Content Index

Bio Author and Partners 6

Author 6
Chris Svorcik 6
Partners 7
Elite CurrenSea - [Link] 7
Nenad Kerkez 8
Mislav Nikolic 9
A Short History Plus Performance 9
Mislav Nikolic’s Ultima EA 11
ecsLIVE, ecsCAMMACD, and ecsSWAT 13

Support & Resistance 17

Support and Resistance Explained 17
Why Are Support & Resistance Levels Important? 19
What is the Benefit of S&R when Trading? 19
How do you Spot Support and Resistance Levels? 20
What Tools and Indicators Show the Best S&R? 23
Dynamic S&R Levels 23
Fixed S&R Levels 24
Semi Dynamic S&R Levels 24
Automated vs. Manual S&R Levels 26
Which are the Best Support and Resistance Levels? 26
The Most Precise S&R Levels 27
How Can Traders Trade at Support or Resistance? 29
How “Precise” are S&R Levels? 30
S&R Plays Vital Role in Market Structure Triangle 31
Trend versus S&R 31
How Can Traders Measure Break or Bounce Chance? 32
1) Measuring Support & Resistance Strength 32
2) Measuring Trend Strength 32
3) Impact of Price Patterns 33
4) Number of Approaches 33
Examples from the Above 33
Summary of the Above 34
What is the Target of the Bounce or Break? 34
What are the Best Time Frames for S&R? 35
Summary Support and Resistance 35
Patterns and Triangle of Analysis 37
Path of Least Resistance Explained 38
Flow versus Resistance 40
Price Patterns 42
Wave Patterns 42
EW Rules and Guidelines 47
Wave Degrees 47
Alternation (“expect a difference in the next expression of a similar pattern”): 47
Alternation of corrective waves: 47
Alternation of motive waves: 48
Balanced Proportions (“The Right Look”): 48
MotiveWave: IMPULSE 49
Rules: 50
Guidelines: 51
Fibonacci Retracement and Extension Guidelines: 51
MotiveWave: DIAGONAL 52
Rules: 53
Guidelines: 54
Fibonacci Retracement and Extension Guidelines: 54
Corrective Wave: ZIGZAG 55
Rules: 55
Guidelines: 55
Fibonacci Retracement and Extension Guidelines: 56
Corrective Wave: FLAT 56
Rules: 56
Guidelines: 57
Fibonacci Retracement and Extension Guidelines: 57
Corrective Wave: TRIANGLE 57
Rules: 58
Guidelines: 58
Fibonacci Retracement and Extension Guidelines: 58
Corrective Wave: COMPLEX COMBINATIONS 59
Rules: 60
Guidelines: 60
Fibonacci Retracement and Extension Guidelines: 61
Divergence Patterns 61
Time Patterns 64
Timing of impulse 64
 Timing of Correction 70
Fibonacci Patterns 72
Fibonacci Sequence Levels 73
Fibonacci Retracement 74
Why Fib discounts work and when not 78
Shallow vs Deep Retracement Fibs 79
Fibonacci Targets 79
Problems with Fibonacci 81
Fibonacci for Entries 88
Stop Loss with Fibs 89
Confluence with Fibs 91
Waves with Fibs 94
Deeper Reading of the Market Structure 98

Making a Coherent Analysis 105

Case study 1 106
Case study 2 130
Bio Author and Partners

Author

Chris Svorcik

Chris Svorcik is a co-founder and co-partner at the website Elite CurrenSea

(​[Link])​ , which focuses on the Forex & CFD markets and trading education
and courses. He has won the FXStreet award for best technical analysis in 2018 and the award
for best education in 2016 at the UK Forex awards. Both prizes were won together with his
trading buddy Nenad Kerkez, aka Tarantula FX. Together Nenad and Chris started their own
website [Link] which offers analysis, education, courses, and methods in
the field of trading and the Forex market.

The main specialty of Chris is Elliott Wave analysis and moving average (MA) analysis. He
based his SWAT (Simple Wave Analysis & Trading) method, strategies, and indicators on wave
and MA concepts, which this SWAT book explains.​ Here are some examples of accurate
predictions in recent years on the basis of Wave Theory:
a) the rise of the USD/JPY in January 2012 & the continuation in September 2012
b) the crash of Gold and Silver in January 2013
c) the fall of the AUD/USD in April 2013
d) the weakening of the CAD in 2nd half 2013 + 2014
e) the crash of the EUR/USD and general USD strength in May-December 2014
f) the bearish continuation of the EUR/USD in January 2015
g) the correction of the EUR/USD up to 1.17 in August 2015
h) the decline of the GBP/USD and GBP after the brexit during June-October 2016
i) the continuation of the EUR/USD from 1.12 to 1.25 during 2017
j) the fall of the GBP/USD from 1.40 to 1.20 in 2018-2019
k) the rise of Gold from $1200 to above $1500 in 2018-2019

But the bigger moves are just a sample of the work he does on a daily basis using the 1 and 4
hour charts. He shows his accuracy not only in the big time frames, but also on the more difficult
lower time frames too.

Chris has been an independent technical analyst since 2011 but he studied technical analysis
actively since 2005. He completed two master's degrees, one in banking and finance and the
second one in economics and politics in 2006 and 2007. After completing his two masters, he
worked for 4 years from 2007 to 2011 for a major multinational firm, part of that time as an
investment analyst. From 2013 to 2019, Chris has also worked with multiple Forex & CFD
brokers to help improve their education in the field of wave analysis and live webinars, including
FXDD, Admiral Markets, and XM. In 2014 Chris started with Nenad his own website for analysis,
trading, and education in the field of Forex called Elite CurrenSea. Chris has spoken in dozens
of seminars since his first one in 2013. Nenad and Chris started ecsLIVE channel in 2017 where
they provide live analysis and webinars. In 2018 Chris embarked on a mission to trade
automatically together with Mislav Nikolic, although Chris had to quit in autumn 2018 due to
private reasons. Mislav managed to complete the goal with an EA he created from scratch: the
Ultima trading system in June 2019. Chris and Elite CurrenSea are now actively trading the
Ultima EA. In 2019 Chris focused on making an overhaul of his SWAT course with new videos,
strategies, and indicators. SWAT 2.0 was eventually launched in April 2020. From 2020
onwards Chris is planning to focus less on analysis and more on automated trading systems.
He plans to create his own automated trading strategy in 2020 and 2021.

Chris was born in 1979 in the Netherlands and holds the Dutch citizenship. But has lived in
Prague for the majority of the time since 2004. His hobbies include walking, travelling, reading
fact literature, playing board games, writing, painting, and politics. He has lived in multiple
countries including Austria, Switzerland, Italy, the United States, Ireland, Czech Republic, and
the Netherlands.

To follow me and my work, please connect to these profiles:

Twitter: ​[Link]

Facebook: ​[Link]

Linked In: ​[Link]

Email: ​chrisjsvorcik@[Link]

Website: ​[Link]

Partners

Elite CurrenSea - [Link]

Elite CurrenSea (ECS) is a website that offers education, analysis, methods, strategies,
indicators, tools, and trading ideas in the field of Forex since 2014. They have a loyal group of
fans and followers, who encouraged the two to open up their own portal. ECS has organized
several seminars on their own which attracted hundreds of attendees.

They have partnerships with well-known industry giants such as FXStreet, FXEmpire, XM,
FXDD, Finance Magnates. Their YouTube subscribers is above 7,000 and growing and ECS
has gathered a large following on social media and across the web over since 2014. In 2020
and beyond, the ECS website is expected to include options, crypto, and stock trading too which
will each be offered by its own expert.
The Elite CurrenSea website has received more than 73 reviews (April 2020) at Forex Peace
Army with most of them providing a 5 star rating and averaging a 4.6 average.

To follow ECS and our work, please connect to these profiles:

Website: ​[Link]
YouTube Elite CurrenSea:
[Link]
er
Twitter: ​[Link]
Facebook: @elitecurrensea
Email: ​info@[Link]
Linked In: ​www.​[Link]/company/​elite-currensea

Nenad Kerkez
[Link]. Nenad Kerkez aka Tarantula FX is a co-founder and co-partner at Elite CurrenSea. he is
also our Head trader at ECS and a valued contributor to many premium Forex and trading
websites including [Link]. His excellent knowledge of financial markets makes him
frequently appear as a Featured presenter at FX Expos, Live panels and other important events.

Nenad's fiery passion in trading made him receive two awards at [Link]. He was
awarded the best podcast award in 2017 and the best sell side analyst in 2018 by [Link].
He worked with Admiral Markets and FXDD as the main Price Action analyst and educator.
Today he works with XM and other major brokers who require his services as a professional
trader and unique price action analyst. His ForexFactory thread Spider’s Den has been viewed
more than 4 million times.

His CAMMACD™ method is a one of a kind trading method that Nenad also utilises for Forex
and CFD analyses. Based on the [Link] system, Nenad took a $10,000 trading
account and made it grow to a $100,000 account in 15 months from December 2018 to March
2020. As of April 2020, the account is now up a ​whopping +1,134%.

To follow Nenad and his work, please connect to these profiles:

Twitter: ​TarantulaFX
Facebook: ​Nenad Kerkez
Linked In: ​[Link]
Email: ​info@[Link]
Website: ​[Link]
Mislav Nikolic

Mislav Nikolic was born in 1973 in Zagreb, Croatia. Mislav had a taste for entrepreneurship from
the start. After a few successful years running a small company for selling video games, he
decided to search for a new future and challenge. Mislav chose Forex trading after seeing a
seminar from Nenad Kerkez. After a few years of trading, Mislav joined the Elite CurrenSea
team in spring 2017 where he learned everything there is to know about the SWAT methods.

Mislav created his own unique automated trading system called Ultima EA. The live trading
results and back testing have been phenomenal. Ultima EA is quickly creating a name for itself
as one of the best trading systems in the Forex market. Mislav is now CEO at Bull Capital and a
close partner with Elite CurrenSea. He focuses on creating trading strategies and automated
trading solutions. For instance, Mislav also made significant improvements to the Wizz tool and
created an amazing Fibonacci target tool called BullsEye Target.

The Ultima EA has managed to achieve outstanding results with live trading in its first year
varying from +400% to +%700 in just 10 months (using 3-5% risk per setup). The backtesting
results were equally impressive. All of the results from live trading and backtesting will be
explained in the Ultima EA chapter in this guide.

To follow Mislav and his work, please connect to these profiles:

Facebook: Mislav Nikolic from Bull Capital

Twitter: @fxBullCapital

A Short History Plus Performance

Elite CurrenSea was founded in 2014 by Chris Svorcik and Nenad Kerkez. Nikita Barabanov
joined in 2017 as a co-partner with a focus on marketing, affiliate, and growth.

Nenad and I wanted to help out the trading community and our followers so our own website
seemed a great spot to connect the community and traders. It was our new trading home,
although we had a modest audience at the start (2014-16).

The year of 2017 is when a new era started. First of all, our audience grew substantially just
because we started creating more analysis and articles. Secondly, in spring 2017, our mutual
friend Nikita Barabanov joined our team as a co-partner. He saw our value and talent and
wanted to help us out with marketing, affiliates, growth, and getting the word out about us (our
marketing knowledge was very limited).

First we started to work on offering a full scale and professional course. Chris completed SWAT
and Nenad his CAMMACD method. We also started our own YouTube channel which has
grown in 2.5 years from 0 to almost 7,000 (!) subscribers. In 2017 we also started our ecsLIVE
channel with live webinars, analysis and trading ideas, which has helped hundreds of traders in
2 years.

Later on in 2017 we also expanded the team with quality people. Andrey does an excellent job
with helping our traders, Mislav Nikolic was added to the trading team to help with SWAT and
strategy creation, and Ahmed Darwish joined the team to add his analysis.

The next 2 years in 2018 and 2019 we also had a few seminars. Here is an entire list of
seminars that Chris, Nenad and Elite CurrenSea have done:

● October 2013: Chris speaks at two seminars in Lithuania

● March 2015: Chris speaks in Prague, Czech Republic at CNATA - Czech National
Association of Technical Analysis
● February 2016: Chris and Nenad are speakers at Forex seminar in London, UK
● May 2017: Nenad holds a series of seminars in Zagreb and Ljubljana
● September 2018: Elite CurrenSeas organizes Forex seminar in Ljubljana, Slovenia.
● February 2019: Elite CurrenSeas organizes Forex seminar in Utrecht, the Netherlands.
● March 2019: Elite CurrenSeas organizes Forex seminar in Prague, Czech Republic.
● March 2019: Elite CurrenSeas organizes Forex seminar in Zagreb, Croatia.
● March 2019: Elite CurrenSeas organizes Forex seminar in Belgrade, Serbia.
● April 2019: Chris speaks at FPG MoneyExpo Trading in Prague, Czech Republic
● May 2019: Nenad speaks at seminar in Bulgaria

In 2018 Chris also started to work on his new SWAT book, course, strategies, indicators, tools,
and methods. He completed his SWAT book in August 2019 and made a 2nd version in April
2020. The new SWAT course 2.0 was launched in April 2020 and includes new strategies, 74
videos, 22+ hours of video recordings, new indicators, and new strategies. The next goal and
step is to build a SWAT EA in the remainder of 2020.

Nenad finished his updates and upgrades in 2019 which include semi-automated
[Link] system, fully automated LOA system, scalping and swing systems. Nenad
launched [Link] and [Link] in 2019. He completed the newest strategy called
[Link] in 2020. His next goal is also to create an automated trading system based on
[Link].

Last but not least, Mislav completed his Ultima EA - a fully automated trading system that takes
care of entries, exits, and trade management. The project started in 2017 and completed in
June 2019 when the EA started trading a $10,000 live account. See chapter 10 to read
everything about the Ultima EA, its live trading results, and backtesting results.

Please see the images and myfxbook links here below to get an idea about our trading
performances with ecsLIVE, Ultima EA (more stats in Chapter 10), ecsSWAT, and
ecsCAMMACD.
Mislav Nikolic’s Ultima EA
My ​EUR/USD account​ on 15 minute chart using 5% risk per trade starting August 2019:
[Link]

Our ​first EUR/USD​ on 15 minute chart using 3% risk per trade starting June 2019:
[Link]
My ​GBP/USD account​ on 60 minute chart using 5% risk per trade starting August 2019:
[Link]

Mislav’s ​EUR/USD account​ on 15 minute chart using 5% risk per trade starting August 2019:
[Link]
ecsLIVE, ecsCAMMACD, and ecsSWAT
In December 2018 Nenad and I started a $10,000 account. It passed the $100,000 mark about
15 months later in March 2020. As of 26 April 2020, the ​ecsCAMMACD account​ used for
ecsLIVE is up +1,134% with total profits of $92,000+:
[Link]
We consider the myfxbook results to be the main source of our performance. But we do compile
stats of ecsLIVE ourselves as well. Our members check the accuracy of our own data closely.

The track record started in October 2017 and the above image shows the results until mid April
2020 for almost a total of 2.5 years.

As you can see from the image, the win rate (including break even trades) is 65%. The new
reward is 420% (when using a modest 1% risk per setup). The avearge profit per month is a bit
more than 14%.

We also calculated the equity curve from 2018 up to April 2020. You can see the image below
as the equity curve develops week by week.
We hope that this trading book helps you become a better analyst and a better trader. Our main
wish is that you can use this book and our website ​[Link]​ to benefit both
your own trading and life goals.
Support & Resistance
Support and resistance (S&R) levels are a basic pillar of technical analysis (TA). The field of TA
is based on patterns in price data and S&R plays a key role.

Learning how to understand, recognise, use, and trade based on S&R will, in our view, make
your analysis and trading more robust.

Sounds good, but what is S&R?

The simplest way to think about support and resistance is this:

They are price levels or price areas where price changes direction or moves sideways.

In other words, S&R is a price level or a price zone where price has bounced.

Support and Resistance Explained

Support levels:
● Are always found below the current price.
● Indicate buying pressure.
● Offer a potential bullish bouncing spot or break breakout.
Resistance levels:
● Are always found above current price.
● Indicate selling pressure.
● Offer a potential bearish bouncing spot or bullish breakout.

We wrote ​potential​ bounce or [Link] high is this chance?

That depends on both the strength of the S&R and the confluence (multiple levels). But be
aware that price reactions tend to be strong on higher time frames.

S&R remains valid when price is reversing or “bouncing” at S&R:

● Bullish bounce: price is bouncing at support.
● Bearish bounce: price is bouncing at resistance.

S&R becomes invalid when price manages to break through it:

● Bullish breakout: price is breaking through support.
● Bearish breakout: price is breaking through resistance.

Once S&R is broken, their role can turn around like this:
● Broken support becomes a potential new resistance level.
● Broken resistance becomes a potential new support level.

Examples of support and resistance levels are tops, bottom and round levels but this article will
dive into more examples and which ones I use later on.
Image shows S&R levels being respected (red/green) and trend lines being broken
(orange/blue). Purple box shows broken support level becoming resistance (dark red).

Why Are Support & Resistance Levels Important?

Support and Resistance (S&R) levels are a key part of any market analysis or chart for a
number of reasons:

● Respected: the market uses S&R levels for breakouts and bounces.
● Big market players: every technical analyst uses S&R, also traders at banks and funds.
● Universal: they appear on all instruments and time frames.
● Market phases: they appear during trends, ranges and reversals.
● Time frames: higher time frames are more important because a larger part of the market
is using these levels.
● Path of price: S&R are key to understand the “path of least resistance”. More info below.

Support and resistance levels are like the “footprints” of the big market players. Other traders
can understand their moves better if they analyse S&R.

What is the Benefit of S&R when Trading?

Support and resistance lines are a key aspect of trading and it is one of the key components of
understanding the market structure (see paragraph above). Without it, traders would be lost in
the woods, it would be the equivalent of driving on the roads blindfolded.

The 3 major benefits of S&R are:

1. Identifying high probability reversal zones.
 2. Avoiding low probability trades into S&R.
3. Trade setups upon S&R break or bounce.

Let me show you a practical example. There was a downtrend visible on the USD/JPY 1 and 4
hour charts but the currency pair was approaching a large support zone (green box) on the daily
chart. The bearish momentum is indicated by the orange arrow on the image below.

Let’s review all 3 benefits when reviewing this chart:

1. Identifying reversals: MAYBE. Was the price going to break or bounce? This was
probably a 50-50% coin flip, but we will provide more information about this later on but
there are other conclusions traders can make.
2. Filtering weak trend trades: YES. It’s not a good practice to enter a short trade right in
front of the S&R.
3. Trade setups: [Link] for a bearish breakout below the zone or a pullback and
continuation signal on a lower time frame is a valid approach.

How do you Spot Support and Resistance Levels?

There are a number of mistakes traders make when drawing S&R on the chart.

