P1: PIC/PIC c05
August 18, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKET AND ANY TIME FRAME
Is every corrective low made in the 38 to 62% time retracement zone? No, but most simple corrections are. At the least, this range gives us the typical minimum time target for a corrective low, a very valuable and practical piece of information itself, to warn us that a new low made prior to the 38% time retracement is not likely to complete a correction. Is every simple corrective low made at one of the three alternate time projections? No, but most are, so they are very valuable to help identify when a corrective low is probable. Is every corrective low made at the recent 100% low-low (or high-to-high) projection? No, but many are, particularly if several of the recent low-low cycles are in a relatively narrow range. The Dynamic Time Strategy is used in a logical sequence of time projections to narrow a relatively wide time target zone to a narrower zone, sometimes as little as just two or three bars. This same strategy is used on all actively traded markets and all time frames. So far, we’ve used one example of a simple ABC correction to illustrate the whole process. The Dynamic Time Strategy is used for all market conditions, not just simple ABC corrections. We never know in advance what form a correction may take. For that matter, we don’t even know for sure if a correction is being made or a new trend. But if the larger time frame trend analysis suggests a correction is being made, the first assumption is it will be at least three sections. If it continues beyond three sections, don’t despair—the Dynamic Time Strategy will still help provide the time target to complete the correction. Let’s take a look at a couple of more examples. Figure 5.10 is 15-minute EUR/GBP data covering less than two days of data. I don’t want to encourage day trading. In the final chapter you’ll read my thoughts about day trading and why most traders should avoid it. But even if you’re not a day trader, you can use intraday setups to position yourself for a swing or position trade. The EUR/GBP made a five-wave decline to the low on the chart, followed by a choppy advance. The advance had overlapping sections, which warns it is probably some sort of complex corrective advance and not a new bull trend. The objective is to identify the probable time target to complete a corrective high. The top horizontal line shows the 62% and 100% time retracements. The advance has already gone beyond the 38 to 62% time retracement zone, which is the typical time target for a three-section, ABC correction. Most complex corrections will be complete by the 100% time retracement. This is logical. The time range of a corrective section will usually not exceed the time range of a trend section. The 100% time retracement is just a few bars past the last bar on the chart. A corrective high should be complete soon. The 100% high-high projection is just a couple of bars past the high made as of the last bar on the chart, another sign a high is due soon if not already complete. The alternate time projections are not shown with the horizontal lines like in previous examples because it would crowd the chart. However, the last two low-high time counts were five and seven bars. The last high shown on the chart was eight bars, which is just one bar beyond the most recent alternate time projection of seven bars. This is another time factor that suggests at least a minor high is at or near completion.