Dear PAN,
It will be interesting to see if the GBPAUD creates a huge second swing. Could this mean I was wrong and right at the same time? (Its said being early is the same as being wrong after all.)
I have another question for you in regards to trading return to confirmed buy zones as below;
I would be most grateful for your two cents as always.
Best Regards,
My Response:
To answer your question about GBP/AUD…
The upswing that created the zone would represent the first swing of a pattern.
The swing seen just before this wouldn’t count because its size isn’t substantial—certainly not to the same extent as the following swing.
Typically, the swings in the pattern will tend to be of a similar size.
Therefore, if you notice a swing in the market that is significantly larger than the preceding swing—as is the case here—it doesn’t count as the first swing in the pattern. (Sorry this wasn’t clarified in the book!) As the market approaches the area where the low of the red arc swing formed, monitor for signs of another swing forming.
If such a swing appears, it would provide additional confirmation a reversal pattern is indeed forming.
If you wish to trade the second swing without waiting for this confirmation, you should look for a pattern to form on the 1-hour chart before entering your trade.
In the event a pattern doesn’t form, you could enter using the swing method I discussed in the book.
It’s important to note you shouldn’t use the pin bar, even though it is an institutional pin, as it only initiated the formation of the first swing.
We need at least two swings to confirm that another significant upward swing is likely to occur.
In terms of trading the zone in the NZD/JPY example, I suggest watching for a reversal structure pattern to form on the 15-minute chart as the market approaches the point of origin of the swing you’ve highlighted in red.
If the market falls below this low, look for a pattern to form inside the demand zone.
Hope this helps…
PAN.