Mistake 1: they expect a support level to act as support even though the price has already
broken below the level or zone. The same is true for resistance when price has already broken
above it. Traders must look for unbroken support or resistance levels.
Mistake 2: they use levels from a very long time ago. Always keep in mind that the most recent
price action has more weight and more importance.

Mistake 3: they treat all S&R levels the same. Support and resistance levels are more important
if price has bounced significantly at this level in the past. So start on the right and then work
your way back to the left.

Mistake 4: they think trading each and every S&R level is the right way to go. The truth is that
this just creates a messy chart, which does more harm then good. Focus on only drawing the
significant S&R levels.

The main step is to look for recent S&R levels that have been “respected”. The market respects
a support and resistance level by bouncing at this level. The stronger the bounce, the more
powerful the S&R level becomes.
Another tip is to draw a “zone” rather than a single level because price can overshoot S&R due
to price momentum and market volatility. We use these buffer zones for S&R for all tools and
indicators like moving averages where we prefer to work with moving average bands (high, low,
close) rather than just one moving average (close).

Also do not be afraid to indicate differences between S&R levels. Some S&R levels will be more
important than others and it’s good to indicate S&R as major or minor levels. The best way to do
so is to use different shades of color for the S&R lines.
What Tools and Indicators Show the Best S&R?
There are various ways of analyzing support and resistance levels. Here are the main
categories:

● Dynamic S&R levels

● Fixed S&R levels
● Semi-dynamic S&R levels
● Automated S&R levels
● Manual S&R levels

Dynamic S&R Levels

Dynamic levels are support and resistance levels that change when price action moves or
changes. A moving average for instance is S&R level that is updated with each new candle. The
same is true for the Ichimoku indicator. Each new candle will create a new calculation of the
S&R.

Here is a part of the list: moving averages, Ichimoku, Keltner channels, Parabolic, oscillators,
Alligator, average true range, Murrey Math and many more.

Image shows Parabolic (green dots), Keltner Channel (orange lines), and ecs Murrey Math
(purple lines).
Fixed S&R Levels
Fixed levels are support and resistance levels that do not change no matter how much price
moves. A 1.10 round level will always remain S&R at 1.10 regardless of how price moves. The
same is true for a top, bottom and Fractal.

Here is a part of the list: round levels, quarter levels, tops, bottoms, Fractals, pattern levels,
candle low, candle high, candle open, candle close.

Semi Dynamic S&R Levels

Semi-dynamic S&R levels are a mixture. They tend to change at a fixed / steady rate of
increase and decrease. This is different when compared to a fixed level because: a) the fixed
one does not change at all and b) the dynamic one changes more rapidly.
The trend line is a perfect example for instance as it has a steady angle. The same is true for a
Fibonacci level, the Fibs can be moved once the trader changes the tool.

The Camarilla Pivot Points are a perfect example as well. The Camarilla levels are changed
automatically at each new candle, such as 4 hour, daily or weekly candle. In the image above
you see the ecs Camarilla indicator, which has special features such as multiple time frame
Camarilla levels.
A pivot point calculator is not a relevant tool anymore. There are automated ways to plot the
Pivot Points on the chart, without having to do the manual work. You can download the
Camarilla indicator and a handout for free by clicking on the banner below.

Here is a summary of the semi dynamic S&R levels: Pivot Points, ​[Link] Pivots​,
Fibonacci, trend lines.

Automated vs. Manual S&R Levels

Automated support and resistance requires no work from the trader whereas manual levels
need to be adjusted manually. Automated S&R levels are moving averages as the MT4 platform
does the calculations for you. Manual S&R levels are Fibonacci levels and trend lines.

In the image below you will find an overview of some of the S&R indicators.

Which are the Best Support and Resistance Levels?

We certainly have our own favourite support and resistance levels... This will vary from trader to
trader as well. For instance, Nenad is a master trader using ​Camarilla Pivot Points​ whereas my
main tool is moving averages.

What is “best” is, therefore, always relative so I will explain my ​[Link] approach​ on various
time frames:

● General: round and quarter levels

● Monthly/weekly: tops, bottoms, Fractals, candle highs and lows
● Daily chart: Murrey Math levels, tops, bottoms, Fractals
● 4 hour chart: moving averages, trend channels, Fibonacci levels
● 1 hour chart: moving averages, [Link], Fractals, trend lines
● 15 min chart: moving averages, [Link], Fractals, trend lines
These might seem like a lot but I do not use all of them at the same time. I am only listing my
favourite S&R levels per time frame. When trading the markets, I always use 3 time frames to
make the best decisions about S&R.

Now it’s time to explain more about these indicators.

The Most Precise S&R Levels

Murrey Math Levels for filtering setups: the best indicator for the daily chart is the Murrey Math
indicator, which is based on Fibonacci levels and octaves. It plots automated support and
resistance levels and is also updated automatically.

Fibonacci tool for finding entries and targets: the Fibonacci levels are a music to my ear. They
provide excellent and precise reversal spots, entry spots and targets.
Fractals for stop loss placement: Fractals show where the price action respects S&R. Using
them for a stop loss is useful as it provides an extra layer of defense.

Moving averages (MAs) for bounce or break spots: the MAs are an excellent tool for measuring
the psychology of the market and offer excellent break or bounce spots.

The [Link] tool: the tool shows where there is space between S&R level or not. It plots key
targets on the chart and traders can see where price is expected to be corrective or impulsive.
How Can Traders Trade at Support or Resistance?
The next part addresses the most important question: how can traders take trades at support
and resistance?

Traders can trade in two ways:

● Breakout: a breakout occurs when price pushes through the S&R level.
● Bounce: a bounce occurs when price respects the S&R level.

The best concept for trading S&R is by using the “BPC” concept:
● B stands for breakout or bounce.
● P stands for pullback.
● C stands for continuation.

Breakouts and bounce: candlesticks . The best way for traders to measure ​breakouts or
bounces​ is by using ​candlesticks​, which help measure the reaction of price in the decision zone
or point of confluence (or control).

Example: a bullish 4 hour candle above a 4 hour trend line with a close near the high will
probably create a good breakout.

Pullback: FIbonacci tool. Once price has bounced or broken, there could be a retracement first
before price continues with the bounce or break. The best tool for this is Fib levels.
Example: a bearish break of the trend line and fractal sees a bear flag chart pattern correct up
to the 38.2% Fibonacci level, which could be a good retracement spot.
Continuation: trend lines, Fractals, MAs. Once price has completed its pullback, it could be
ready to continue in the same direction as the first breakout. A new break of the trend line,
Fractal and/or moving average (MA) would be the best way to measure it.

Finally, pending orders and market orders are the two entry options. I prefer market orders as I
often use candlestick patterns and candle reactions for entries. Nenad, however, uses regularly
pending orders based on his ​CAMMACD system​ at S&R confluence.

How “Precise” are S&R Levels?

Pretty precise, but not as precise as you might think. Here are my thoughts:

1. When price approaches a round level of 1.10, this does not mean that only the 1.10 level
is important.
2. It is key to realize that support and resistance levels are only rough zones. Price can
push slightly above or below them or even miss them by a bit.

For instance, the round level of 1.10 would indicate to me that price could stop anywhere
between 1.0975 and 1.1025 and it would still be considered a respect for the 1.10 level.

Of course, bigger round levels like 1.10 have more weight and importance then smaller levels
like 1.1350. But even with the latter S&R level, price might stop within a margin of 5 pips above
or below it.
The same is true for all other support and resistance levels, including Fibonacci levels, moving
averages, trend lines, etc. S&R levels are always a zone, never ever just one level.

How can traders trade them? It’s time to see if it’s possible to measure the breakout chance.

S&R Plays Vital Role in Market Structure Triangle

S&R is in fact a very powerful tool because price will always choose a direction (“path”) where it
finds the lowest barrier (“resistance”). Let me use examples to explain.

Trend versus S&R

Here is a calculation how traders can judge the likelihood of price bouncing or breaking S&R:
● If the downtrend is strong(er) and the support is weak: price will probably break below
the support and show a bearish breakout.
● If the support is strong(er) and the downtrend is weak: price will probably bounce at
support and show a bullish bounce.

The opposite is also true for resistance:

● If the uptrend is strong(er) and the resistance is weak: price will probably break above
the resistance and show a bullish breakout.
● If the resistance is strong(er) and the uptrend is weak: price will probably bounce at
resistance and show a bearish bounce.

S&R Role in Market Structure Triangle

Conclusion: the “battle” between S&R and trend / momentum is an important equation that
determines the “path of least resistance”.

Support and resistance levels are therefore also called:

● “bounce or break zones / spots” or
● “decision zones” by myself.

As you can see above, there are 4 options available:

● Bullish breakout.
● Bullish bounce.
● Bearish breakout.
● Bearish bounce.

How Can Traders Measure Break or Bounce Chance?

This is perhaps the most difficult question... but we do use a rough formula for making this
decision. As explained at the beginning of this article, the trend and S&R are the first two key
ingredients whether price will break or bounce. Patterns offer a 3rd angle to analyze the market
structure.

1) Measuring Support & Resistance Strength

Let’s review key factors to consider when analyzing the strength of S&R. The following aspects
make S&R levels stronger:
● Multiple S&R levels at or near the same zone, which is called “point of confluence”.
● Multiple tools and indicators at or near the same zone.
● The more confluence, the stronger the zone becomes.
● S&R visible on multiple time frames.
● Key level(s) on higher time frames, which is called “decision zone”.
● S&R level on 1 time frame above your entry chart.

Of course, the opposite makes S&R weaker: less confluence, lack of key levels, and lower time
frame S&R are not as important and indicate weakness.

2) Measuring Trend Strength

The 2nd aspect of the equation is trend and momentum. This is even more difficult to judge then
S&R but here are some guidelines for trend strength:
● Established trends and trend channels increase its strength.
● Strong momentum candlesticks increase its strength.

The presence of a strong(er) trend or momentum increases the chance of a break.

3) Impact of Price Patterns
Price patterns also play a role in measuring the chance of a break or bounce:
● Divergence patterns make a bounce more likely.
● Reversal chart patterns make a bounce more likely.
● Continuation chart patterns make a breakout more likely.

4) Number of Approaches
The last factor in analyzing breaks or bounce is how often a S&R has been challenged. Here is
how the logic works when S&R and the trend are roughly equal:
● First approach of the trend reaching S&R has a higher chance of a bounce than a break.
● Second approach of the trend reaching S&R has a 50%-50% chance of a bounce or
breakout.
● Third approach of the trend reaching S&R has a higher chance of a breakout than
bounce.

Examples from the Above

The four steps above are not a simple math formula, unfortunately. But with time and
experience, it does become easier to recognize what is more likely.

Let me show you a concrete example. Let’s say a 1 hour strong bearish momentum is
approaching a key 1.10 decision zone which also offers multiple points of confluence on the 4
hour and daily chart for the very first time. What is more likely?

Answer: a bullish bounce, because the multiple S&R of the higher time frame is expected to be
strong then a momentum push on a lower time frame like a 1 hour chart, plus it’s the first
approach.
One more example. Let’s say a 4 hour uptrend is approaching a 1.15 resistance round level for
the 3rd time but otherwise there is not much resistance. What is more likely?

Answer: a bullish breakout.

Summary of the Above

Not every situation will be clear but these 4 aspects will help every trader make a better
judgement about the strength and weakness of S&R and whether price will break, bounce or
reverse.

What is the Target of the Bounce or Break?

How far can the breakout or bounce last is the final question we want to address. Our answer
will depend on whether the price is trending, ranging, or reversing.

Trend or strong trend:

● Good to trade bounces at Fibonacci levels.
● Good for trading breakouts with the trend after trend line, MA or fractal break.
● Bad for reversal trades, best to avoid.
● Use the Fibonacci or Wizz tool to determine how far price can last.
● Use ​wave patterns​ to distinguish wave 1, 3, or 5 and adjust targets.

Weak trend with divergence:

● Good to trade reversal bounces after candlestick patterns.
● Aim for 21 ema close.
1st reversal swing has occurred after divergence:
● Good to trade reversal bounces at Fibonacci of first correction swing.
● Aim for -27.2% or -61.8% Fibonacci targets after 1st counter-trend price swing.
● Aim for 144 ema close.

Range or sideways movement:

● Good to trade reversal bounces.
● Aim for mid point as target 1.
● Aim for previous top or bottom as target 2.
● Candlestick patterns are good for entries.

What are the Best Time Frames for S&R?

The best combination for analyzing the market structure is using a higher, middle and lower time
frame. They all play a different role in my approach:

● The higher time frames, like the daily chart, are used to find key support and resistance
levels, which could stop the trend or momentum from continuing.
● The middle times frames, like a 4 hour chart, are used for spotting retracements within a
trend or a top or bottom in a range.
● The lower time frames, like a 1 hour chart, are used for entries and trading breakouts
and bounce.

The best method is to apply three time frames for analyzing the chart. Three levels of zoom
provide optimal information while not overcrowding and overloading our analysis.

Keep in mind that S&R levels on a 1 minute chart have no expected effect on a weekly chart.
You should preferably use the S&R level on the same time frame, higher time frame, for one
time frame lower. Very max, two time frames lower.

For example, a daily support trend line could be used on a daily and 4 hour chart, but would not
be that good for a 1 hour chart and is unusable on a 15 minute chart.

Summary Support and Resistance

Support and resistance (S&R) levels are important decision zones for the market because they
offer key bounce or break zones.

S&R is also an important part of analysing the charts together with trends. In this article we
discussed several parts:
● What is support and resistance?
● Why are support and resistance levels important?
● What is the benefit of support and resistance when trading?
 ● How to find support and resistance levels?
● How to find support and resistance levels in day trading?
● How to draw support and resistance?
● What tools and indicators indicate support and resistance?
● What are the best support and resistance levels?
● How can traders trade at support and resistance?
● How precise are support and resistance levels?
● Support and resistance plays vital role in market structure triangle
● How can traders measure break or bounce chance?
● What is the target of the bounce or break?
● What are the best time frames for support and resistance?

Now that you know how to analyse trend and sport and resistance, it is time for the next step
called patterns which completes the “triangle of analysis”. These 3 aspects (S&R, Trend /
Momentum and Patterns) are key for understanding each price chart in a deep but simple way.
Patterns and Triangle of Analysis
Price patterns are the third piece of the puzzle that we use for analysing the charts, besides
support and resistance (S&R) and momentum (trend).

Together, all three methods form the triangle of analysis:

1) Support and resistance.

2) Trend and momentum.
3) Price patterns.

We are able to study the price chart by analysing the triangle of analysis, which allows us to
assess the probabilities of future price movements such as their direction (up, down, sideways)
and their potential space (from what level to what level).

In essence, we study the price movements of the past to explain future price movements in the
near future. The price path follows a principle called the path of least resistance, which is
impacted by supply and demand.

● If there is more supply than demand, the price will move down.
● If there is more demand than supply, the price will move up.

Based on that, price chooses the path of least resistance whether that is up, down, or sideways.
But rather then studying all of the hundreds or even thousands of factors that impact supply and
demand (fundamental analysis), we choose to study the outcome (price) as it gives us some (or
enough) information about the future price movements (technical and wave analysis).

The main advantage of studying price and the path of least resistance is that it is quicker and
simpler to digest and find trading opportunities. As traders, we are not looking for something
perfect that provides wins but rather a trading method that provides a long-term edge by
creating wins that outweigh the losses. One single trade setup will never be a guaranteed win
and as a trader you never want to focus on whether the next trade is a win or not.

The main focus must always be whether your win percentage and size of the win are larger than
the loss percentage and size of the loss.

(win % x average size of win) - (loss % x average size of loss) = profit or loss expectancy.

You need at least a minimum of 40-50 trade setups before you can calculate whether your
trades offer a long-term edge or not.

Most traders focus on win percentage only plus they analyse just a couple of trades. Now you
know that this information is not sufficient to make any judgment.

Path of Least Resistance Explained

The price chart shows the ​historical ​path of least resistance up to now. As you now know, the
shortcut for analysing price’s next step or movement is technical and wave analysis. Traders
use this analysis to make a judgment about the future movement of price and the future path of
least resistance.

Another way of understanding price and the path of least resistance is by comparing it to a
stream of water like a river running down the hill. The water will find its path to a larger river, a
lake, or sea by choosing its path of least resistance around bigger rocks and setting aside
smaller rocks. Price does not make a left, right or straight motion of course but otherwise it is
comparable to a river as price moves up, down, or sideways.

Let us take a look at an example such as the weather. Many people believe that meteorologists
are bad at predicting the weather but studies show that nowadays the weather can actually be
predicted with great accuracy (see ​Superforecasting: the Art and Science of Prediction” by
Philip E. Tetlock and Dan Gardner.)

Although the weather forecasting is not seen as a field of study with high levels of accuracy, it is
in fact surprisingly correct. When the weather team indicates that there is a 30% chance of rain,
then three out of ten times it will rain and seven times it will not (when you analyse 10 situations
with a 30% chance of rain).

There is just one limit and one exception (see ​Superforecasting: the Art and Science of
Prediction” by Philip E. Tetlock and Dan Gardner.):​

1) The time limitation: the accuracy is valid for up to seven days in advance. After day
seven the ability to forecast correctly diminishes quickly and people are usually better off
with the average climate data. This is one of the reasons why ECS uses a time pattern
rule of 5-6 days.

2) The exception: accuracy levels drop when rain chances decrease to an expected 0 to
5-10%. Why? Meteorologists tend to overstate the chance of rain taking place because
 they do not want viewers to think that rain is impossible. They overestimate the rain
chance slightly to help the viewers, who often have problems with grasping probabilities.

Although probability is an important aspect in life when taking all kinds of decisions, humans
unfortunately tend to be weak when trying to understand probability. A 10% chance of rain does
not mean that there is no chance of rain. It just means that out of 10 days, it will rain only once.
But in the mind of most people, a 10% chance of rain is equal to 0%. For most people, there is
probably not much difference when the weatherman says that there is a 5% or a 30% chance, in
both cases it shouldn’t rain.

Probability is important for understanding price charts and the path of least resistance. The path
of least resistance is not fixed in stone but rather something more flexible.

Now it’s time to explain ​how​ technical and wave analysis can be used to understand, analyse
and trade the price path of least resistance. The first concept that we need to explain is “flow
versus resistance”.
Flow versus Resistance
The strength of the resistance versus the strength of the flow will determine the path of least
​ rice.
resistance for rivers ​and p

This means that traders can assess each situation on the chart and then determine the
probability that price will continue higher, lower or sideways by analysing the flow and
resistance.

What is flow and resistance for price charts? Let’s explain:

● Strength of the flow:

○ River: flow is the strength of the water current.
○ Trading: flow is the strength of price action such as candlesticks.

