Following up from the last article on the same subject, we have now confirmed the uptrend based on the break and retest of the resistance at the top of the cup. Now, the challenge is to know when this uptrend would take a significant pause. For this, we use a branch of technical analysis that is called harmonic patterns.
The harmonic patterns constitute a field of analysis which covers a set of patterns (just like candlestick patterns) which lead to specific results. There are many patterns in this like the gartley, butterfly etc. but the one which i normally use is a very simple and basic one called the AB=CD pattern. This is a very simple pattern which can be used both for bullish and bearish times.
For a bullish AB=CD pattern, we have a rising prices, a downtrend which ends at the 50% or the 61.8% or the 78.2% and then he uptrend resumes again, breaks the previous high and keeps going up till the size of this new up-leg becomes equal to the size of the previous uptrend. This is called the bullish AB=CD pattern.
In our case, i have attached the EURUSD daily chart with the ABCD pattern written in it. Point A is at around 1.1870, point B is at around 1.3325. This makes it a total of about 1450 pips. Point C is at around 1.26 and so when the price succesfully breaks the previous high (the top of the cup), your expected target should be 1.26 + 1450 pips = 1.4050 (give or take 50 pips). And, thats where we ended up !! This is a very good place for a nice retracement to take place and hence a good target for our longs.
In my next article, i would discuss my analysis on the future direction of EURUSD and GBPUSD over the coming weeks.
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