Bearish Gartley and Bearish Deep Crab overlapped nicely to create a common D point just moments ago. I too got into a short trade on a retracement to the D point.
Bear in mind I took a short trade on what seems to be a bullish market on the EURUSD. As I was building my case to go short, I had to carefully analyze quite a number of things.
First and foremost its past 7 PM GMT, so europe is closed. The market is steadily slowing down as in a few more hours time New York too will be getting ready to close. But this also means that day traders who were bullish on the day would realize their profits which would also initiate an end of day retracement. But this is not something one could rely on.
Moving forward, hourly bullish trend is only a retracement of an overall bearish trend on H4 and Daily level. Call it coincidence, 50% Fibonacci retracement of the larger bearish trend pierces right through two of the H1 candle-wicks right at the D point.
Now I am looking at this D point as a possible C point of a larger AB=CD pattern on H4 level. Its technically an aggressive C sell on H4.
Given the bullish momentum that we had on the EURUSD this whole week, one could argue that retracement is not yet over and in fact it could go past the 0.618 retracement. Yes of course, the market could do anything it wants. All I have to do is take the trade to the direction where the odds are stacked in favor. I have a tight stoploss on this one because of the time of the day and the market is highly unpredictable when there is low liquidity. So if I am wrong I only take a small hit.
Order Flow and Price Action
Since this trade is against the short term hourly trend, understanding order flow and price action was very important.
There has been some strong resistance right around the area of my entry line. With all the bullish momentum that the pair had for the whole day, price had a really difficult time breaking the level. So at this point I know that either bears were willing to show their hand take the market away with them OR the bulls were heavily liquidating their long positions. Either way the bullish movement is exhausted at this level.
Finally the bulls pickup themselves and make a final rally up which touches the 0.50 Fib of the larger downward move. In fact they managed to close a 15 min candle above the 0.50 Fibonacci, but the price was heavily rejected by the zone marked as an orange colored rectangle. It even created a bearish engulfment candlestick pattern. This tells me that sell orders are sitting around this zone.
But it was not enough for me to enter yet. I was then looking for confirmation. There is however only one way to confirm support and resistance levels or price rejection off a zone – ‘price retest of the same level!’
Sure enough the price did retest the level, this time failing miserably which as a result produced a nice looking, long tailed, pin bar. So I was confident enough to take the short trade as at this point all facts and evidence are in support of a short bias.
So order management strategy with regard to this trade is straightforward. If price reaches the next fibonacci level – 0.382 of the larger H4 downward trend, the stoploss will be moved to break even. Take profit will depend on the price action to follow in the next trading session.
Tomorrow being Friday, I will look to close the trade within the trading hours tomorrow(if it survives the tight stoploss) as Monday open is prone to large gaps these days, specially on the EUR crosses.