● Strength of resistance:
○ River: how massive and large is the object blocking the flow.
○ Trading: how strong is a key support or resistance level on the price chart.

The decisive factor is whether the flow or the resistance is stronger. This will determine whether
price will move with the trend or reverse and whether it will move up, down or sideways.

Let’s again examine a river (or creek) to simplify the concept: at points with resistance, the water
will move around or away from the object. When the power of the water flow picks up, it will be
easier for the water stream to push aside stronger points of resistance.

The most important factor is compare flow versus resistance:

● If the flow of the water is slow, then a rock could be strong and big enough to not get
knocked aside and water could change its path to the left or right.
● If the flow of the water is strong (its mass and or speed), then a rock might be too weak
to stand on its spot and it could be pushed aside. In this case, the path of the water did
not change (or hardly changed) as the rock was moved.

The same principle that is used for a river (flow versus rocks) can be used for price. With price
charts, the flow and resistance can be understood by analysing these two aspects:

1) Flow: the strength or indecision of the bars or candlesticks.

2) Resistance: the strength or weakness of the support or resistance levels on the chart.

Like a river, the interaction between flow and resistance determines the path of least resistance
for the object, which is a river or price:
 ● Strong(er) price action breaks through weaker) support or resistance levels.
● Weak(er) price action fails to break through strong(er) support or resistance level.

Let us take a look at a practical example - see the image above. Let’s examine it - starting from
left to right:

1. Price was in an uptrend as price was moving away from the moving averages.
2. Price broke below the support of the 21 ema zone which started bearish momentum.
3. The breakout was a key factor for the start of the downtrend.
4. The strong bearish candlesticks broke through any of the support areas that were there.
5. The bearish momentum weakened and eventually price made a retracement above the
21 ema zone and back to the 144 ema long-term moving average.
6. The 144 ema was a bearish bouncing spot because the trend was down as the
alignment of the MA’s showed.
7. The break below support created a new bearish breakout and channel.
8. There is divergence between the price bottoms and the bottoms of the oscillators (purple
line), which could indicate that momentum is becoming weaker. Also a support level at
1.13 could stop the price from moving lower. A bullish breakout (thick green arrow)
above the channel would confirm the reversal.
9. A break below the support and bottom could still indicate that the downtrend will make
one more lower low (thick orange arrow).
The above logic might seem complex to you at first but we explain the entire approach step by
step in this book using our own personal methodologies. The most important aspect to
understand is that:

● Stronger price flow will beat weaker support or resistance.

● Weaker price flow will lose versus stronger support or resistance.

As long as the flow is strong, momentum is likely to last unless a massive confluence of support
or resistance is nearby. As long as the flow is weak, support or resistance is likely to stop price
unless a significant breakout occurs.

Price patterns also play an important role in this equation as they provide information about the
psychology of the price chart. They can provide extra information on top of what we already
know from trends and S&R.

Although trend, momentum, support and resistance already offer a lot of useful information to
traders, patterns give us an extra layer of analysis that give us clues whether the trend or S&R
will win the battle.

Price Patterns
There are many forms of price patterns that appear on a price chart. As part of the chapter on
trend and momentum, we already spoke about candlestick patterns ​and ​chart patterns and how
they communicate information to traders.

But there are many more price patterns available. Here is a list of the patterns we use:

● Chart patterns.
● Candlestick patterns.
● Wave patterns.
● Divergence patterns.
● Time patterns.
● Fibonacci patterns.

Other patterns exist but to stay focused, we will only expand on the above mentioned patterns.

Wave Patterns
Wave patterns are often based on the Elliott Wave Theory or Principle, which was discovered
by Ralph Nelson Elliott in the 1930s for the stock market.

Elliott Wave Theory attempts to identify recurring price movements within financial markets and
to classify them into a set of meaningful patterns, which can become a reliable tool for future
price predictions. The underlying principle is that price-action unfolds via an endless alternation
between trending and corrective cycles, while producing this effect on any relative timescale
(fractality).

Elliott Wave (EW) price patterns are divided into motive waves (i.e. price movements that initiate
progress in one direction and therefore create trend) and corrective waves (i.e. price
movements that are reactionary in relation to the previous trend-setting move). Corrective
waves essentially attempt to revert or undo the movement that was initiated by the preceding
motive wave.

EW is nothing more or less than analysing the character of the recent price swings and
estimating the probability of the next swing. EW uses rules and guidelines to place borders and
reduces the number of options for that estimate.

The Elliott Wave theory might sound logical in theory but for most traders it does remain a bit of
a mystery. Although many traders and analysts are sceptical of the benefits that wave analysis
offers, wave analysis is nothing more or less than analysing price swings from the past and
analysing what the current and next price swing is likely to be.

There is good news. Once you know how to spot the correct price swing, know its direction
(bullish or bearish), and know its behavior (impulsive or corrective), then you are well on your
way to becoming a wave analyst. Analysing swings is like putting together a puzzle and you are
using the pieces from the past to understand what piece might fit next.

Wave analysis labels those price swings with numbers and letters, which adds a “story” to the
chart. But before traders can add labels and determine the next swing, they need to correctly
define what is a price swing (wave), which we have already discussed in chapter 3.

Although wave analysis might sound or seem complicated, its complexity is massively reduced
when using a wave trend indicator to understand price swings. But keep in mind that knowing
how to do wave analysis is not necessary if you trade my ​[Link]​ method because we trade
the waves without labelling them and you can do the same. Of course, if you like waves and the
information it provides, then using the full wave patterns and analysis is possible too. This really
depends from trader to trader and what works and helps for their specific trading style.

This paragraph will not fully address wave patterns from A to Z as it would require a book on its
own. For now its key to note that the basic wave patterns unfold over 8 waves:

● 5 with the trend. The 5 trending waves are labelled 1-2-3-4-5.

○ Waves 1-3-5 are impulsive and with the trend movement.
○ Wave 2-4 are corrective and counter trend movement.
● 3 counter trend. The 3 corrective waves are labelled A-B-C.
○ Waves A and C are impulsive and counter trend movements.
○ Wave B is corrective and with the trend movement.
From R.N. Elliott's essay, "The Basis of the Wave Principle", October 1940.

The market repeats the same wave patterns on all time frames, higher and lower ones. This
means that 5 wave patterns could be possible within wave 1, 3, and 5, as well as within wave A
and C (impulse waves) whereas 3 wave ABC patterns are visible in wave 2, 4 and B. The image
above shows how the initial 8 wave patterns is broken down into 34 waves (5+3+5+3+5+5+3+5)
on a lower degree and 123 waves (21+13+21+13+21+21+13+21) on a degree below that. The
patterns are fractal in nature, which means that the same patterns are visible on all time scales.

Each wave offers interesting information about the current price swing and the potential next
price swing(s):
● If we see a wave 1 unfold, then we are expecting a wave 2 correction. An ABC
correction could help confirm that analysis for instance.
● If we see a wave 3 unfold, then we are expecting price to push into one direction with
strong impulsive price action.
Each wave offers its own character and detail.

Five wave pattern (dominant trend) Three wave pattern (corrective trend)

Wave 1: Wave one is rarely obvious at its inception. Wave A: Corrections are typically harder
When the first wave of a new bull market begins, the to identify than impulse moves. In wave A
fundamental news is almost universally negative. The of a bear market, the fundamental news
previous trend is still strongly in force. Fundamental is usually still positive. Most analysts see
analysts continue to revise their earnings estimates the drop as a correction in a still-active
lower; the economy probably does not look strong. bull market. Some technical indicators
Sentiment surveys are decidedly bearish, put options that accompany wave A include
are in vogue, and implied volatility in the options market increased volume, rising implied volatility
is high. Volume might increase a bit as prices rise, but in the options markets and possibly a turn
not by enough to alert many technical analysts. higher in open interest in related futures
markets.

Wave 2: Wave two corrects wave one, but can never Wave B: Prices reverse higher, which
extend beyond the starting point of wave one. many see as a resumption of the now
Typically, the news is still bad. As prices retest the prior long-gone bull market. Those familiar with
low, bearish sentiment quickly builds, and "the crowd" classical technical analysis may see the
haughtily reminds all that the bear market is still deeply peak as the right shoulder of a head and
ensconced. Still, some positive signs appear for those shoulders reversal pattern. The volume
who are looking: volume should be lower during wave during wave B should be lower than in
two than during wave one, prices usually do not retrace wave A. By this point, fundamentals are
more than 61.8% (see Fibonacci section below) of the probably no longer improving, but they
wave one gains, and prices should fall in a three wave most likely have not yet turned negative.
pattern.

Wave 3: Wave three is usually the largest and most Wave C: Prices move impulsively lower in
powerful wave in a trend (although some research five waves. Volume picks up, and by the
suggests that in commodity markets, wave five is the third leg of wave C, almost everyone
largest). The news is now positive and fundamental realizes that a bear market is firmly
analysts start to raise earnings estimates. Prices rise entrenched. Wave C is typically at least
quickly, corrections are short-lived and shallow. as large as wave A and often extends to
Anyone looking to "get in on a pullback" will likely miss 1.618 times wave A or beyond.
the boat. As wave three starts, the news is probably
still bearish, and most market players remain negative;
but by wave three's midpoint, "the crowd" will often join
the new bullish trend. Wave three often extends wave
one by a ratio of 1.618:1.
Wave 4: Wave four is typically clearly corrective. Prices
may meander sideways for an extended period, and
wave four typically retraces less than 38.2% of wave
three (see Fibonacci relationships below). Volume is
well below that of wave three. This is a good place to
buy a pull back if you understand the potential ahead
for wave 5. Still, fourth waves are often frustrating
because of their lack of progress in the larger trend.

Wave 5: Wave five is the final leg in the direction of the

dominant trend. The news is almost universally positive
and everyone is bullish. Unfortunately, this is when
many average investors finally buy in, right before the
top. Volume is often lower in wave five than in wave
three, and many momentum indicators start to show
divergences (prices reach a new high but the indicators
do not reach a new peak). At the end of a major bull
market, bears may very well be ridiculed (recall how
forecasts for a top in the stock market during 2000
were received).

Source: from Wikipedia page on Elliott Wave Principle.

What are the limitations of wave analysis? There are quite a few wave pattern permutations that
can appear. Without a very thorough and detailed look at the micro-structure, it is easy to
mislabel price patterns in an overly simplistic manner.

It requires a lot of experience to be able to discern subtle differences within wave patterns that
can make a big difference in the overall analysis. Corrective patterns are especially tricky to
label accurately because they can be much more complex than impulsive patterns. Another
limitation is that wave pattern analysis can only ever suggest a likelihood of what is to come
next, but there is always the possibility of an alternative scenario playing out as well.

It is therefore very important to develop an experience-based knowledge that allows the analyst
to discern between times when price-action is offering a strong bias for a particular future
scenario, and times when the probabilities are too balanced, such that it is impossible to make
sound trading decisions based upon one or the other scenario. The key lies in waiting for price
action to offer enough confirmation for a certain scenario to become more likely and only make
trading decisions when such a bias exists.
EW Rules and Guidelines
This part provides an idealized drawing for each EW pattern, including a visualization of the
most important internal wave size relationships. This section was published as a separate guide
at Elite CurrenSea. One of our SWAT traders, Hubert Miranda, compiled the guide for himself
and the ECS community and he did wonderful work. The images highlight the most common
wave retracement and extension targets in red, followed by the next most common targets in
orange, followed by the least common targets in grey.

Wave Degrees
Elliott Waves are labeled in different degrees that are nested within each other due to the fractal
nature of price movements. Please refer to your Elliott Wave drawing software for the
appropriate names and symbols used for each officially defined degree. Alternatively, you may
simply label different degrees with different-colored labels on your chart.

Alternation ​(“expect a difference in the next expression of a similar pattern”):

EW patterns have the tendency to create alteration within them. This is reflective of nature’s
general propensity towards dynamic balance. Following is a list of the main occurrences of
alternation:

Alternation of corrective waves:

· If wave 2 is sharp (i.e. zigzag or extended zigzag) and deep (i.e. deep in the sense of how
much it retraces the preceding wave 1), then wave 4 will most likely going to be sideways (flat,
combination, or triangle) and shallow relative to wave 3. The same applies in reverse but is less
common. This is because triangles (which only appear during wave 4 inside a motive wave) are
considered to be alternating to all other corrective patterns. That means even if wave 2 is a
shallow sideways correction, a triangle can still appear in wave 4, but it is less likely.

· Alternation also occurs in terms of wave complexity. If a potential bigger complex

correction starts out simple at first, then expect complexity to increase during the following parts
of the correction (i.e. simple-complex-most complex). The reverse can also apply (i.e. most
complex-complex-simple) but it is more rare.

Alternation of motive waves:

· If wave 1 is short, then wave 3 is likely to be extended, and wave 5 likely to be short
again. If wave 1 is extended, then wave 3 and 5 are most likely not extended. If neither wave 1
nor wave 3 is extended, then wave 5 probably will be extended. If wave 3 is extremely long and
overstretched, wave is 5 more in danger of being truncated.

Balanced Proportions (“The Right Look”):

It is important that waves within a 5-wave or 3-wave sequence show reasonably balanced
proportions to each other… not just in terms of size/magnitude (which can generally be verified
by Fibonacci retracement and extension ratios), but also in terms of time duration. This
balancing can occur either via alteration and/or via equality.

Consider the following as an example for ‘balance through alternation’: an impulse is showing a
classic deep and short-lived wave 2, plus a shallow but time-lengthy wave 4. The
time-lengthiness of wave 4 is in balance with the depth of wave 2, while the shallowness of
wave 4 is in balance with the short-lived nature of wave 2, thereby creating balance through
alternation.

The same need for balance applies for any motive waves within a 5-wave sequence (i.e. 1,3,
and 5). The exception however will be the potentially extended wave within the sequence. It
can/will be much larger in terms of magnitude and time than the other four waves, but the
sub-waves (inside the extended wave) must show a balance to each other. The extended wave
will also express relatedness to the other waves of the sequence by the angle of the overall
price movement (that’s why impulsive motive waves travel quite neatly within parallel channel
lines most of the time, even if one of the waves is extended).

Consider the following as an example for ‘balance through equality AND alternation’. Wave 1
and 5 of an impulse sequence are equal in size and duration (equality), while wave 3 is
extended (alternation to waves 1 and 5).

Alarm bells should be going off when a potential wave 4 is starting to grow out of proportion in
terms of size and duration relative to the other waves of the same degree.

It is dangerous to disregard the factor of balanced proportions during wave counting.

Disproportionate and misshapen patterns should be seriously questioned.

The ‘right look’ may not be evident at all degrees of trend simultaneously, so it is best to focus
on the degrees that are the clearest.
MotiveWave: IMPULSE

Note: The percentages in the above for Fibonacci extension targets are drawn from the start of
the wave, but the ratios are based on the size of the preceding motivewave (i.e. targets of 3 are
relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Rules:
● An impulse consists of 5 internal waves.
 ● Wave 1 and 5 always have to be impulses or diagonals.
● Wave 3 always has to be an impulse by itself (i.e. can’t be a diagonal).
● Wave 3 must never be the shortest (in terms of percentage gain/loss) within the
sequence.
● Wave 2 is always a corrective pattern and must not retrace more than 100% of wave 1.
● Wave 2 can be any corrective pattern except a triangle (but it can be a complex
combination (wxy or wxyz) that ends with a triangle).
● Wave 4 must not enter the price territory of wave 1.
● Wave 4 must always be a corrective pattern (any).

Guidelines:
● Waves 2 and 4 tend to create alternation between each other (as outlined in the
introduction of this guide)
● Wave 2 usually retraces to deeper levels of wave 1 than wave 4 does relative to wave 3
● Wave 2 develops more commonly as a simple corrective pattern (i.e. zigzag or
double/triple zigzag)
● Wave 4 develops more commonly as a complex corrective pattern (i.e. triangle,
double/triple threes, flat)
● In almost all impulses, one of the action waves (1,3, or 5) becomes extended, and it is
most commonly wave 3
● Extended waves can contain several further extensions within them
● Wave 5 can fail to go beyond wave 3 (truncation) but it is not very common. It usually
happens when wave 3 has been exceptionally long and overstretched. Truncation often
results in significant reversals.
● Wave 5 is most likely not going to form a diagonal if wave 3 is not extended
● An impulse is not over until all sub degrees are finished (e.g. 5 of 5 of 5). The wave
count takes precedence over channel lines and Fibonacci targets
● Wave 3 almost always exhibits the greatest volume. If volume during the 5th wave is as
high as the 3rd, expect an extended 5th wave.

Fibonacci Retracement and Extension Guidelines:

● If wave 1 is extended, then the size of wave 3 through to the end of wave 5 is often
61.8% – 78.6% relative to the size of wave 1.
● If wave 1 is extended, then wave 2 and 4 are very likely to be shallow (i.e. 23.6% –
38.2%).
● If wave 1 is extended, then wave 2 will often end at the level of sub-wave 4 of 1 (i.e. the
internal wave 4 of wave 1).
● If wave 2 retraces more than 78.6% or 88.6% Fibs of wave 1, the idea that it really is a
wave 2 becomes more doubtful (possible A-B?).
● If wave 3 is extended, then wave 1 and 5 are often nearly equal in magnitude and
duration. If equality is lacking, a 61.8% relationship is next most likely.
● If wave 3 is extended, then wave 4 often ends at the level of sub-wave 4 of 3 and is quite
shallow (retraces 23.6% – 38.2% of wave 3).
 ● If wave 3 is extended and very vertical, it will likely overshoot the trend channel that can
be drawn when placing the anchor points at the extremities of wave 1, 2 and 4. However
the channel is still very valid for gauging the end of wave 5 (see image).
● If wave 4 retraces more than 50% of wave 3, it is quite often not a wave 4.
● Wave 5 is likely to become extended if wave 1 and 3 are equal in size.
● If wave 5 is extended, then it often finishes at the 161.8% extension relative to the
magnitude of wave 1 through to 3 (see image).
● If wave 5 is extended, then the ensuing correction is often sharp and swift and ends near
the extreme of sub-wave 2 of the extension. This does not apply when the market is
ending a 5th wave simultaneously at more than one degree.

MotiveWave: DIAGONAL

Note: The percentages in the above for Fibonacci extension targets are drawn from the start of
the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are
relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of
the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are
relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.

