Meanwhile, on the 4H timeframe, we can see the contours of a pattern developing. Price is attempting to pass the B point and travelled 60% on the way from C to the potential reversal zone (PRZ). With this, the set up qualifies as a trade candidate and it goes on my watch list. Because even though I am on this pair, trends never go in a straight line and advanced price patterns like the Bat have a positive expectancy when traded consistently. 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 1272 AB = CD) and III: a BC expansion (in this case 1618 BC ). This defines a clear zone, 31 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 15 pips behind X. TP1 = of AD and TP2 = of AD. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 200 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.5!
P.S. Advanced traders can trade this pattern for completion using the BAMM strategy, which I have not described here.