TRADING SYSTEMS
FX
across a number of pairs and using 2016 as an example, this chart shows the consistent patterns of extension for the case where the previous day was an upday.
In Summary Figure 3 - EUR/USD – Downday - Downside Extension Behaviours
To summarise the above, the area between 127 and 162 provides tradeable opportunity if price patterns out, with resilience above (below). When price moves in the direction of the previous daily close, price fails to reach the 127-extension c.64% of the time, the 162 extension c.81% of the time, and the 179 extension c.87% of the time. When price moves in the opposite direction to the previous daily close, the figures are c.81%, c.90% and c.91% respectively.
Figure 4 - EUR/USD -Downday - Upside Extension Behaviours
price, then there is a two-thirds chance of the 179 extension being breached on the day, whether the previous day was an up or down close. However, this is reduced if we are breaking price extension in the opposite direction to the
previous daily close, which is more pronounced if the previous day was an upclose i.e. Downside breaks.
Figure 6 - Patterns of Behaviour for 2016 Across Several Pairs – To show the ubiquity of the behaviour
This is related to observations made in my previous article in FX Trader Magazine (Q4 2017), which showed the properties of market structure largely minimising inside and outside day ranges overall, with price returning into the daily ranges. The article showed how to trade liquidity inside the current and previous daily range; extension zones indicate where you should take profit based on the c.81% chance of not reaching 162.
Similarly, my articles in FX Trader Magazine Q3 and Q4
FX TRADER MAGAZINE January - March 2018 43
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