Rules:
● All diagonals consist of 5 waves.
● Diagonals can be ‘leading’ or ‘ending’ diagonals, depending on whether they form at the
start or end of a trend. Diagonals therefore can only form in the positions of wave 1
(leading) or 5 (ending) of an impulse, or the positions of wave A (leading) or C (ending)
of a zigzag.
● Within an ending diagonal, all 5 waves must be zigzags (simple-, double-, and
triple-zigzags are all valid).
● Within a leading diagonal, at least waves 2 and 4 must be zigzags (simple-, double-, and
triple-zigzags are all valid). Waves 1, 3 and 5 can be impulses or zig zags. ​(If 1, 3, and 5
are impulses, be aware that it could easily be a 1-2, 1-2, 1-2 sequence instead of a
diagonal).
● Wave 2 must not retrace more than 100% of wave 1.
● Wave 4 must overlap with wave 1​(please note that opinions differ over this rule. There
are some Elliott Wave researchers who believe that ending and leading diagonals can
be valid without wave 4 needing to move into territory of wave 1, although they still
consider it unusual).
● Wave 4 never moves beyond the end of wave 2.
● Leading and expanding diagonals must not have a truncated 5th wave.
● Contracting diagonals always have a shorter wave 3 than wave 1 (in terms of
percentage gain/loss).
 ● Contracting diagonals always have a shorter wave 5 than wave 3 (in terms of
percentage gain/loss).
● Contracting diagonals always have a shorter wave 4 than wave 2 (in terms of
percentage gain/loss).
● Expanding diagonals always have a longer wave 3 than wave 1 (in terms of percentage
gain/loss).
● Expanding diagonals always have a longer wave 5 than wave 3 (in terms of percentage
gain/loss).
● Expanding diagonals always have a longer wave 4 than wave 2 (in terms of percentage
gain/loss).

Guidelines:
● Contracting diagonals form within two converging trend lines (contracting wedge).
● Contracting diagonals can overshoot its trend line during wave 5 (called throw-over) and
still be valid as long as wave 5 remains smaller than wave 3.
● Contracting ending diagonals can also undershoot its trend line during wave 5
(truncation).
● Contracting ending diagonals should always show a corresponding decrease in
momentum as they progress towards their culmination. Many small candles that take a
lot of time to gain further ground is a good sign that an ending diagonal is indeed
occurring. Conversely, strong big candles within a potential diagonal formation should be
a warning sign that you are probably witnessing a 1-2, 1-2, 1-2 extension of the trend,
and therefore not an ending diagonal.
● Expanding diagonals form within two diverging trend lines (expanding wedge). They are
more rare than contracting diagonals.
● Wave 2 and 4 of any diagonal very often retrace their wave 1 and 3 much deeper when
compared to wave 2 and 4 of impulses.
● The internal zigzags of any diagonal can sometimes subdivide into more complex double
or triple zigzags.
● Any diagonal can begin to be confirmed with higher certainty once wave 4 is close to
being complete.
● Diagonals are more rare in general (although they do occur quite frequently within
sub-waves of very small wave degrees that are visible on timescales of M15 and lower).
● If wave 1 is a leading diagonal, wave 3 is usually extended.
● A place to watch out for potential expanding leading diagonals is at the start of the
market decline (due to the opposing forces that are in play during this transitional
period). Diagonals occur because transitory forces of trend changes act against each
other.
● Ending diagonals are followed by a strong reversal most of the time.

Fibonacci Retracement and Extension Guidelines:

Refer to image for key retracements and extension targets.
Corrective Wave: ZIGZAG

Note: The percentages in the above for Fibonacci extension targets are drawn from the start of
the wave, but the ratios are based on the size of the preceding wave of the same direction (i.e.
targets of C are relative to the size of wave A, targets of wave Y are relative to the size of wave
W, targets of wave Z are relative to the size of wave Y.

Rules:
● Zigzags consist of 3 waves (A, B and C).
● Wave A must be an impulse or leading diagonal.
● Wave C must be an impulse or ending diagonal.
● Only one diagonal is allowed (A or C) per zigzag, i.e. it must have at least one impulse
(A or C).
● Wave B can be any corrective pattern (zigzag, flat, triangle, complex combination).
● Wave B must not retrace Wave A by more than 100%.

Guidelines:
● Wave C should normally always go beyond A. Wave C can in principle be truncated (i.e.
not go beyond wave A) but it is extremely rare.
● Zigzags can become extended into double or triple zigzags, in which case they are
labeled wxy (double zigzag) and wxyz (triple zigzag). W, Y, and Z will each subdivide
into their own ABC zigzag, while the X wave/s can be any corrective pattern (they take
on the same role as B waves in a simple zigzag). Extended zigzags usually form when a
simple zigzag appears too small in terms of time and magnitude in order to be
proportional to the swing, which it is correcting.
 ● Zigzags can take many shapes and sizes. One of the features that can help distinguish
an A-B-C zigzag from a potential 1-2-3 impulse is that wave A and B will be much more
overlapping in general and A waves tend to finish quicker than wave 1 in terms of time
and magnitude. Zigzags should often show a very gently sloping channel, whereas 1-2-3
are typically much more steep.

Fibonacci Retracement and Extension Guidelines:

● Waves A and C of a correction tend towards equality (same size 100%). The next most
common ratios are C = 161.8% x A or C = 61.8% x A.
● Wave B usually retraces between 38% – 79% of wave A.
● If wave B is a triangle, there is a higher chance that wave C may only reach the 61.8%
extension target.
● If wave B is a running triangle, it will typically only retrace 10 – 40% of wave A.
● If wave B is any other sideways correction, it will typically 38% – 50% of wave A.
● If wave B is a zigzag, it will typically retrace 50% – 79% of wave A.

Corrective Wave: FLAT

Rules:
● All flats consist of 3 waves (ABC).
● Wave A and B must subdivide into any corrective pattern, but Wave A cannot be a
triangle.
● Wave C must be a motive wave (i.e impulse or diagonal).
● Wave B must retrace wave A by at least 90%.
Guidelines:
● The structure is called an ‘Expanding” Flat if Wave B retraces between 105% – 138% of
wave A, and Wave C ends anywhere beyond the end of wave A. Expanding Flats occur
most commonly.
● The structure is called a ‘Regular‘ Flat, if wave B retraces between 90 %- 105% of wave
A, and the size of wave C is 100% – 105% of wave A. Regular Flats are more rare.
● The structure is called a ‘Running’ Flat if Wave B ends beyond the start of wave A, but
wave C fails to reach beyond the end of wave A. Running Flats are very rare and
alternative wave counts should therefore always be considered before labeling anything
as a running flat, especially on larger scales.
● Whenever an impulse (trend) ends in what looks like a 3-wave swing and then reverse
sharply, be mindful that it could be an expanding flat and that the old trend direction may
resume suddenly.

Fibonacci Retracement and Extension Guidelines:

● Refer to image for main retracement and extension targets.
● Wave C is usually 100% – 161.8% x Wave A in size, but it is possible that it becomes as
big as 261.8% on rare occasions. Sometimes the target for wave C can also be gauged
by using the start of Wave A as the base for the 161.8% extension target (instead of
using the start of wave C as the base). This method creates a slightly different price level
and broadens the target area a little

Corrective Wave: TRIANGLE

Note: The internal zigzag structure is only shown in the Contracting Triangle example in order to
avoid cluttering the drawing with too many lines. Please be aware that all waves within all
triangles consist of corrective wave patterns, even if they are not shown in the image.

Rules:
● A triangle consists of 5 corrective waves (ABCDE)
● A triangle can only appear in the position of wave 4 of an impulse, wave B/X of zigzags
and flats , wave Y of double three sideways corrections, or wave Z of triple three
sideways corrections.
● At least 4 of the 5 waves subdivide into zigzags.
● A triangle never has more than one complex wave. The complex wave within a triangle
can only be a double/triple zig-zag or a triangle itself.
● In contracting & barrier triangles, Wave C does not move beyond wave A, wave D does
not move beyond wave B, and wave E does not move beyond wave C. This results in
two converging trend lines forming as the triangle progresses. The main difference
between a barrier triangle is that it creates a virtually horizontal trend line between points
B and D.
● In an expanding triangle, Waves B, C, D, and E must retrace at least 100% of the
previous wave, but no more than 150%. This results in two diverging trend lines forming
as the triangle progresses.

Guidelines:
● In a contracting triangle, wave B can end beyond the start of wave A (about 60% of the
time). The structure is then called a ‘Running’ Contracting Triangle (see image)
● Wave E will quite likely undershoot or overshoot the triangle trend line. This is normal.
● Expanding triangles and barrier triangles are much more rare than contracting triangles.
● Often, one of the waves becomes complex. It tends to be wave C or D that turns into a
complex zigzag (double/triple). Sometimes wave C, D, or E turns into a barrier or
contracting triangle by itself. If the final wave E turns into a triangle, the whole structure
appears to extend into 9 waves, which become ever more narrow. The triangle then gets
labeled as A-B-C-D-E-F-G-H-I
● During contracting and barrier triangles, momentum and volume decreases
● There is usually a (wave 5) post-triangle thrust after wave E is finished, which will
roughly be the same size as the width of the trend lines at the start of the triangle.
● The (wave 5) post-triangle thrust in commodity prices is usually the longest wave of the
entire trend.

Fibonacci Retracement and Extension Guidelines:

● In a contracting or barrier triangle many waves have a 61.8% – 78.6% relationship to the
previous wave or alternating wave
● In running triangles, wave B should retrace wave A no more than 161.8%
 ● In an expanding triangle, wave C is usually 161.8% of wave A , wave D is 161.8% of
wave B, and wave E is 161.8% of wave C
● See image for more details

Corrective Wave: COMPLEX COMBINATIONS

(Please note that complex ZigZag combinations are covered under the Zigzag section earlier
on. The following section only deals with complex sideways combinations)

Rules:
● A complex sideways combination consists of three or five corrective patterns, which
alternate in their orientation, thereby creating a complex sideways motion. The central,
dividing corrective patterns (X waves) are always orientated in the direction of the
previously established trend. A ‘Double Three’ combination is therefore essentially made
up of 3 corrective patterns (W-X-Y) in alternating directions, and a ‘Triple Three’
combination consists of 5 corrective patterns (W-X-Y-X-Z) in alternating directions.
● A double-three can have the following combination of corrections:
○ zig-zag (W), any corrective wave (X) and flat (Y)
○ zig-zag (W), any corrective wave(X) and triangle (Y)
○ flat (W) any corrective wave (X), and triangle (Y)
○ flat (W), any corrective wave (X), and flat (Y)
○ flat (W), any corrective wave (X), and zig-zag (Y)
● Double Threes are only allowed to have a maximum of one zigzag and one triangle in
the W and Y positions. But wave X can be any corrective pattern in addition (including
double or triple three combinations of a smaller degree!).
● A Triple Three works in the same manner as a Double Three, and it also only allows one
zigzag and one triangle in the W, Y, and Z positions. X waves in a Triple Three can be
any corrective patterns in addition (including double or triple three combinations of a
smaller degree!)
● Triangles are only allowed to form in the final wave of the combination sequence (i.e. in
a Double-Three during wave Y, or in a Triple Three during wave Z).
● IMPORTANT NOTE: Opinions differ amongst Elliott Wave researchers over whether or
not waves W, Y, and Z are also allowed to be complex combinations within themselves
(e.g. a smaller wxy within W, and so on). The original research presented that W, Y and
Z each need to be able to be broken down into a simple corrective pattern (i.e. zigzag,
flat, or triangle) at the next smaller degree, and only X-waves could in principle sprout
smaller combinations inside themselves. However, some modern analysts are proposing
that market behaviour is more complex these days and are validating potentially labelling
smaller complex corrections inside W, Y and Z as well. ​Personally, Hubert so far has not
found any use by further complicating the potential of wave W, Y and Z. On the contrary,
I have found that it can lead to ‘over-labelling’ of corrections and cause misjudgements in
regards to the start of trend continuation or correction targets. If you are starting out with
Elliott Waves, Hubert would recommend to stay with the original rules that W, Y and Z
should be able to be broken down into simple corrections patterns.

Guidelines:
● Triple Threes are very rare compared to Double Threes
● Even though X waves could in theory also be a triangle, in addition to a triangle in the
final wave of a combination, this has never occurred and most likely never will, simply
 due to the underlying market dynamics. Therefore the final Y or Z will almost certainly
never be another triangle, if an X-wave was already a triangle.
● Expanding triangles are extremely rare within a complex combination and have probably
never been witnessed (as far as is known).

Fibonacci Retracement and Extension Guidelines:

● Sideways combinations are by their nature range bound. Generally, all waves retrace
each other around 78% – 138%, creating either a virtually horizontal movement, or a
channel that is very gently sloping against the previous trend direction.

Divergence Patterns
Divergence indicates that the trend is weakening, which in turn makes a retracement or a
reversal more likely. Basically, divergence is a warning sign that the trend is running out of
steam.

Divergence patterns occur when price confirms a higher high or lower low but an oscillator, like
the ecsMACD, does not confirm the same higher high or lower low. Instead the [Link]
shows a lower high or a higher low. Here is a summary:

● When divergence appears during an uptrend: price is making a higher high but the
oscillator is showing a lower high. A bearish retracement or reversal becomes more
likely.

● When divergence appears during a downtrend: price is making a lower low but the
oscillator is showing a higher low. A bullish retracement or reversal becomes more likely.
Keep in mind that the divergence pattern does not necessarily have an immediate impact on
price. In fact, the trend can keep pushing even with the presence of divergence. Always
consider divergence as just one of the factors that can forecast retracement or reversal, not as
the only one.

It is also important to keep in mind that multiple divergence is stronger than a single divergence.
Multiple divergence occurs when two or more divergence patterns appear on the same time
frame and/or on different time frames.

Divergence on higher time frames will have more impact on the price movement than
divergence on lower time frames. For instance, a divergence on the daily chart will be of more
importance than a divergence on a 5 minute chart. That said, keep in mind that divergence on
higher time frames, like weekly or monthly charts, will take longer in time before that pattern is
actually unfolded in real live price movement. This is especially true when trading below the
daily chart and using higher time frame divergence patterns.

Divergence can be “proper” and “bad”, here is the difference:

● Proper divergence (left example in the image below): this is when two tops or two
bottoms are separated by a strong dip which is measurable the 2 [Link] lines or AO
bars reaching the zero line or middle point of the indicator.

● Bad divergence (right example in the image below): this is when two tops or two bottoms
are NOT separated by a dip and the bars are continuously moving into one direction.

Now it’s time to explain the difference between regular or normal divergence and hidden
divergence. Hidden divergence is when the oscillator makes a higher high or lower low but price
does not confirm the same pattern. Hidden divergence indicates a pullback or retracement
within the current trend and that a trend continuation is likely. Hidden divergence shows the
ability to be bullish or bearish, as with regular divergence.

The image below shows how price made a higher low but the oscillator in fact does show a
lower low. This indicates that the uptrend is still strong as price was unable to break for a lower
low despite the presence of bearish momentum.
Time Patterns
Traders and analysts tend to focus heavily on price movement and support and resistance
levels without taking into account the factor of time. The chart, however, offers two dimensions:
price and time. While price is plotted on the vertical line, time is plotted on the horizontal line. In
a high leveraged market as the Forex market, entering a trade setup at the right price is really
just half the story. Entering a trade or expecting certain analysis at the right time is equally
important. Without proper timing, your well intended analysis and great trade setup could leave
you penny less. This paragraph will elaborate on why time factor is essential to enhance
anybody’s understanding of the price chart and the Forex market specifically.

Timing of impulse
Impulsive price action is characterized by candle closes near the high or low, relatively large
candles, and continuous higher highs (HH) and lower lows (LL), as mentioned in chapter 3.
But impulsive price action is also determined by a time element. An immediate HH or LL
confirms the momentum but what happens if one candle fails to confirm a HH or LL? What
happens if 2 to 6 candles fail? When is the momentum considered to be finished?

In most cases if 2 to 6 candles fail to break for a higher high or a lower low, then this does not
indicate a trend change but rather a small pause of the ongoing impulse. As the above image
shows, price action usually makes a smaller retracement before continuing with the trend.

● The purple boxes indicate the moments where price fails to confirm an immediate lower
low.
● The orange arrows however show that price often continues within those two to six
candles.

However, if more than 6 candles fail to break for a higher high or lower low, then this could
indicate that momentum is fading and that a larger retracement has a higher chance of starting.
Simply said if 5 to 6 candles fail to break, then the current impulsive price swing is most likely
finished and a corrective price swing is probably starting.

Time patterns help traders with two critical aspects:

● Knowing whether the current price swing is impulsive or corrective.

○ 3 candles showing higher highs or lower lows out of 6 candles indicates the start
of momentum.
○ A new higher high or lower low confirms the momentum continuation.
● Knowing when to expect and where to find the end of a price swing.
○ A failure to break within 5-6 candles for a higher high or lower low indicates the
end of the impulsive price swing and the start of corrective price swing.
○ Counting candles or [Link]:
■ Traders can simply count how many candles have failed to confirm a HH
or LL.
● How do you count candles? The first candle that fails to post a
new HH or LL is counted as a candle. Traders are looking for the
6th candle that fails.
 ■ Use the [Link] indicator:
● Green diamonds turn into light green diamonds.
● Red diamonds turn into pink diamonds.

As you can see, not only candlesticks provide key information about the impulse, but time
patterns too. Via time patterns we are able to estimate the end of an impulsive price swing,
which is very useful information because it allows traders to:

1. Find a potentially better entry. The image below shows how the price moved down
strongly (impulse indicated by first arrow). Then price made a bullish correction with 2
impulsive parts (green arrows). The 2nd push higher ran out of steam as the 6th candle
failed to confirm a new high, which was then followed by a significant drop back to the
previous bottom.

2. Find a potentially better exit. Price was unable to break below the previous bottom and a
bounce occurred. Again 6 candles failed to break below the previous bottom, which
indicated a larger bullish correction where price went sideways before a larger
downtrend continuation occurred.
 3. Manage their trades with more information. The image shows a classical break of a bear
flag and decent continuation lower but then price reverts back up with strong bullish
candles and fails to confirm a new low after 6 candles. This is the moment when traders
want to be careful as price could enter a corrective phase. It does not mean that the
trend is necessarily over but a pullback, retracement or even reversal could take place.
After the 6th candle price has indeed shown another +/- 15 corrective candles that made
a slight bullish angle.

Once again, the time pattern gives us useful information about when the impulse is expected to
be running out of steam. The end of an impulsive price swing does not necessarily mean that
the trend is finished. Price could simply make a correction, like a pullback or retracement within
that trend, and then show a trend continuation. However, the end of the impulsive price action
does signal indecision and increases the chance of sideways or reversal price movement. It
means that one side (bulls or bears) had control but lost it and it remains a question mark
whether they will regain it.

