One such trade set up this morning after the release of the ISM Non-Manufacturing PMI at 10a ET, 9a CT. It is common for news reaction to provide an opportunity for a trade.
Looking at the chart below of ESZ13, 2584 tick (arbitrarily large Fibonacci number to smooth out natural price noise), North American traders awoke to a 112.8 double top (DTA) pattern well under way. The DTA was set up during the 11/3 RTH session. As with all successful patterns, price should have entered the 161.8-224 extension of the XY leg, and it did. Those ETH (extended trading hours, 4:30p - 9:30a ET) traders who shorted the DTA could have been rewarded with a 4:1 trade.
As of this writing, there was a triple confluence that set up the RTH (regular trading hours, 9:30a-4:15p ET) low as a low risk, high reward trade:
1. Price entered into the destination zone of the DTA,
2. Price hit a 224 extension of a fractal swing (green lines/label),
3. Price hit a 78.6 full pull (across 200 SMA) retrace to the RTH low set two trading days ago (red lines).
In addition to these confluences:
1. Price would pass the 50MA (magenta) before the 200MA (golden brown),
2. The minimum expected retrace of the 78.6 DBA is 113 retrace of YA and that price is greater than the 200MA.
Confluence plus moving average alignment signifies a good trade opportunity.
You will also notice that at the time of this writing, the fractal 224V long, hit its destination. Next area where price may turn down is the 78,6-88.7% retrace - day traders would be expected to attempt shorts here. Finally, notice that the "B" point for the DBA long is around 1766; well within the eight day balance. If price does complete the AB leg then a 2 point risk would return about 14 points, or a 7:1 risk:return ratio.
It takes time to see and then trust the Fibonacci patterns. But, IMHO, it is well worth it.
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