Trading What I See

I wish the Fed would make its announcements over the weekend instead of messing up a perfectly good trading week. But even on Fed day the Fibonacci levels keep working. I just question whether it is worth trying to trade them.

We started with a fast drop that reversed right at a 127% external retracement of yesterday’s last rally. It was no surprise that we then went into a sideways pattern as everyone waited for the Federal Reserve Policy statement.

I’ve marked two A-B-C patterns — one in yellow and one in blue. This type of overlapping pattern will often end in a Fibonacci cluster with several measurements pointing to the same level, in this case to point “C.” On another day this might be tradable, but I took a long walk about that time.

There is one interesting feature today that is sometimes quite useful. Although I first heard about it from Robert Prechter (Elliott Wave Principle), it is best explained in Connie Brown’s Technical Analysis for the Trading Professional, one of my favorite comprehensive trading books.

Notice where the two trendlines that create the triangle pattern cross. After a triangle breakout the market will often change direction right at the triangle apex. The top came very close to a Fibonacci 162% of a even larger A-B-C pattern, so you would have had both a price and time target. Always useful information.

Connie Brown: Technical Analysis for the Trading Professional