You might be wondering, why do we use 5 to 6 candles? At first I only used the 5 candles as the
rule but from experience I noticed that the 6th candle provides a decent breakout too in certain
situations. The number 5 is based on the Fibonacci sequence and fits within the 7 day rule used
in weather forecasting (chapter 3). Both the numbers 5 and 6 work well and I use the following
rule to decide whether to use a 5 or 6 candle count:

● During bullish impulsive price action:

○ If the 5th candle is bullish as well, then I prefer to wait for the 6th candle to close.
○ If the 5th candle is bearish, then often the bullish momentum is finished.

● During bearish impulsive price action:

○ If the 5th candle is bearish too, then I prefer to wait for the 6th candle to close.
○ If the 5th candle is bullish, then often the bearish momentum is finished.

The 6th candle is usually the one that needs to break the high or low to confirm that the
impulsive price swing is still active. I would only make an exception to this rule if the 6th candle
has a very strong (large) candle that is in the same direction as the current impulse ​and ​price is
close to breaking the high or low as well.
Timing of Correction
The correction patterns also tend to align themselves with time patterns. From our experience,
we tend to see price continue successfully if price breaks the correction on candle number 13 or
higher. The most false breakouts, also called fakeouts, occur between candle number 5-6 and
13.

Another key factor is to keep an eye on the type of price action is visible between candle
number 5-6 and 13:

● Corrective price action most likely confirms the fact that price is building a chart pattern
which in turn makes a continuation of the previous impulsive price action more likely.

● Impulsive price action most likely confirms the fact that price is building a deeper
retracement or reversal, which in turn makes a continuation of the previous impulsive
price action unlikely.
Any breakout that occurs between candle 13 and 34 is often sturdy and trustworthy. Of course,
this is just a rule of thumb and exceptions are always available.

Breakouts that occur between candle number 34 and 55 are question marks and depend from
case to case. Breakouts that occur above candle number 55 tend to be weaker, because in this
scenario, the price is already building a larger correction on a higher time frame. Traders could
think about monitoring one time frame higher after candle number 34 and especially after candle
number 55.

Here is a 1 hour chart where price breaks on candle number 49. Price makes a false break and
first retraces before moving up higher. Rather than trading a breakout on the same time frame,
we prefer to zoom out and monitor the breakout or reversal on the higher time frame.
The higher time frame (see image below of 4H chart) does neatly capture the right breakout
moment.

If 5-6 candles fail to break on the higher time frame, then the same situation could occur where
a larger correction or reversal could take place but now on one time frame higher.

Fibonacci Patterns
Fibonacci is a great tool for analysing the charts, for spotting support and resistance, for
establishing entries and exits, and for filtering out bad setups. Using the Fibonacci tool,
however, is challenging. To master the art and science of trading the Fibonacci levels, traders
must build up and acquire sufficient experience. Experience comes with practice and time BUT
we hope that this book will be a small “short-cut” for those that are starting, struggling or looking
to improve. Another short-cut is using a well established approach such as the [Link]
method.

The Fibonacci levels (or simply called “Fibs”) are calculated based on the Fibonacci sequence
numbers. Lets first explain how the sequence levels are used to calculate the Fib levels but this
is not a key part for using the Fib tool. Traders can use the Fib tool without understanding the
math mentioned below so feel free this skip or skim this next paragraph if you want.

Fibonacci Sequence Levels

The Fibonacci sequence numbers are: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610,
987, 1597, and so on. This line series is created simply by always adding the first two numbers
together and then taking the last two numbers for the next number:
● 0 + 1 = 1 → 1 +1 = 2
● 1+2=3→2+3=5
● 3 + 5 = 8 → 5 + 8 = 13
● The method stays the same for higher numbers as well:
89+144 = 233, and then 144 + 233 = 377, etc.

You might be wondering, why are these Fibonacci sequence numbers important? There are a
couple of reasons that answer this question:

1. The Fibonacci sequence numbers are in fact very well respected levels on the charts
(see [Link] in chapter 7).
2. The Fibonacci sequence levels are used for calculating Fibonacci retracements and
Fibonacci targets, which are key levels on the charts.

The Fibonacci retracement levels are calculated by dividing a smaller Fibonacci sequence
number by a larger Fibonacci sequence number. A result lower than 1 is visible: 144/233 =
0.618. Here are a few other examples:
● 8/13 = 0.618 (smaller number is divided by bigger number next to it)
● 34/89 = 0.382 (smaller number is divided by bigger number two next to it)

The Fibonacci target levels are calculated by dividing a larger Fibonacci sequence number by a
smaller Fibonacci sequence number. When dividing a bigger Fibonacci sequence number by a
smaller number, then a result higher than 1 is visible: 233/144 = 1.618. Here are a few
examples:
● 34/21 = 1.618 (bigger number is divided by the smaller number next to it)
● 89/34 = 2.618 (bigger number is divided by the smaller numbers two next to it)
Simply said, Fibonacci retracements are levels below 1 whereas Fibonacci targets are levels
above 1 (we use minus Fibonacci targets but we will explain later on in this paragraph). Many
ratios can be calculated by dividing the Fibonacci sequence numbers in various ways:
● If we divide 13 by 21 for example, we get 0.619.
● While 21 divided by 13 = 1.615.
● If we divide 8 by 21 we get .381.
● Conversely, 21 divided by 8 is 2.625.

The higher the numbers, the closer the ratios will reflect the standard ratios of 0.618 and 0.382.
● 144 divided by 233 is 0.61802.
● 144 divided 377 is 0.38196.

One interesting aspect is that it doesn’t matter where we start. We can take any two numbers,
like 5 and 100. Soon we’re dealing with the same series – we are getting the same ratios: 5,
100, 105, 205, 310, 515, 825, 1340, 2165. 1340 divided by 2165 = 0.6189 2165 divided by 1340
= 1.616.

Fibonacci Retracement
As mentioned above, Fibonacci retracement levels are ratios which are based on the Fibonacci
sequence numbers and have values between 0 and 1 (such as 0.618). In many cases we also
use percentages to describe the ratio, for instance 61.8%. There are 3 main Fibonacci
retracement levels:
1. The 0.618 level or 61.8%.
2. The 0.382 level or 38.2%.
3. The 0.236 level or 23.6%.

The 0.50 level or 50% is also used as a Fib number but it is not based on Fibonacci sequence
numbers and therefore not a real Fib level. Despite that, it is still added to the chart because of
its value as the halfway mark and its importance for market psychology.

There are more Fibonacci retracement levels than the 4 mentioned above, although some of
these levels are calculated differently:
● 786 or 78.6% – square root of 0.618.
● 886 or 88.6% – square root of 0.786.
There are a few other Fibonacci levels that I personally do NOT use but that are occasionally
applied by other traders such as:
● 146 or 14.6%
● 764 or 76.4%

The Fibonacci retracement levels can be used for:

1. Entries
2. Bounces and reversal
3. Filtering out setups
The Fibonacci tool can be added to the chart to quickly place the Fibonacci retracement levels
on the chart. Generally there are two different ways of placing a Fibonacci tool on the chart.
Nenad and I prefer the method which drags the tool from left to right (1st image), but there are
some who prefer the opposite (from right to left - see 2nd image).

How do you get the price levels to appear next to the Fibonacci retracement levels? In the
MetaTrader 4 (MT4) you need to click on the start or end point of the Fibonacci tool, then click
on “Fibo properties” and then go to Fibo levels. Then add in the description behind the numbers
a “space, percentage sign, and then a USD sign”.
Let us discuss in more depth the value when price reaches one of the Fibonacci retracement
levels, this means that price has retraced back to a ‘discounted’ level. Let us use this example:
EUR/USD moves down from a top at 1.1474 to a bottom at 1.1183. Price then starts to retrace
higher so we place the Fibonacci tool from top to bottom (also called a swing). Retracement
levels are support & bounce spots in a trend so price can use 1 of the Fib levels to continue with
the downtrend again. The market uses Fibonacci retracements levels because it provides a
‘discount’ within a trend.

The Fibonacci retracements are also called Fib tool and Fib retracement OR plainly Fibs, Fibo
or Fibo tool. All of these abbreviations simply refer to Fibonacci and are used to save time and
provide variation.
Last but not least, the 61.8 ratio is extra important and called the Golden Phi, which is also
called the Golden Ratio. Kepler called it “one of the jewels of geometry“, Pacioli named it the
“divine proportion“, and finally Greeks used the letter “phi“. The Phi is a crucial element in Forex
Trading. Two quantities are in the golden ratio if: the ratio of the sum of the quantities to the
larger quantity is equal to the ratio of the larger quantity to the smaller one. In math this means
((A+B)/A) = PHI. The PHI is equal to 0.618. That is why the 61.8 or 61.8% Fib retracement level
is so important in Forex trading.

Why Fib discounts work and when not

The Fibonacci retracement levels are a great method for measuring the market psychology. The
Fibs provide lots of value and work very well because of the market psychology: traders know
that a trend can continue after a pullback to a Fibonacci retracement level and hence the levels
are often well respected in the market.

The traders and the markets gladly accept the discount (within the trend) and use these levels
for buying lower and selling higher. There are 3 important criteria when using Fibs otherwise the
tool might work that well:

1. Prerequisite: the presence of a trend. There must be a trend and a decent change of
trend continuation otherwise the Fibonacci retracement levels will not be used and will
have no meaningful impact on price movement.
2. The Fibonacci retracement tool must be drawn correctly otherwise the levels will not be
respected by the market.
3. Even if the Fibonacci retracement level is drawn correctly, not each and every Fibonacci
retracement level will be respected but on average they will work 2 out of 3 times.
Shallow vs Deep Retracement Fibs
It is important to know the concept of shallow versus deep Fibs. Shallow indicates that price has
not retraced very far on the Fibonacci ladder, whereas with deep Fibonacci levels price has
retraced a lot further.
● The 23.6% and 38.2% are shallow Fib levels.
● The 50% and 61.8% are intermediate or medium Fib levels.
● The 78.6% and 88.6% Fib levels are known as deep Fib levels.

Here is a full overview:

● TOP/BOTTOM: 0% or 0.000.
● SHALLOW: 23.6% or 0.236.
● SHALLOW: 38.2% or 0.382.
● MEDIUM: 50% or 0.500.
● MEDIUM: 61.8% or 0.618.
● DEEP: 78.6% or 0.786.
● DEEP: 88.6% or 0.886.
● TOP/BOTTOM: 100% or 1.000.

Fibonacci Targets
Fibonacci targets are levels which are based on the Fibonacci sequence numbers too and have
values above 1.000 or below 0.000 depending on how you draw the tool.

Fibonacci targets are projected spots on the chart where traders can exit for a profit; whereas
Fibonacci retracement levels are entry spots that are potential bounce spots for trend
continuation.

I myself add the Fibonacci targets to my Fibonacci retracement tool. This saves me time
because I only need to use 1 tool for both entries and exits.

Other traders separate targets and retracements. They use the Fibonacci extension tool for
calculating targets and the retracement tool for pullbacks.
The main targets are always the -0.272 and the -0.618 Fibonacci levels. Be aware that these
levels are unique because the market respects these levels a lot. What I mean is that price will
often continue to these targets and then switch gears and reverse only after hitting these levels.

1. The -0.272 target is the main one for deep Fibonacci retracements like 78.6% and
88.6%. But the other Fibonacci retracement levels could stop at this target for a while
before marching further to the next target. The -0.272 target is calculated by taking the
square root of the -0.618.

2. The -0.618 target is the main one for other Fibonacci retracements like 23.6%, 38.2%,
50% and 61.8% targets. The target is based on the golden ratio. In many cases the
-0.618 is the best exit spot UNLESS a bigger trend continuation is expected.

3. When a trend boom could occur, then price can accelerate towards higher targets as
well. Here is the full list that I use:
a. -1.000 Target
b. -1.272 Target
c. -1.618 Target
d. -2.000 Target
e. -2.618 Target
f. -4.236 Target
g. +138.2 Retracement level (break into opposite direction)
h. +161.8 Retracement level (break into opposite direction)
I add the 2 levels above the 1.000 level, which is the invalidation level of the Fibonacci
retracement, just in case the price breaks my Fibonacci tool boundaries. In these cases price
has actually broken below (uptrend) or above (downtrend) the key support or resistance level of
the Fibonacci tool. Obviously we don’t expect Fib bottoms or tops to be broken otherwise the
Fibonacci tool should be drawn differently. But sometimes it does occur and then having these
levels on the charts helps.

Problems with Fibonacci

Choosing the correct price swing for placing the Fibonacci is one of the main problems with
using the Fib tool. Fibonacci is a very valuable method and tool but traders must place the tool
on the swing that makes the most sense for current market conditions. This will mostly be a
discretionary choice, which is one of the main problems with Fibs. Traders will always face the
risk of using an incorrect price swing for placing their Fibonacci tool.

If price breaks the top or bottom in the opposite direction of the expected price movement, then
price has invalidated the chosen price swing. It could be that the trader:

1. Used a too small price swing.

2. Failed to see a ranging price environment.

 3. Wrongly anticipated a reversal.

4. Counted on a failed trend continuation.

There are two primary ways how to solve the problems with drawing Fibs on the chart:

1. Focus on trend and momentum.

2. Using the logic price swings for placing the Fibonacci tool.

Traders can avoid using the Fibonacci tool at the wrong moments if they focus on using the Fib
tool when the market is trending and/or impulsive. They do not work well in consolidations,
corrections, ranges and sideways moves, because the Fib levels are mostly ignored and price is
more responsive to different levels such as tops and bottoms. If the currency pair, however, is
indeed trending OR it is showing momentum then the tool is a great asset.

In trending or impulsive markets the Fib levels indicate precise levels where there is a high
chance of the market turning back in the direction of the trend. It is good to realise that price
respects different Fibonacci levels depending the market circumstances:

● Deep pullback (61.8-88.6%): price tends to make a deep pullback when a trend is not
yet clearly established. In those cases price can make multiple ups and downs which
severely test the bottom (uptrend) or top (downtrend) but without breaking those levels
(which would invalidate the trend).

● Shallow pullback (23.6-50%): once a trend has clearly established itself then a shallow
pullback such as the 23.6%, 38.2% and 50% half way mark are generally levels, which
are very typical before the trend continues.

Traders can also improve their Fib drawing skills if they place the Fibonacci tool on a completed
price swing of the time frame you are analysing. Using the same price swings technique
(chapter 3) will be equally valuable for Fibs.

I use the AO or [Link] in various ways for determining how to place the Fib tool on the
chart. You can use it for:
1. Direction of the Fibonacci tool.
2. Understanding which swing to place the Fib on.
For bullish placement of the Fib: strong oscillator bars (AO) lines ([Link]) above the middle
point indicate bullish momentum and thus the Fib tool is best used for entering longs upon a
corrective bearish retracement. Here I place the Fib from bottom to top and look for a correction
back to the Fib levels.

For bearish placement of the Fib: strong oscillator bars below the middle point indicate bearish
momentum and thus the Fib tool is best used for entering shorts upon a corrective bullish
retracement. Here I place the Fib from top to bottom and look for a correction back to the Fib
levels.
When price is in a range: weak oscillator bars around the middle point indicate no direction and
thus using Fibs in the first place becomes less desirable.

The oscillators are also a powerful concept in determining the best swing for placing the Fib
tool. Many traders use the Fib tool too frequently and too quickly. The oscillator keeps traders
focused on using the best swing for their Fib purposes. I place the Fibonacci tool on the top and
bottom that matches the start and end point of the oscillator. The start and end are indicated by
the decline and rise of the oscillator and when the oscillator has reached a peak plus return to
the zero line.

In the below example I place the Fib from top to bottom as the oscillator made a strong decline.
Once the oscillator starts retracing I can look for a pullback to the Fibonacci level in search of a
continuation down lower in line with the bearish momentum.

Do realize that the correction is officially only completed when the oscillator bars have gone
back to the middle line (after a strong push to 1 side). In that case the moment when oscillator
bars cross and re-cross back represent 1 swing high and swing low. Only then is the swing fully
completed. Of course 1 swing could be broken down into several swings on a lower time frame.
Here is a pullback where price has made a very quick retracement.
Traders can also place Fibs on a candlestick or candlestick pattern. Placing a Fibonacci tool on
the candle is very simple:
1. Check for direction:
a. If the previous candles were bearish, place the Fib on the nearest candle high to
candle low.
b. If the previous candles were bullish, place the Fib on the nearest candle low to
candle high.
2. I personally do not consider a candle retraced if price does not pull back to at least the
23.6% of the candle but I typically wait for a retracement to 38.2% or 50% Fib of the
candle before entering.
3. In some cases the stop loss can be placed below the candle low or above the candle
high. This is especially true when using a daily or weekly time frame.
The technique is simple and capitalizes on the natural low and high tides of the Forex market.
Of course proper analysis has to be completed before applying the concept to the charts as the
method indicates how a trader can enter, not whether the entry is statistically viable. The idea
can certainly be combined on multiple time frames. For instance a strong weekly bullish candle
could get a 50% retracement which could signal a potential for long. A trader then zooms into a
4 hour chart and sees a bullish candle at the 50% Fib. The trader takes an entry order at the Fib
of the 4 hour candle (either via pending or market depending on where the price is).

Fibonacci for Entries

Traders can use the Fibonacci retracement levels for potential entries. Pending orders can be
placed directly at the Fib levels or traders can wait for confirmation triggers at the desired Fiib
levels before actually entering. In this case I am waiting for the price to reach my desired
Fibonacci level but I am not entering when the price reaches the Fib. Instead I am waiting for
the price to react (in my anticipated direction) to the Fibonacci level before taking an entry. The
best reaction is a candlestick price action confirmation such as for instance engulfing twins at
the expected Fib level. Some traders are opposed to waiting for a confirmation as the entry
price tends to be worse in comparison with the confirmation, which is true but there are two
distinct advantages of waiting.

1. Fibonacci levels on a higher time frame are often the most respected but also the most
difficult to trade from a practical point of view. Or in other words, the market highly
respects the levels but the space between the bottom and the 50 Fib could be enormous
on the 4 hour chart and practically impossible for many traders to trade (due to risk
management rules and small account sizes). Waiting for a price reaction enables a
trader to use a tighter stop loss for this setup as the recent candle high or low plus a
 buffer could be employed.

2. The 2nd advantage is connected to the fact that the probability of a setup succeeding
varies per trade when placing the Fib tool on the charts. If I have too much doubt
whether the market will respect the Fib level, then waiting for a reaction solves that
issue. This is especially important for traders who have less experience when placing
Fibs on the charts. This is an important method to improve one’s Fib trading when you
are just starting out with Fibs.

All in all, the difference between a trigger and an entry could seem quite small. However, it is
worth sacrificing a few pips and getting a slightly worse entry if the probability of the Fib working
out is low or average OR if you are relatively new to Fib trading. Personally I am using Fibs as a
trigger anytime when reviewing daily chart or higher as in those cases I am not willing to commit
to a Fib trade via a pending order. Then the stops are quite large and trades take too long to
develop, which means that the capital is stuck and blocking potential new setups. When
analyzing a 4 hour chart or lower, traders can use Fibs as either a trigger or as an entry
depending on the probability of each setup.

