When defining the potential reversal zone (PRZ) for a , we look at the projection of three levels. I: the of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: a BC expansion (in this case 2000 BC ). This defines an extremely tight zone, just 5 pips wide, represented by the orange lines in the chart. There is structure inside this zone (a 4H ), which increases the edge of a reversal. Should price action test the PRZ and reverse convincingly, I would enter short. SL goes 10 pips behind X. TP1 = of AD and TP2 = of AD.
There are 50 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 2.5!
UPDATE: Price action tested the potential reversal zone without reversing convincingly as it formed two spinning tops in the zone before a spike exceeded X. This invalidated the pattern so I did not enter the trade. Nothing was risked and nothing was lost. On to the next trade!