- February 10, 2016
- Posted by: CoachShane
- Categories: Advanced Trading Strategies, Trading Article
I get quite a few questions about symmetry it terms of trading pullbacks as many people seem to be impressed with its accuracy.
It does seem that there is not only a natural flow to price but also a natural flow to price targets.
There will be those who disagree and will find fault and that is the great thing about trading.
There is no one truth and the standard way, the often touted way of doing things, is where most people have their foundation.
I’ve always questioned the conventional foundation which always forced me to see behind the curtain.
That’s not always a positive thing as it can force you to struggle to find consistency as new information comes forward due to not only who you are exposed to but also what you are exposed to on the chart.
100% symmetry and patterns are not an exact science however when you see things repeat time and time again, blindly discounting may not be in your best interest.
People may mistake symmetry as a form of “Fibs” but that would not be an accurate representation of it. There are two things we really look at when it comes to symmetry and they are not based on the usual way of using the Fibonacci tool even though we are using the extension tool.
Related – How To Use Fibonacci
3 Things To Remember
1. We are looking at what has been the natural ebb and flow of price and seeing if current market action is following the same pattern. Anything outside of what has been “normal movement” of price is a heads up to a possible change of state in the market.
2. When price exhibits pullbacks, it generally does so in two stages which is called a complex pullback. The second leg often terminates at or close to 100% of the prior move.
3. Any corrective swing in an uptrend can be used however the most recent ones of substance plus those that lead into an impulse drive are valid. Understand that like many aspects of trading, there is some art to this but you will learn which swings are actually worthwhile due to the context you find yourself in.
To illustrate symmetry in pullbacks, I will stick to the same instrument as the last few posts and that is the Euro Futures.
Another important point is that 15 minutes and above are where I usually look for swings when using Fibs for any trading setups. Even on a lower time frame, you can often see the higher time frame swing simply by inferring from what you are looking at.
Symmetry With Pullback Trading
As mentioned, we are going to use the prior corrections in price to define the current state of the price pulling back. This is a 60 minute chart so I can also show what I mean when you can infer something in the price.
A. Price terminates at the 100% symmetry pull from the first green circle down and projected to the high at A. Price then consolidates for about 20 hours.
B. This comes from the last major correction on the 1 hour chart that occurred Jan 28-29 just prior to the large run up in price. You can see price terminates at symmetry plus a chart structure.
C. This zone marks off where the last influx of demand poured into the market which makes juicy targets and you can see price rebounds.
D. The 100% is far from price and is pulled from the second green circle high to the C low. This is not a bad sign as it shows strength in the market at this point since the market could not attract enough selling at this point to challenge the up trend.
E. This is the same pullback that D measured and actually forms a complex correction (A-B=C-D) which terminates at the 100% of the A-B leg. I will come back to this as it shows an example of inferring price action.
F. Is pulled from the last green circle to its low and then projected from the current high. You can see price rallied directly off the 100% symmetry measure of the previous correction. It’s also an A-B=C-D where the second leg is equal to the first leg (100%)
Heading back to E, remember that we are on a one hour chart and this chart shows an example of what you can infer by the price.
If you were to simply glance at the E pullback, you may be inclined to treat it as a simple pullback.
Related – Hidden Details In Pullbacks
But the highlighted candle tells a different story.
You can infer by that candle (closing on the low after making a high higher than the previous candle) that we actually have a complex correction.
For better detail, I’ve inserted a two minute chart of the same area and you can clearly see that there is a rally. This rally allows us the ability to have a first leg measure that we can project from the high after the first leg of correction completes.
This will give you a 100% A-B=C-D move that also terminates at structure (look left).
Is This A Strategy?
You certainly could design a strategy around symmetry in pullbacks but you may want to study the state of the market as context. If looking for buys, you may want to the chart to exibit the standard up trend pattern or perhaps test using a demand line.
Of course, you want to ensure you not only have profit targets as part of the plan but also where you will exit if/when you are wrong.
What about a trigger to get into the trade? What will you need to see in order to push the buy button? Risk parameters?
The fact is that you may get pullbacks that don’t come close to symmetry especially at the beginning of the trend. This tempts traders to drop to low time frames and that is where the problems of over trading begin.
What about pullbacks that exceed 100%
When we see corrective moves the exceed the measure of prior moves, be on alert for a potential change of state in the market. Some may take that as a sign for counter trend trading with the rationale that since the pullbacks are getting larger, we are now moving into a down trending market since the rhythm of the up trend has been broken.
Of course you will have to have in your trade plan what to do if/when the prior measures are being broken. The market may simply start into a period of consolidation.
Whatever way to decide to implement symmetry, ensure you have tested out what you have in mind.
As a side note, the Euro Futures is sitting at 1.1289 as I finalize this piece. Price is having an issue moving forward and while it may very well break, we are sitting at 100% of the prior leg move up at 1.1282. Symmetry.