Stop Loss with Fibs

Many traders seek out a tight stop loss in order to increase their lot size (with the same risk).
That idea could, however, be hazardous for your account. Why?
1. The markets love moving up and down, loves volatility and loves retesting price zones.
2. The ‘noise of the market’ implies that all stop losses are to some degree vulnerable to
being triggered before price makes a sustainable one directional movement.
 3. An (over) tight stop loss will have more issues due to this market volatility. The chart
above shows how choppy price action can be hazardous for tight stop losses… but there
is a solution: the invalidation spot.

The best stop loss placement is “simple”: place it at a spot where your analysis is invalidated if
price pushes beyond that point. There are 2 benefits:
1. You exit the trade at a loss ONLY if the analysis proves incorrect.
2. You are not psychologically annoyed with the loss because you placed it at a sport
where your analysis was in fact not on the mark.

Many traders do not place a stop loss at an invalidation point. They see their stop loss get hit
but their analysis can easily turn out to be right. Do you recognize the annoyance that your
analysis was correct but your trade ends up for a loss? Only to see the market turn around into
your expected direction ​after y​ ou get taken out? This process leads to revenge trading, over
risking, and other nasty and costly bad habits. Using the invalidation level creates a peace of
mind: a stop loss only triggers if the market is turning into a different direction.

Finding the invalidation level with the Fibonacci tool is straightforward: the stop loss should go
below the 100 mark if trading on a lower time frame. When a trader places their Fibonacci tool
from left to right, they will have the 100 mark either at the bottom (when Fibbing an uptrend) or
at the top (when Fibbing a downtrend).

The bottom or top of the Fibonacci level is where the trade and analysis is invalidated because
Fib traders will only place the Fib tool on an appropriate / sturdy swing. Now you understand
why placing the Fib on the correct swing or leg of price movement is so crucial… the Fib tool not
only indicates entries and targets but also the correct stop loss level. Make sure to use the
correct swing and hence the correct Fib. Personally I tend to place the stop loss a few pips
away from the bottom or top. On a 1-hour chart this could be 5-10 pips whereas a 4-hour chart
might be 10-20 pips. I like to provide more leeway for my trades, just in case price retests the
bottom or top.

There are some valid reasons to use a tighter stop loss. If you see a (strong) candlestick
reaction at the Fibonacci level, then using a stop loss below the candle low or above the candle
high could be a valid approach. Stop losses just beyond a strong Fibonacci level can work out
fine and offer better reward to risk ratios. The key element is to have sufficient confluence on
the charts at that particular level.

Confluence with Fibs

By finding Fibonacci confluence, traders advance their accuracy, improve their confidence in
setups, and speed up the learning curve. Let me explain.
1. Accuracy: there is a higher probability that price will react to a level when there are
multiple tools indicating its importance.
2. Confidence: the improved odds of a trader’s success in turn helps traders keep their
confidence high. This in turns allows them to implement the trading plan (rules) as
planned.
3. Learning: traders can learn more and quicker when correctly implementing their trading
plan. They also develop a better discipline, which is critical for achieving trading success.

Traders can locate Fibonacci confluence by either using multiple Fibonacci tools or by mixing
Fibonacci with other tools and indicators. The Fibonacci tools can provide confluence on the
same time frame (2 or more Fibs on 1 time frame) AND also on multiple time frames (Fibs on 2+
time frames).

Multiple Fibonacci levels:

1. Fibonacci retracement and a Fibonacci target: this is when a retracement and target line
up at the same price. This occurs when there is a trend and the correction occurs in 3
legs/swings. The 3rd leg of the correction takes price back to the target and the
retracement.

2. Multiple retracement levels: this occurs when placing the Fib tool on 2 or more swings of
the same time frame or using Fib levels on multiple time frames. 3) Multiple targets
levels: this occurs when placing the Fib tool on 2 or more swings of the same time frame
or using Fib levels on multiple time frames.
Fibonacci levels with other tools and indicators:
1. Fibonacci with candle sticks: using price action at Fib levels. In this case traders wait for
a candlestick pattern to occur at the Fibonacci level instead of anticipating a price
reaction at the Fib. The candle pattern confirms the response of the market at the Fib.

2. Fibonacci with support and resistance (green): the more reasons or confluence at 1
level, the stronger this level will typically behave and the more likely that price will
bounce at the support or resistance. Let’s say that, besides a Fib retracement level, the
price is also at a trend line and daily bottom. These 3 factors create a strong zone, which
has a higher chance of impacting the market compared to ONLY having the Fib level.

3. Fibonacci and moving averages: these two tools work well together because Fibs are
most effective in a trending environment. Fibonacci levels tend to be respected in a trend
but can be ignored in a range. First of all, using a moving average helps determine if
there is a trend. Second of all, moving averages also act as a support and resistance in
a trend, which means that a moving average adds confluence to a Fib level.

Using various Fibonacci levels on multiple time frames (MTF) is a strong concept for trading
because it allows traders to locate and examine multiple Fib levels in the same price zone. For
instance, a trader who is analyzing the 60 minute chart could find a 61.8% Fibonacci particularly
interesting for a bounce and trend continuation. More confluence is achieved on multiple time
frames if on a 15 minute chart that zones matches with a 78.6% Fibonacci level.

This principle is valid for both retracement fibs and target fibs, or any combination of them. In
fact, there could be multiple Fib retracement levels and Fib targets aligning themselves from
multiple time frames.
CONCLUSION: finding various support and resistance Fibonacci levels on multiple time frames
is a great method of assessing how strong or weak a price zone will be and helps us traders
assess the odds of a bounce at the Fibs or a break of the Fibs occurring.

Waves with Fibs

Whether you love waves, hate waves, or use the theory at your discretion, fact is that the
Fibonacci tool offers a high level of synergy with the Elliott Wave Theory. The two go hand in
hand and really reinforce each other very neatly. Obviously you can use the Fibs as well without
waves when applying it on candle or a natural swing and it could work perfectly fine. But if a
trader does use the Fib tool with at least some notion of the waves in mind, the effectiveness of
the Fib will also increase in the long-run after gaining sufficient experience.

The concept is that Fib levels will have a higher chance of being respected depending on the
most likely wave count at the time. Wave counts are never 100% sure, but that is the nature of
the market and especially the Forex market. Not a single trade is ever a guaranteed winner (or
loser). It is better to see wave counting as a probability rating. Fibs work wonderfully when price
is trending so logically they do very well in waves 1, 3 and 5, which are the impulsive waves.
Here is a summary of what occurs on average most often:

Wave 1 retracement: deep Fibs such as 61.8%-78.6%-88.6% Fibs are often the bouncing spots.
A wave 1 swing will find a retracement by wave 2 which often is deep and retraces back to the
61.8%, 78.6% or 88.6% Fibonacci levels. The deeper Fibs offer a great benefit as the reward to
risk ratio can be high especially when a strong wave 3 develops after it.

Wave 1 target: 50%-88.6% opposite Fib. The first wave often is limited by the swing in the
opposite direction. When I place a Fib on that opposite swing I usually look for a movement to
the 78.6% or 88.6% Fibs as a typical target.
Wave 3 target: 161.8% Fib and higher of wave 1 (-1.618% target). The wave 3 should
accelerate at least to the 161.8% Fibonacci level of wave 1, otherwise if it falls short of that
target then the wave 3 is most likely a wave C. Waves 3 can extend further as well, even up to
200%, 261.8% and 423.6% if the price is really impulsive.

Wave 3-4 retracement: 23.6%, 38.2% (max 50%) Fibs. A wave 3 will typically be the strongest
and longest wave. The wave 4 correction of the wave 3 is often shallow. It’s a consolidation
zone that is flat, sideways and long in time.
Wave 5 target: 61.8% target of wave 3 (-0.272 & -0.618 target). A wave 5 will often be equal to
wave 1 or go to a ‘smaller’ target like the -0.272 and -0.618.

The Fibonacci levels can also work well in certain speedy corrections and momentum.

A wave A usually moves back to the 38.2-50% Fibonacci level of the price swing of the current
trend.

The wave B retracement will see price move with the trend again but then find the opposite S&R
at these Fib levels: 38.2%, 50%, 61.8%. A wave B will often retrace to a medium Fib before
making 1 more corrective leg as part of wave C. The ABC zigzag correction is impulsive and
corrects quickly.

Wave C target: -0.272 & -0.618 target. When trading the wave C I place the Fibonacci tool on
the wave A and aim for the -0.272 or -61.8 targets. Whether I choose the shallower one or the
deeper target, depends on other market factors like chart confluence. Sometimes I aim for the
deeper target but take a market exit at an earlier moment if the price action is showing signs of
struggle.
Wave WXY target: various Fibs, better to use support & resistance. The WXY corrections are
zones with higher volatility which retest and sometimes break support and resistance zones. Fib
levels work best in trending environments so be cautious when using Fib levels in corrective
zones. In contracting triangles however price does often respect the deeper Fibs like 61.8%,
78.6% and 88.6% Fibs. But a WXY flat correction price is not stopping at the Fib levels and it
will often challenge the top and bottom. In fact in some cases such an expanding wedge or a
“running flat” price is expected to break the top or bottom and can go as far as the 138.2 level.

Remember, making the most accurate wave prediction on the planet is not the goal. Just like
with trading it is more useful to judge the probability of a wave count and deem whether using
Fibs in combination with the wave count is a winning proposition.
Deeper Reading of the Market Structure
As discussed before, the interplay between support and resistance (S&R) and momentum
creates a path of price. Price chooses a path where it finds the least resistance, hence creating
a path of least resistance.

Supply and demand leaves a trail on the chart (past price). Traders can analyse that trail (price
movement) and use it as a road map to understand what the next price movement could be.
Analysing past price (past path of least resistance) helps traders estimate and forecast what the
next step or two could be. Based on that, traders can then assess whether there are any
interesting potential trade setups within that expected path.

The financial markets in general and the Forex market in specific are in a continuous tug of war
between sellers and buyers (supply and demand). This creates price waves that are visible on
almost all charts.

The waves are either impulsive or corrective in their character, which is in many ways like the
heartbeat of the market. The charts beat with a regular movement of impulse and correction
although the exact sequence and length of each impulse and correction will vary per chart and
time period.

1) By analysing candlesticks, we understand the current price action and whether buyers,
sellers or neither is in control.

2) By analysing groups of candles, we are actually analysing price swings, which helps us
understand whether price is bullish or bearish and whether its corrective or impulsive.
 3) By analysing multiple price swings, we can understand whether price is trending or
ranging and also can comprehend wave patterns and price patterns, which helps us
understand both the market structure and the balance between buyers and sellers.

4) By analysing supply and demand via wave patterns, price patterns, and trend versus
range, the future path of least resistance can be determined.

The chart is a road map and analysing price swings is a critical piece of understanding the
market structure properly and fluently. It is like learning a language. Of course, using a
dictionary might help you overcome immediate hurdles, but the more fluent you speak, the
easier it is to communicate with the environment around you. Charting, analysing technical
analysis and trading itself also become easier (in the long-term) when you understand how to
listen to the markets.

Remember the saying: ​the markets speak and traders listen. ​Traders should always follow the
rhythm of the market rather than trying to outsmart or outguess the market, or look for any
invisible short cuts. You can compare trading to dancing where the market leads and traders
should follow the market’s lead. As a dancer, we are looking for clues about the market’s next
step and analysing charts as a road map will help determine the expected price path of least
resistance.

Analysing price swings and understanding whether price is impulsive or corrective helps traders
understand the road map, path of least resistance, and overall market structure. Eventually
impulsive price action will run out of steam, simply because nothing can move in one direction
forever. The impulsive price action can however last for longer than you expect but the energy
will eventually die down and candles will either become corrective and slow down in their
movement or reverse into the opposite direction.
At first momentum is stronger than gravity but eventually momentum weakness and gravity
becomes stronger, thereby pulling price into a correction, which is either in the opposite
direction (reversal) or sideways direction (consolidation).

At every point on the chart, price has a choice to continue with the current price swing or
complete the old one and start a new price swing. Traders are looking to understand these 4
aspects:
1) What is the direction and character of the current price swing?
2) Where and when will the current swing end?
3) What will be the direction and character of the next price swing?
4) What will be the direction and character of the price swing after the next?

The questions 1 to 4 can be reviewed on multiple time frames, although eventually this might
become confusing. The best is to start low and gradually add more time frames when you have
gained sufficient experience.

There are three factors that play a key role in determining whether a price swing will continue or
end: it’s all about the speed of price in relation to the force of gravity and encountered
resistance. In a way, it’s like a formula:

Energy versus Gravity plus Resistance.

Energy > (gravity + resistance) = impulse
Energy = (gravity + resistance) = indecision
Energy < (gravity + resistance) = correction or reversal

Energy = presence of impulse and the pace of price. Impulsive price is quick whereas corrective
price is slow moving.
Gravity = the chance of price being pulled back to its average.
Resistance = the ability of a strong support or resistance level to stop price.

It’s like a tug of war between gravity and energy (speed) with support or resistance which helps
determine the limits. Imagine a scenario where you throw a tennis ball in the air. At the start, the
tennis ball is moving fast and pulling away from earth and floor. Eventually the speed of the
tennis ball decreases and eventually the gravity of the earth will pull it back down to earth. The
presence of resistance could alter the path even sooner. Once the tennis ball hits the ceiling, it
will bounce off of it and fall down earlier. But if a tennis ball would hit a soft structure like paper,
then its speed will probably be sufficient to break through the paper ‘resistance’.

Now imagine that price is in the same role as the tennis ball. Let’s walk through that:
1) The tennis ball is thrown in the air: price is moving impulsively.
2) The tennis ball is pulling away from earth and floor: price is moving away from the
moving averages.
3) Eventually the speed of the tennis ball decreases and eventually the gravity of the earth
will pull it back down to earth: price is moving back towards short-term and long-term
moving averages.
4) The tennis ball hits a hard(er) ceiling: price hits the support or resistance level and
bounces or reverses from this zone.
5) The tennis ball hits a soft(er) ceiling: price hits the support or resistance level and breaks
through this zone.

Traders must analyse energy, gravity, and resistance to understand in what stage (see points 1
to 5 above) price is currently in. This art takes practice and experience.

Traders must compare energy with gravity and resistance and judge the expected road map
based on that. Here are the key aspects to keep in mind.

Energy is determined and can be analysed by these factors:

● The character of the candlesticks in the swing:

○ Is price moving impulsively?
○ Is price moving correctively?
○ Was the previous price swing an impulse or correction?

● Chart patterns:
○ Presence of continuation chart patterns on lower time frames.
○ Presence of continuation chart patterns on the same time frame, which indicates
that the previous impulsive swing is still a dominant factor.

● Time patterns:
○ Impulsive price action is usually quick.
○ Corrective price action is often slow and lengthy.
 ○ Failure to confirm the trend with a higher high (during uptrend) or lower low
(during downtrend) within 5-6 candles indicates a higher chance that a corrective
zone will start (see more about time patterns in chapter 5).

● The relationship of price versus moving averages:

○ Price versus 21 ema versus 144 ema indicates trend.

■ Price above 21 ema above 144 ema = uptrend.
■ Price below 21 ema below 144 ema = downtrend.

○ Price action that is moving away from the 21 ema zone is impulsive. When price
is not hitting the space between the 21 ema high or low (zone), then the price is
moving quickly.
■ If there are multiple candles (+/- 5 or more) not hitting the 21 ema zone,
then the swing is considered to be an impulse.
■ If there are 20+ candles not hitting the 21 ema zone, then the swing is
considered to be an impulsive wave 3.

○ The angle of the HMA indicates the direction whereas the presence of the HMA
outside of the 21 ema zone indicates impulse.

○ The ecs Fractal indicator versus the 21 ema zone:

■ Uptrend:
● Support fractals around the 21 ema zone.
● Resistance fractals above the 21 ema high.
■ Downtrend:
● Resistance fractals around the 21 ema zone.
● Support fractals below the 21 ema low.

Gravity is determined and can be analysed by these factors:

● Price is unable to pull away from the 21 ema zone. This indicates corrective price action,
which often indicates that energy is weak and gravity could be stronger.

● Divergence pattern. Price is able to make a higher higher or lower low but the oscillator,
like the Awesome Oscillator, fails to confirm the new high or low. The oscillator shows a
lower high (not higher high) or a higher low (not a lower low).

● Chart patterns. Reversal chart patterns such as rising wedge, falling wedge, head and
shoulders, double top or bottom and triple top or bottom indicate that price is likely to
move back to the long-term moving averages.

Resistance is determined and can be analysed by these factors:

 ● Attempts to break a support or resistance (S&R) zone:
○ The first attempt that price makes to break a S&R zone is always the most
difficult and least likely to succeed.
○ The second attempt is 50-50% on average whether price breaks or bounces at
S&R.
○ The third attempt or more usually favours the breakout rather then a bounce or
reversal because price has already tested the S&R zone twice before and price
has now made a significant reversal because price is again testing the S&R
zone. Eventually price tends to make a break.

● Strength of a support or resistance zone:

○ Confluence of support and resistance makes a price level or zone stronger and
hence makes it more difficult to break and more likely for price to bounce.
○ Less confluence makes it weaker and easier to break and less likely to bounce.

Price movement is showing the path of least resistance. The path is decided by 2 main factors:
energy and resistance. Or in other words, there is a continuous battle between momentum
(energy) and support and resistance (S&R). Sometimes momentum is stronger than S&R. In
other cases momentum is weaker than S&R.

● If momentum wins, then the price will either continue its path with perhaps only a small
interruption. The faster price is moving without showing divergence, the stronger the
momentum will act.
● If S&R wins, then the price will stop at S&R and revert into the other direction or go
sideways. Generally speaking, the more confluence a support or resistance level has,
the stronger the zone will behave.

It is, however, important to realise that the “formula” (S&R vs momentum) is an estimate based
on your own analysis, experience and interpretation. Just keep in mind that it is not an actual
formula - although it could be an interesting idea to pursue (if you are a programmer and want to
build something like that with us, feel free to reach out to us).

So now you know how we can benefit from looking at a chart:

1) We analyse support and resistance.
2) We analyse momentum.
3) We estimate the expected path of least resistance.
4) We monitor our estimate and learn how to improve future estimates.

The estimated path of least resistance is always a probability, which brings us back to what we
mentioned at the start of the chapter. There we mentioned that “probability is important for
understanding price charts and the path of least resistance”. The path of least resistance is not
fixed in stone but rather something more flexible”.
What we mean is that there is never a guarantee that the price will follow the path of least
resistance as traders expect. The ability to understand the charts in a deeper way via the
concepts of flow versus resistance does not mean that traders can forecast the future with
100% accuracy. Analysing and trading will always remain a question of probability.

