By Ben from Coghlan Capital.com
I wanted to take a quick look at this pair to give an example of how the methodology that we employ could be used by a trader to take a high probability, low risk long on a 60 minute timeframe.
At the heart of the analysis is early recognition and definition of the all-important path of price of a vehicle. We look for evidence of a change of trend across all timeframes and in this case both the Daily and the 240 minute were showing price finding potential areas of support and the possibility of a leg to the upside. Such a move will obviously show on a 60 minute chart before it shows on a 240 minute one or on a Daily. Given this, we started to look for pivots for our pitchfork in order to correctly show the possible line of ascent of the pair.
Chart 1 shows the very obvious A, B and C pivots and the pitchfork we are using is a variation known as a Schiff (or unmodified Schiff). Note that the A is at the low of the spike in early June – it is pure coincidence that the origin of the fork appears to be at the high of it…… The Schiff is drawn by moving the point of origin 50% of the distance from the A to the B in price but not in time. It is a move along the vertical axis only.
Having drawn the fork, we need to validate it ie to establish whether price is indeed moving in the same angle as the lines we have superimposed on it. We do this by looking for price action along the lines of the fork. This is not necessarily along the Upper or Lower Parallel, the Median Line or the Quartiles, we are looking for activity in the angle of the fork.
On this occasion there is action along the existing lines – there is resistance along the upper Quartile as shown in the green circles and there is both support and resistance along the Median Line in the series of red circles. We can be pretty certain that we have successfully defined the angle of ascent or the path of price by means of the pitchfork that we have drawn.
Note how support in the third red circle turns into resistance in the fourth – as on the horizontal when support becomes resistance we view this as a portend of bearish behaviour. Indeed price did fall from the Median Line resistance, finding a few bars of support at the lower Quartile before arriving at the Lower Parallel.
Note that at this point, in the area of the first red arrow, that we did not know whether or not we would find support at this line. It had not been tested before but the methodology raises the likelihood of this being a line of support and it is certainly an area that we would be watching closely. Because of this uncertainty we would not just “buy the line” until support had been proven and until we had a prior low beneath which to place our stop. The fact that price bounced some forty points from this first touch before returning to test the line again was what we would be looking for.
The second red arrow shows price back at the Lower Parallel for two bars – a long taken here at 1.5213 could have been protected by a stop beneath the low of the bar at the first red arrow at 1.5210. Our target would initially be the Quartile at 1.5277 (this was prior support and would be a likely place to encounter resistance) easily encompassing most risk/reward criteria.
What in fact happened was that price spiked straight through the Quartile and most traders would be following this action and probably allowing their trades to run. As I write this we have pushed higher to the blue dotted Sliding Parallel at 1.5325 and I will continue to monitor this potential line of resistance to see if price turns back from here or whether it continues higher.
I hope I have shown that the early recognition and mapping of the path of price by means of a pitchfork will allow traders to look for high probability areas of support and resistance and enable them to take low risk trades in the vehicle of their choice.
The Cross Pair Analysis service looks to cover a dozen+ non-US Dollar pairs on a daily basis, looking at context via Weekly and Daily charts and in detail via 240, 60 and, sometimes, 20 minute ones.
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