How do you recognize a ?
The was discovered by Darren Oglesbee from Trade Empowered and I have been told that at some point this was the only pattern he traded, and was very succesful at it as well as these patterns have a high success rate. This is a so-called "extension pattern", where the impulse leg (XA) is not the longest leg of the pattern but the C point extends beyond A.
What are the criteria ?
B-point : should see a minimum of 0.382 retracement of XA and cannot close beyond the 0.618 extension of that same leg.
C-point : should reach at minimum the 1.272 extension of the XA leg and cannot close beyond the 1.414 extension of that leg.
D-point : lies at the 0.776 of the complete XC move. Ideally you would look for some previous structure as well.
Where do stops go ?
As with any , stops exceed X with a certain number of pips (fixed number or defined by ATR)
Profit targets ?
Traditional targets apply :
Target 1 : of CD leg
Target 2 : of CD leg
You will notice that the Risk/Reward ratio is not ideal here and barely reaches a 1:1, however since this pattern is so successful, with Target 2 often reached as well, it's definitely worth it. This pattern occurs in the market quite often, so learning how to recognize it is definitely to your advantage.
Hope this was useful !!! Leave your comments below.
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This is what I have to add to it.
Completion is at 0,786 rather than 0,776. Minor difference but anyway...
When I trade it I use a Fibonacci inversion of X-A and set stops at 1,13.
I love this pattern and the Mighty Akil Stokes thought it to me.... (I am a 12 week transformation graduate, and a live room member). This is the only pattern I trade at the moment, and it kills!
Thanks to Darren for recognizing this awesome advanced pattern,