Simply said, the path of least resistance, price movements and trade setups are always a
probability, which varies from case to case and depends on the structure of the chart. Some
price movements are very probable while others are indecisive. What we mean is that in some
situations the chart is clearly bearish or bullish whereas in other situations the direction remains
unclear.

The path of least resistance is not fixed. The probability of price moving up or down can also
change when more information becomes available. Each new candle provides new information
that could improve or reduce the probability that price will follow your expected path of least
resistance.

Generally speaking, humans tend to be weak when assessing probabilities. Rare occurrences
tend to be overestimated whereas a small probability edge tends to be underestimated.

For instance, it is not rare that people that are scared of being hit by lightning, even though the
number of hits and fatalities by lightning has been dropping strongly in past centuries
(Enlightenment Now The Case for Reason, Science, Humanism and Progress by Steven Pinker
2018 Allen Lane / Penguin Books). In fact, lightning could create more fear than for instance
smoking cigarettes, which in fact has a much higher probability of causing problems for the
health but in a more hidden and subtle way.

Another example is the underestimation of a rainy day. If the weather forecast service predicts a
30% chance of rain today, then that that actually means that 3 out of 10 days will see some
level of precipitation. Many people interpret the 30% chance as a low probability. They think that
the event is unlikely to occur just because the forecast is less than 50%. Humans tend to
underestimate the usual rainy day and to overestimate how often lightning strikes.

The traits of a super forecaster can help traders become more realistic in their assessment of
probabilities. Here are the key criteria:

● Research a fair “base rate”: how often is something likely to occur?

● Monitor changes: should the probability be adjusted or not?
● Reaction: don’t underestimate potential changes but also try to avoid under reacting.

For more information about forecasting, I recommend reading the book “Superforecasting The
Art and Science of Prediction” by Philip E. Tetlock and Dan Gardner by Crown Publishers 2015.

New information eventually changes the probability of your initial analysis and your expected
path of least resistance and/or trade setups could become:

● More probable (confirmation).

● Less or zero probable (invalidation).
● Remain the same.
Let’s provide an example. The EUR/USD was showing potential for a bearish reversal (left red
box) as price broke below the 21 ema. The break below the 144 ema confirmed the reversal
rather than just a retracement. Eventually price however managed to break above the 21 ema
(left blue box) which makes a bullish retracement more likely. That is a moment where
performing some trade management could make sense as the odds have changed.

The next red box indicates a bearish continuation after retracement to and bounce at the 144
ema. Traders who stayed in the trade are seeing the odds again in their favour. Those that are
excited can enter again. The green box indicates a decision zone but price fails to break above
the 21 ema and shows a wick instead. The next blue box however indicates again a break
above the 21 ema and a potential retracement. Once again the odds have changed and the
trend is running out of steam.

New information is not only useful prior to the entry but also for trade management decisions if
your trade management allows it. This is why active trade management (changing your exit
point) has more potential than a passive trade management style (not allowed to change your
planned exit) because it allows us to change the parameters of our trade after the entry. Active
management allows us to use new information on the chart to make a more informed decision
about exiting at the right price and timing. More on trade management in chapter 7.

Making a Coherent Analysis

Congratulations, you have now completed the triangle of analysis, which in our eyes helps both
enrich ​and s​ implify your analysis at the same time. The last three chapters have discussed all of
its components in full depth but separated and in isolation of other factors.

Of course, in real life all aspects are analysed in one coherent analysis. Now it’s time to connect
the dots and use all of the concepts in one fluent analysis from A to Z.
This chapter translates the theory from the triangle of analysis into practical implementation on
the chart. It should help explain how we analyse the price charts of financial instruments when
applying the triangle of analysis perspective.

We will show multiple case studies so you see theory in action and translated into practice.
Case study 1 shows a top-down approach which starts with the monthly chart whereas case
study 2 focused on the 4 hour chart trading and case study 3 on the 15 minute chart. These
case studies will focus more on analysis and mention some trading ideas as an extra whereas
more intense trading methods will be discussed in the SWAT method and triangle of entries
chapters.

Case study 1
Depending on your trading style, you might want to figure out what is the long-term direction of
the currency pair. Keep in mind that this is not necessarily needed for traders that take entries
on a 4 hour chart or lower but for the first example we will provide a full top-down approach
which starts with the monthly chart. For the first case study we choose the EUR/USD during July
2018.

The EUR/USD long-term outlook offers both a bullish and a bearish version when looking at the
monthly chart (see image above and below for both variations). In many cases, I only add the
wave analysis that seems most probable but it is always fine to keep a few variations in mind -
especially if the outlook is unclear. In most cases, I will have a favourite wave outlook but
sometimes two or three wave scenarios could be all equally likely.

Although the two wave outlooks differ in the long run, the interesting aspect is that they both
indicate the same direction in the near future: downside is expected in both cases because price
is either starting a new red wave C (see image above) or price is building a bearish retracement
in blue wave B (see image below).

Now let’s take a look at the weekly chart (below). What wave patterns do you see?

The clearest wave pattern is the 5 bullish waves up (image below). After 5 waves, traders
should at least expect an ABC correction but if the 5 bullish waves end a wave C, then a new
downtrend is possible too.
Once again, in both cases, we are expecting the wave patterns to be bearish. The character of
how price moves lower will reveal some tips on whether price is building a bearish ABC or a full
5 wave downtrend. Lets now analyse the bearish price action on a daily chart.

The daily chart (image above) showed very strong bearish momentum because price was:

1. Showing typical impulsive behavior (most candles bearish, closes near the low,
continuous lower lows).
2. Pulling away from the 21 ema zone for 28 candles (see SWAT method chapter for more
info on its importance). This is classical impulsive price action.
What wave pattern matches this particular bearish impulse?

In this case, the bearish momentum is probably a wave 3 and not a wave C because of its large
push lower. Here is an overview:

1. Fibonacci target: a wave C typically aims at the -27.2%, -61.8%, -100% targets whereas
a key characteristic of the wave 3 is that price moves at the very least to the -161.8%
target. As you can see in the image below, price made it to the -161.8% Fibonacci target
so a wave 3 is very likely.
2. Internal waves: there is also a clear 5 wave pattern (green) in the bearish wave 3 (blue).
3. Corrective wave: the current price action is looking choppy and corrective, which is
typical for a wave 4 pattern.

Doing wave analysis is a more complicated technique so traders who prefer to do analysis
without wave patterns can simply focus on the fact that:

1) A downtrend is visible: the short-term MAs are below the long-term MA.
2) The bullish correction is going sideways, which is indicating a retracement in the
downtrend and a typical continuation chart pattern.
3) The [Link] is indicating a retracement as well.
4) Price is respecting the 38.2% Fibonacci retracement level, which is indicating a shallow
correction - see image below.
5) Lack of divergence patterns indicate that the trend is not running out of steam.
6) Lack of bullish reversal chart patterns indicate that the trend is not running out of steam.
So, what do we expect next?

Wave traders: the wave patterns clearly suggest that price will make one more bearish push
lower for a potential wave 5 after the wave 4 is completed. An alternative scenario is that price
could be expanding the bearish wave 3 but the [Link] has almost fully retraced back to the
middle point of the oscillator, so a wave 4-5 outlook is the most likely and favourite scenario.

Non-wave traders: a downtrend continuation is likely since divergence or reversal chart patterns
are lacking and price is building a bullish pullback towards the 21 ema zone with the MA’s
aligned to the downside (21 ema zone below the 144 ema). So far price has also respected the
21 ema zone as a zone of resistance.

Now it’s time to analyse the bullish correction. When will it end, when will the downtrend
continue, and when can we trade it?

On the daily chart traders can clearly see a bullish correction with 3 clear price swings and
waves.
Typical corrective patterns for a wave 4 are flags and triangle chart patterns. The daily chart is
looking more like a triangle than a flag pattern due to the lack of a higher high and the presence
of a double bottom. Flag patterns on the other hand do have a slight angle, albeit a shallow one.
Therefore, traders can conclude that price is likely to be in a contracting triangle chart pattern.

A triangle pattern usually consists of 5 price swings: ABCDE. So far price seems to have made
three ABC swings and price could now be in the fourth wave, which is wave D.

For chart pattern traders the same information is valid too and they would analyse triangles in
the same way.
For non-wave traders, the message is simple: traders will be looking for a confirmation that the
correction is over:
1. Price will either bounce again at the resistance confluence of 38.2% Fibonacci level and
the 144 ema.
2. Price will make a bearish breakout below the correction for a trend continuation.

Traders can either stop here at the daily chart if you are looking for a swing or position trade
setup or zoom into lower time frames if they want to estimate the corrective chart pattern in
more detail. Daily chart traders could be looking for:

1. A strong bearish daily breakout candlestick below the 21 ema low, support trend line,
and support Fractal.
2. A bearish daily rejection candlestick at the 38.2% Fibonacci retracement level.
3. The second next bearish breakout: the next attempt could be a wave D and hence could
bounce at support. The next breakout after that should work better.
However, 1 and 4 hour traders will not stop here and continue their analysis on 4H. Let’s take a
look.

The moving averages are choppy and moving sideways on the 4 hour chart. Price has bounced
(blue box image above) at the 61.8% Fibonacci retracement level, which could indicate the end
of the wave D… but the wave D is quite short in comparison with the waves A, B, and C. The
waves are not expected to be equal in size but there is usually some similarity when looking at
the length of each swing in the triangle.

Therefore it could be that the price is building three internal swings within wave D and
expanding the correction rather than completing a wave E at the moment. In both cases, looking
for short setups makes sense but traders should be aware that the downside potential might be
limited to the 78.6% Fibonacci retracement level which is where the extended wave D scenario
could find support.

Based on this analysis, traders could look for bearish candlesticks patterns as long as the price
does not break the top of wave C. Traders could aim for the 78.6% Fibonacci target or wait for a
bullish reaction at the 78.6% Fib.

Here is how the chart looks like four days later:

You can see that traders who entered a short setup based on the bearish engulfing twin
candlestick pattern (red box) and exited at the bullish candlestick reaction (blue box) to the
78.6% Fib could have earned 90 pips profit (1.1696 to 1.1606) with a 67 pip stop loss (placing it
above the pattern at 1.1763) for a reward to risk ratio of 1.34:1 (90:67 pips).
From an analytical point of view, the bullish bounce is indicating that the wave D was probably
not finished at the 61.8% Fib. Price has now probably finished the wave D and is moving up as
part of the wave E. We can now place the Fibonacci tool on the bearish swing (see image
below) and look for bearish reversals and breakouts once the wave E is completed for a full
downtrend continuation.

Waves E can be more irregular than other waves. Waves A, B, C, and D typically respect
deeper Fib levels whereas Waves E can stop at any spot. Waves E can also vary in length more
than other waves.

Two aspects are certain though:

1. Price may not break above the top of the wave C (where 100% Fib is placed) otherwise
the wave outlook is invalidated.
2. A bearish break below the bottom of wave D would confirm the end of the triangle
pattern.
The daily chart did not yet offer any short setup for swing or position traders. The breakout
candle below the Fractal, 21 ema, and trend line was a doji candlestick pattern, which indicates
indecision. The bears lost control as price tried to make a bearish breakout. This candle was not
good enough for an entry (see chapter on decision zones and entries).

Back to the 4 hour chart. We are looking for a bearish reversal or breakout to trade the wave E
of the wave 4 of the contracting triangle chart pattern. So far the price has only been going up
and never managed to break below the 21 ema zone. Price has now reached the 78.6%
Fibonacci retracement level, which could be an excellent spot to look for a bearish bounce.
Why?
One advantage is small risk when considering the fact that the invalidation zone is at the wave
C top. But the potential reward could be large if traders can hold on to a potential wave 5 trade.
The bearish candlestick that appears on the very right of the chart below could be enough for
more aggressive reversal traders.

The image below shows how price swiftly moved away from the 78.6% Fibonacci retracement
zone with good bearish momentum (red arrow) once a bearish candle indeed closed at that FIb
level.

But price failed to break below the 21 zone and went flat (sideways) instead (purple box). A
bearish breakout below 21 ema could be a good confirmation that price has completed the wave
E at the recent high and that price is ready for a downtrend continuation.

The main question is: will price break soon or will there be a larger bullish correction within wave
E? And if price does break, does it break with sufficient bearish momentum? The idea is that if
the impulse is not strong enough, then the end of wave 4 might not be ready yet.

As the image below shows, price broke above the 21 ema zone instead and rechallenged the
78.6% Fibonacci retracement and resistance zone where yet another bearish bounce occurred.
Two bearish candles clearly confirmed the bounce and reversal and could have provided
potential entries for new short setups. The price is now again retesting the 21 ema zone and
support trend line and a bearish break below this zone is now even more likely to complete the
wave E of the triangle pattern.
The disadvantage of the image above is that the [Link] have turned from red to
green, which is indicating more indecision. The MAs are also flat and hence a breakout is
vulnerable to a retracement. A trader could take the breakout setup but needs to place the SL at
a safe spot, which is above the top and 78.6% Fibonacci level (image below). Alternatively,
traders can wait for the pullback after the breakout before trading it.

As the image shows (above), finally price manages to break below the 21 ema zone. The
breakout candle has some wick at the bottom of the candle, which accounts for 30% of the total
candle. The 30% mark is right on the edge of being an OK or weak breakout. It could be enough
to consider for a short setup but remains a discretionary call where a trader’s risk appetite
comes into play. Another factor could be how much a trader likes this particular setup. The
alternative approach is to wait for a potential pullback OR flag pattern. Especially a flag pattern
indicates a corrective sideways price movement where the bears keep control.

After the breakout price did continue lower for a few candles but eventually started an impulsive
move up again which eventually broke above the 21 ema. A bear flag chart pattern certainly did
not materialize. The bullish impulse however was again rejected by the same resistance zone
(orange box below) and price is again approaching the 21 ema zone (see image below).
Sometimes traders need to be patient before a trade setup develops as anticipated and this is a
classical example where the market is testing the nerves and patience of a trader. But the good
news is that the triple top is likely to confirm the end of the wave E.
The wave E seems to be quite a lengthy wave by now and it is becoming more likely that a
bearish breakout will actually lead to the end of that wave E and the start of the wave 5 and the
downtrend. The advantage of a bearish breakout now is that the [Link] are again
dark red (see the most recent low - the green Fractal is not relevant as we are not looking for an
uptrend).

The next chart (below) shows that price has broken again below the 21 ema zone. This is the
second breakout, which on average offers substantially better odds of success than the first
break. The stop loss could either be at the previous top (conservative) or even at the most
recent Fractal (aggressive) if traders trust that the breakout will start a downtrend.

Traders who are waiting for a daily candle to confirm the breakout are not disappointed when
they see breakout candle (red arrow below) push and break below the 21 ema zone, the
support trend line, and support Fractal. Here the stop loss (orange boxes) could be above the
candle high (due to the strong breakout candle) or above the entire top.
The breakout trade is now indeed well on its way (image below) as price shows strong bearish
momentum (blue arrow below). Price fell very quickly, which is exactly what we have been
anticipating and waiting for. Any trades taken at the reversal zone of the Fibs or upon the
breakout of the MAs is now doing very well. Considering the fact that price is showing strong
momentum, it could be wise to keep the trade open and just move the stop loss to break-even.
That helps remove the risk but allows traders to aim for larger profits. Let’s now continue our
analysis.

Price is moving away from the 21 ema with rapid speed and about 20 candles do not hit the 21
ema zone. Eventually price makes a retracement to the 21 ema zone but due to the strong
bearish momentum, the 21 ema zone is expected to act as a resistance zone for a bearish
bounce and downtrend continuation. Traders could look for continuation trade setups once price
breaks below the support lines, [Link], and 21 ema zone (blue box below).
From a wave perspective it seems likely that price has completed a wave 3 (purple image
below) and the price is now building a bullish pullback within wave 4 (purple image below).

Other technicals remain very bearish too:

1. The moving averages are bearishly aligned with the 21 ema zone below the 144 ema.
2. There is also an increasing space between the 21 and 144 ema indicating strong bearish
impulse.
3. Price has not managed to fully break away from the 21 ema, where bullish candles are
fully above the 21 ema zone (not hitting the MAs at all).
4. The [Link] has retraced back to the middle point after a strong push to the
downside.
5. Lack of divergence between the recent bottoms indicate that the downtrend remains
strong.
Furthermore, the price seems to be making a bearish bounce at the 50% Fibonacci retracement
level (rex box below) which is a typical resistance zone for a wave 4 (image below).

The next candle indeed provides a strong breakout candle (red arrow in the image below) and a
bearish continuation after this bullish pullback is now likely. This is the confirmation that the
pullback has ended and that price is back on its way down.

Traders could add an additional trade at the close of the breakout candle with stop losses at the
orange line. Traders can also move the trail stop loss of their first setups to the recent highs just
before the breakout to lock-in some profits on the first setups.
So far the trend has been strong, the pullback has been shallow, and the continuation breakout
looks good. The next question is: how far can price push lower?

When using the [Link] levels (see image below), traders can see that price first fell towards
the third Wizz level where price made a bullish bounce. The bearish breakout now has plenty of
space as price moves away from the 144 ema. Traders should expect impulsive price and larger
price movements away from the 144 ema.

This wide open space is exactly the moment where SWAT traders are expecting impulsive price
action towards the higher Wizz levels (red numbers), like Wizz level 4 and 5 (red arrows).
The main question now is: will price extend the downtrend towards the 6th Wizz level or has it
completed 5 bearish waves and is the downtrend finished?

Traders can in any case close part of their open setups at Wizz level 5 to lock-in some good
profits. Here are the pips made when trading the candlestick bounces or breakouts and closing
at Wizz 5:
1. The bearish bounce could offer up to 420 pips profit.
2. The first bearish breakout could offer up to 350 pips profit.
3. The second bearish breakout could offer up to 250 pips profit.

Traders can either fully close or partially close at Wizz 5. This decision depends on whether you
think that price can continue lower or whether the trend has ended.

How do you know? The main aspects to keep in mind are the presence of divergence patterns,
the response of price at the 21 ema zone, the development of continuation or reversal chart
patterns, and the character of price (impulse or corrective).

On the daily chart, there is clear potential for a divergence pattern to emerge as the break of the
low could be a wave 5 (see image below).
Furthermore, price also came very close to reaching the -27.2% Fibonacci target (blue box in
the image below) when placing the Fib tool on the wave 3.

