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traders will consider these to be potential entries but I also want to include an alternative perspective and that is of profit targets as well.
For traders looking at the 78.6% Fibonacci Retracement of the rally from point A to point B, point C represents not only ideal third point of a classic retracement and therefore completion of an AB leg but then sets up the potential
for the CD leg. Te ideal point C is a 61.8% Retracement (also known as the “Golden Mean”) or a 78.6% Retracement which is what the EUR/AUD pair completed here.
Consider that traders positioned long from the A to B retracement and perhaps even taking advantage of the break back above the Golden Mean or even the intraday uptrend of the pair could consider the D projection as a potential reversal level and therefore also profit target. In the most simple of terms, D is resistance.
Te Fibonacci Levels that are projected as downside support are based upon the C to D rally and if a short sell if triggered at D (some traders may even be inclined to wait for a 1.2700 major psychological level breakdown to confirm bearish momentum) the Fibonacci Retracement levels can be then used as downside profit targets.
One of the unknowns for a pattern projection such as this is how long it will take for the D level to be reached and for the balance of pattern to work the time is take to reach D much be in proportion to AB hence CD must be close or equal in amount of time it took to complete AB. Te D is also a 1.272% Extension of BC. Tis pattern known as AB=CD or an ABCD is a bearish Fibonacci pattern because the D point is the short sell trigger.
Some traders may have a difficulty seeing where Fibonacci Retracements and Extensions end and the idea of “harmonics” begin and that answer lies in
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mainly the extra consideration for geometrical balance and time that harmonics analysis enlists.
Trading range
For traders interested in identifying the highs or lows of a developing trading range, harmonic analysis can offer insight by projecting potential ceilings or floors. One of the keys to follow-through and therefore the validity of a harmonic pattern is the respect for the C point of the pattern in the case of an AB=CD. After the C point has been established at either the 61.8% or 78.6% Fibonacci Level, price action must adhere to this level as the near term floor from which a rally will ensue in the case of a bearish pattern such as the one developing on the EUR/USD.
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