in the long term will give us a better success rate.
Rules Of Engagement 2618
- Break below Neckline / Support
- Stop loss above
- Target 1 at 38.2% Fibonacci
- Target 2 at 61.8% Fibonacci
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One thing that isn't defined is at what point of the retracement of the dbl top extension does the 2618 setup become invalidated?
In this USDJPY example the retracement goes beyond the 61.8 (closer to 78.6) would the setup still be valid?
Once we see a double top and a break of the neckline, we always then look for that .618% retracement, once that occurs it is then a valid 2618. Aslong as that retracement does not surpass the double top we are still valid.
we are looking for confluence within a certain area that all coincide, so just because it hits the .618% doesn't mean we will short straight away.
I then look for other confluence e.g fib levels, ABCD, Gartley and Bat patterns, RSI divergence, Doji candle ect, so i am looking for other reason to short.
Historically this is a winning strategy, again depending on money management, discipline and a couple of other factors.
I do hope this helps a little more.