Furthermore when analysing the 4 hour chart (see image below), price also moved up towards
the 21 ema with quite a good bullish momentum, which could indicate a wave 1 reversal (blue).
The bullish breakout above the 21 ema makes it even more likely that the trend is either ending
(and a bullish reversal is taking place) or price is building a larger retracement towards the 144
ema close.
If traders kept part of their short setups open for larger targets, then this would be the moment
to exit the remainder and the entire setup. Using the resistance Fractals just above the 21 ema
is an excellent spot for a trail stop loss. Alternatively, trades can wait for a candlestick to close
above the Fractal before closing the short setup.

A trail stop loss above the Fractal would give this profit to the short setups:
1. The bearish bounce could offer up to 310 pips profit.
2. The first bearish breakout could offer up to 240 pips profit.
3. The second bearish breakout could offer up to 140 pips profit.
Price not only broke above the 21 ema but also moved above the 144 ema after briefly making
a small pullback at the 144 ema close. Price also pulled away from the 21 ema zone for more
than 15 candles, which indicates bullish momentum and a likely wave 3 to the upside.

Also, if we add a Fibonacci retracement tool on the wave 1 (see image below) then we can see
that price easily made it beyond the -161.8% Fibonacci target, thereby confirming a likely bullish
wave 3. The downtrend seems to be over and a new upside more likely. The first warning sign
was the failure of price to break below the 5th Wizz level, then the strong bullish bounce at the
5th Wizz level and impulsive move up towards the 21 ema zone, and eventually the breakout
above the 21 ema zone.

The bullish 5 waves could indicate a larger Wave A of a bullish ABC within a bearish ABC or
123 (see image below).
This type of analysis requires quite a lot of work. And the margin of error is of course larger too.
This is exactly why we developed the SWAT method so we could simplify our decision making
process (see next chapter).

The SWAT method helps in many ways, which we will not discuss here but the main advantage
is the fact that SWAT is semi-automated.

One of the main aspects is the [Link]. The red candles indicate the moments where
price is attempting to break to the downside (red candles in image below).

Of course, traders should still understand the bullish breakout and blue [Link] are not
interesting to trade due to the bearish patterns. The first three breakouts did pretty well and
moved 45-80 pips away from the first red candle that closed. But the best breakout was of
course attempt number 4, 5 and 6. Those red candles saw the price tumble lower and lower
after they closed.
The [Link] software also showed the same for the daily chart. The red [Link] with
the purple box is the best breakout candle as price is also pushing below the support Fractals
and 21 ema zone (blue box).

Case study 2
Now it’s time for an example where we focus on 4 hour and 1 hour charts. Let’s analyse the
GBP/USD back in February 2019. Even though you might be entering the markets using the 4
and 1 hour charts, it is still a good practice to review the daily chart for spotting key support and
resistance levels and spotting larger price or divergence patterns as well.

The GBP/USD was in a strong downtrend but as price has remained below the 21 ema and the
21 ema remained below the 144 ema for a long period of time (see image above). From a wave
perspective, there are two main scenarios:

1. Price has either completed 5 bearish waves (red) at the recent low.
2. Or price has completed 5 waves (purple) in wave 3 (orange).

The first scenario indicates a bullish reversal and a potential bullish wave 1 whereas the second
outlook indicates that the current upside is just a stronger pullback within the downtrend and a
potential (uncompleted) wave 4.

Besides the wave patterns, there are a couple of reasons why price might be ready for a larger
bullish retracement or reversal:

1. Price broke above two resistance trend lines (orange in image above).
2. There is a double divergence pattern visible between the recent bottoms (see purple
lines in image below).
3. The strong bullish impulse (blue arrow in the image below) managed to break above the
144 ema close, which could confirm a larger bullish correction such as a wave A of a
larger ABC (green) zigzag pattern.
If we are expecting wave A (of an ABC in wave 4) or wave 1 (of a new reversal and uptrend),
then in both these cases we can place a Fibonacci tool on the bullish price swing labelled as
wave A (green). A wave B will typically bounce and reverse at the 38.2%, 50%, or 61.8%
Fibonacci support level for a continuation higher whereas a wave 2 usually bounces at the 50%,
61.8%, 78.6%, or 88.6%. In both wave A-B or wave 1-2 scenarios we are expecting price to
make a bearish correction and a bullish continuation. Then depending on how price moves up,
we can conclude which of the bullish scenarios (wave C or wave 3) is more likely.

Aggressive reversal traders could think about pending orders at those Fib levels if they really
like the odds and potential of a bounce but usually we prefer waiting for bullish candlestick
patterns to confirm it. This could be daily or 4 hour candlesticks in this case. Another
confirmation could be the break above the 21 ema high of this daily chart but in this case study,
we want to focus on trading opportunities on lower time frames so let’s zoom into the 4 hour
chart.
The first thing we notice on the 4 hour chart is the relatively strong bullish price action (blue 5
waves) compared to the choppy bearish correction (wave B green). Since the end of wave A
(green), price has been below the 21 ema zone for quite a while but the price is still in between
the 38.2-50% Fibonacci levels. This is the bearish correction that we expect from the daily chart.

Traders could try to trade a bullish bounce back up for instance after bullish price action
patterns at the Fibs or a breakout above the 21 ema zone. Such a breakout could confirm the
end of the bearish swing and the start of a new bullish swing as part of that wave C or wave 3.

As the image above shows, price eventually went a bit lower and reached the 50% Fibonacci
retracement level before bouncing back up again. The bullish candlestick pattern (green arrow)
was a confirmation of a bounce up. The bullish reaction, however, does not guarantee that the
price will actually fully break upwards. The 21 ema zone is still a potential resistance area and
more cautious traders are still waiting for a confirmation of a bullish breakout and avoid trading
in this zone and any bearish setups. Also, the 21 ema has crossed below the 144 ema so the
bearish correction might take longer and be deeper because of that. A bullish breakout above
the 144 ema and the resistance line (red) of the downtrend channel indicates the end of the
bearish corrective swing and the potential start of a bullish and impulsive price swing.

The next image shows the main advantage of being more cautious. Price tried to break above
the 21 ema zone but ultimately failed due to the large wick on top (red arrow) and the failure to
close above the 21 ema high. Price pushed lower and seems to be on its way to the 61.8%
Fibonacci but then bounced in between the 50-61.8% Fib. What happened? Fibs work very well
but in some cases price can miss levels. Also, it could be that this bearish correction is a wave 4
rather than a wave B and we need to remain flexible as traders about what to expect. In any
case, just a bit after the bounce up, price shows a strong bullish candle (green arrow), which
looks like a proper breakout candle.

Traders who are looking for confirmation could use this candle for entry, because price also
managed to break above the 21 ema high. It was also the 6th candle that did not break the low,
which is indicating a time pattern, the possibility that the bearish swing is completed and the
potential for a bullish swing.

Here is an overview of the trade setup details:

● An entry can be done on the close of the candlestick (with green arrow).
● Stop loss below the candle low or below the support Fractal, or below the 2nd Fractal
back.
● There are several options for targets:
 ○ Keeping it open and waiting for more price information before deciding because
the trade is with the trend and could break the previous top.
○ Aiming for half of the position at a nearby target (blue box) and leaving the other
part open for more information.
○ Exiting the entire trade at first target and perhaps adding a new position after
that.
● Another option could be to use a trail stop loss below the 21 ema for instance for part of
the trade.

Price was very close to the 144 ema which is a key decision zone and traders who do not trust
this breakout still have other options to consider before entering:
● Waiting for a bounce at the new Fibonacci retracement levels.
● Break above Fractal which is above the 21 ema zone.
● Pullback after breakout.
● Bounce back at the 21 ema zone which is now support.

Price eventually made only a very shallow retracement by already bouncing at the 23.6%
Fibonacci level and the top of the 21 ema zone (see image below). That is one of the
disadvantages when not taking the original bounce or breakout, price sometimes picks up
speed and the trade could be missed.

The good news is that traders have the option of trading the break above the previous
[Link] (blue box). The resistance spot is key because it's a [Link] just above
the 144 ema, which means that a bullish breakout is confirming a likely reversal (back to
uptrend).
Considering the fact that the breakout candle is strong with a candle close near the high and a
decent sized candle too, traders could think about a stop loss at the candle low. Other options of
course are also the Fractal or the second Fractal back. Aggressive traders could have
potentially three positions open if they trade the bounce, first breakout, and second breakout.
Now it’s time to wait and see how the trades develop and if price patterns emerge. Based on
that new decisions could be made such as:
● Potential for more trading opportunities.
● Adding targets to current setups.
● Moving trail stop losses to current setups.

The continuation candle is massive (blue box of image above) and shows a lot of strength:
 ● The candle length is one of the, if not the, biggest candle on the chart.
● The candle close is also near the candle high, which indicates that bulls are strongly in
control.

Traders who have open trade setups could use the candle low as a natural barrier for moving
the stop loss. Such a strong candle usually does not get broken and is a good spot to either
reduce risk, move to break-even or lock in profit.

For traders looking to add setups, they could think about a trade at the candle close with a stop
loss at the same spot (candle low of breakout candle - blue box) or traders can wait for a
pullback or chart pattern before looking for new setups.

On the 1 chart (see image above) we can try to understand the character of the bullish price
action and its wave patterns. The last push up (purple arrow) showed the largest momentum
when analysing the [Link], which means that price has probably made a wave 3. In any
case, it seems unlikely that price completed a wave 5 due to the strong momentum and lack of
any divergence patterns between the recent tops.

For the moment a bearish correction towards the 21 ema zone could take place and will
probably be a wave 4. Alternatively, the price could also keep pushing away from the 21 ema for
the moment. In both cases, the 21 ema is expected to eventually act as a support and a
bouncing spot. The same is valid for the 144 ema close if price retraces to that level.
Let’s put a Fibonacci tool on the expected wave 3 (blue) and keep an eye on the retracement
levels for potential bounces and continuations. Price eventually did start to make a pullback (see
image below) and a bullish bounce occurs at 23.6% Fibonacci retracement level near the round
level of 1.30.
● The bullish engulfing candlestick pattern broke above the 21 ema high and is indicating
a potential continuation, which could be a potential setup.
● Also the second break above the 21 ema could be a reason for trading (red box).
● If price were to break below the 21 ema, then the next support zone is the 38.2% Fib.
● The stop loss (orange boxes below) could be below the 38.2%, the 50% Fib, or below
the 21 ema, depending how aggressive or conservative you want to be as a trader.
Price indeed bounced at the shallow 23.6% Fibonacci retracement level (see image above ) and
broke above the 21 ema high just a bit later (see image below). There was no deeper pullback
and price was on its way up, until a clear rejection candlestick appeared (red arrow). The
bearish pinbar had a large wick on top, with a clear close near the low, a close below the
previous candle close, and showed the potential for a divergence pattern. If we re-analyse the
wave patterns, then we might conclude that we missed an internal 5 wave pattern in the most
recent push up (blue 5 waves). It could be that a larger wave 4 (green) will take place after price
has completed a wave 3 (green). Traders who entered at the 23.6% Fib are best off with exiting
and waiting. Traders who entered on the 4 hour chart can still use the same candle low as a trail
stop loss level.

It’s now time to wait for a clear corrective pattern that goes back to the 21 ema or even the 144
ema. If price does break above the pinbar (red wick), then traders could consider trading a
bullish breakout if a bull flag chart pattern occurs after the breakout.

Let’s now take a look at the 4 hour chart and see what information is available there.
The bearish candlestick is a worrying sign for bulls and price is likely to make a retracement
sideways or back to the 21 ema zone. The good news is that the impulse is certainly still bullish
(bullish candles remain dominant) and the 21 ema has crossed above the 144 ema in the
meantime, which is now confirming a full trend. It is now confirmed that the bearish corrective
swing has been completed and the price is in a full uptrend and bullish price swing.

Let’s go back to the 1 hour chart (see image below). We are not interested in the second bullish
bounce at the 21 ema (green box) because of the bearish candlestick on the 4 hour chart.
Therefore we are expecting price to make a longer sideways correction or even move to the 144
ema close on the 1 hour chart. The divergence pattern on the 1 hour would also support a move
back to the 144 ema. Price is now testing the resistance and there is a potential for a reversal
chart pattern called a head and shoulders. If price breaks above the resistance (green arrows),
then the reversal pattern is invalidated and a bull flag and uptrend continuation would become
more likely. Otherwise a bearish bounce and break below the neck (support) line (blue) of the
reversal pattern could send price down to the 144 ema.
Price did indeed bounce at the head and shoulders level (see image below) and price went back
into and eventually below the 21 ema zone. The bearish breakout is 2nd break below the 21
ema (after the top there was a first break) and thus a larger bearish correction is becoming more
likely. After that, the price makes a bear flag chart pattern (blue lines) after some bearish
impulse (first red arrow). The break below the flag sees price move lower (2nd red arrow) and
move down to the 144 ema close and 38.2% Fibonacci level (blue box). This confluence of
support was done using a bullish bounce back up (blue arrow) and price then broke above the
21 ema zone for a bullish continuation after retracement.

Traders could have traded several trade ideas here:

1. The bearish break of the bear flag towards the 38.2% Fib and 144 ema.
2. A support level of 38.2% and 144 ema.
3. A bullish reaction and bounce at the 38.2% Fib and 144 ema.
4. The bullish breakout above the 21 ema zone.

Traders also have the option of trading these future ideas:

1. The breakout above the Fractal at the 21 ema (after blue arrow).
2. 6th candle that fails to break the most recent low.
3. A Fibonacci level when placing the Fib on the blue arrow.
4. The second breakout above the 21 ema zone.
5. A break of any future bull flag or triangle pattern.
6. Any bullish candlestick pattern on the 4 hour chart.
The 4 hour is shown below. We can see the bullish bounce (blue box) at the 38.2% Fibonacci
retracement level and 21 ema zone and a strong bullish breakout candle towering above the 21
ema zone. Also, the [Link] has turned from thick red to thin red, which is indicating the end
of the bearish correction and the start of a potential upside.

Therefore, this 4 hour candle could also be a reason for taking a (new) long setup with a stop
loss below the support Fractal or below the candle.

Any open trade setups from the past could use the same stop loss as a trail stop loss to lock in
more profit.
Now it is time to think about targets (see image below). The chart shows three different types of
targeting:

1. The Fibonacci tool on the first swing (green wave A), which is drawn between the two
blue boxes.
2. The Fibonacci tool on the most recent swing (blue wave 3), which is drawn between the
two purple boxes.
3. The [Link] tool, which is added automatically around the 144 ema close and offers
targets above the 144 ema in this case.

The potential profit depends on how aggressive or conservative we want to be plus on our
expectations of the uptrend. For the moment, price could either be in a wave C or wave 3 but
considering the long-term downtrend on the daily chart and the fact that it remains unclear
whether price is in a larger reversal, it could be safer to assume that price is in a wave C. Closer
targets are therefore more recommended. The minimum target we expect with a bullish wave C,
however, is a break of the previous top so a logical spot to aim for could be the confluence
(orange box) of the -61.8% Fibonacci target and the blue dotted line, which is the 5th Wizz level
from the purple one (indicated by the green box). The other Wizz levels are old ones and the
indicator automatically changes the Wizz levels if price is closer or at the 144 ema.

Back to the 1 hour chart (see image below). Price stayed above the 21 ema by going sideways,
which is a bearish corrective pattern and indicates that the bulls are likely to push the price up
after the break above resistance (red line). The bullish engulfing twin pattern (blue box) after
bouncing at the 21 ema zone is likely the clue for a restart of the uptrend. That same candle
also has strong momentum as indicated by the thick blue bar on the [Link]. It is also the
second break above the 21 ema, which is often a more reliable breakout opportunity then the
first breakout.
Price indeed moves higher from that moment and clearly breaks above the 21 ema and
resistance Fractals (red line) for a move higher. There is a small bull flag chart pattern (blue
lines), which is relatively quickly broken by a candle (green arrow) before moving up to the first
target which is the -27.2% Fibonacci target. This target is only expected to be a pausing
moment for a larger push up and is aiming for another target at the -61.8% Fib level.

After that (image below), price made a bearish bounce at the -27.2% Fibonacci target, but it was
short lived as price quickly bounced back up again after hitting the 21 ema zone. The 21 ema
zone tends to become stronger as a support or resistance zone once price is showing
momentum. The angle of the 21 ema is clearly up and the space between the 21 ema and the
144 ema is increasing at accelerating pace. Price then came close to hitting the -61.8%
Fibonacci target but missed it by a bit and seems to be retracing back to the 21 ema.

From a wave perspective, the price seems to have completed a potential wave 3 and the
pullback could be a wave 4 (green). One more upside towards the -61.8% Fibonacci level is
likely, and perhaps even beyond that.

Traders who are in any setups from the very beginning or after the breakout (wave 1 green
and/or purple) could be adding a take profit at the -61.8% Fibonacci target and/or using a trail
stop loss below the bottom of wave 4 (purple) or below the 21 ema low.
Price indeed broke above the resistance trend line (red line in image below) after bouncing
(green arrow) at the 21 ema zone. The push up (blue arrow) made it to the main and final
-61.8% Fibonacci target (blue box) where all potential setups could be closed.

For aggressive traders there is always the chance to move the trail stop loss and aim for a
higher level as well.

In the end though price indeed did not move much above the main target area (see image
below). A bearish candlestick (red arrow) indicated exhaustion of the bullish impulse and started
a long move downwards. The first bouncing spot was the 21 ema zone but the second break
below the 21 are (orange arrow) indicated at the very least a push lower to the 144 ema zone
(which is in wave terms often an ABC or 123 if there is a reversal). Eventually price made it to
the 144 ema (blue box) but there are signs of a larger correction or reversal as price breaks
below that as well (dark red arrow).

This wraps our second case study on the GBP/USD but before we move on to the next chapter,
which discusses SWAT methods in more detail, we will show how the charts looked like with the
SWAT indicators.

On the 4 hour chart the opportunities arrived with the two blue candles. The first one (green
arrow) was a good one because our analysis indicated that a larger bullish continuation was
likely. The second one (blue arrow) was another opportunity as price showed a new blue candle
and blue arrow. The [Link] also confirmed the retracement and continuation (see purple
arrow). Trail stop loss options were the Fractals, 21 ema, and Fractals at 21 ema (orange/red
boxes) if the targets were not used.
On the 1 hour chart (see image below), there were even more opportunities for trading this
move up. The first trade setup (blue box) was still counter-trend on the 4 hour chart and also the
1 hour chart. But the other trade setups already had the moving averages aligned with the 21
ema zone above the 144 ema. The best trade setups are indicated by the green boxes as price
confirmed a new blue candle. The red box was a setup which we indicated as a risky breakout
due to the head and shoulders reversal pattern. The purple box was a potential scale-in but only
had a blue arrow and not a new blue candle plus the price was already quite close to the target
as well.