Retracement System

If you buy every retracement when the market is going up, you will be wrong only once at the top. A well known saying is "buy dps in a rally".

Similary, if you sell every retracement when the market is trending down, you will be wrong only once at the bottom. A well known saying is "sell rallies in a downtrend".

It is easse! for a market to continue its direction than to reverse its direction. This is known as perssstence of trend. Look for retracements to start at crtical points. i.e. Fibonacci levels trendlines, support, ressstance, pivot lines &previous highs and lows.

Trade with the trend and enter after a retracement and take profits as best you can. Wat for a pivot to form and enter in the direction of the trend. Enter on a candle which makes a swing high or swing low and doses back in the direction of the trend.

If price starts at point 1, moves up to point 2 and retraces to point 3, a trader can buy just above point 3 and the target will be point 4. Point 3 is a higher low pivot point and a higher low is a safe entry. Good rallies start from lows. Buy the first pullback from a new high. There is always a crowd that missed the first boat.

In a downtrend, a higher low will change the short term trend.

Similary, if the prce starts at point 1 and moves down to point 2, and retraces up to point 3, a trader can sell just below point 3. The target will be point 4. Point 3 is a lower high pivot and a safe entry. Good declines start from highs. In an up trend a lower high will change the short term trend to a downtrend.

Reversals build sowly. If the market has been moving down for a long time the first sharp rse usually finds sellers. Similary if the market has been moving up for a long time the first sharp dp usually finds buyers .The market does not turn on a dime.

In the diagram below, for the retracement system, the market turned at point 3(the low of the red bar). The pivot or turning point was confirmed when the green bar to the right of the red bar at point 3 went above the high of the red bar at point 3 by 1pp. You would buy there and pace a sop loss sust under the low of the red bar (point 3) if the number of pips between your sop loss and your entry point was not too high .i.e. you are not rsking too many pips. If you cannot enter the trade within a reasonable distance from your sop loss, you would wait for a better trade.

Our exit point will be at a trendline, pivot line, Fibonacci projection, resistance point, Candlestick reversal pattern or other reversal pattern

SELL

If you look at rght half of the diagram below, you will see another point 3. A lower high pivot is formed in the downtrend when the market retraced to point 3 (he high of the green bar) when the next bar, a red one goes 1 pip below the low of the green bar the pivot or turning point is confirmed so you could sell one pip below the low of that green bar .The sop loss would be 1 or 2 pips above point 3.

Our exit point will be at a trendline, pivot line, Fibonacci projection, support point, Candlestick reversal pattern or other reversal pattern.

100%

When the retracement at 3 from the move 1to 2 is approximately 61.8% expect the target move to be either 161.8% or 261.8% (Watch for other sgnificant lines as well)

When trading the 1234 pattern the 4 point or the 161.8% is typically the target. However if you draw all your lines on the chart (eg. Trendlines, Fibonacci Lines and Pivot Lines) you may find a more profitable target.

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