5.17.2012 Fiber London Open

Here's what I'm stalking.

Unfortunately one of my favorite plays, an OTE retracement of yesterday's high to low has already been taken out by the Asian session.

We do have SMT divergence on the 4 hour chart.

No real divergence on the USDx yet but I wouldn't expect any until LO anyway.  Unfortunately I can't figure out how to post that chart here but you can go to http://www.dailyfx.com/charts/netdaniachart/?symbol=EUR/USD and right click on the chart and plot USDollar relative to the fiber.  Do not use overlay.

Price is in the sell pivot zone using London pivots.  (Also USDx is in the buy pivot zone).

Some areas of resistance a LO Judas may try to hit.

• Wednesday's high is 2758 on one of my MT4 feeds.  Stops above that will probably be taken out during LO.
• Weekly S2 line is at 2765.  
• Central pivot using NY pivots is at 2771.  
• Using London pivots R1 is 2766.  

So here is how I handle a potential trade like this.  I get up 1:00AM my time.  If price acts like I think it will there will be a small push down during the asian session.  I lay my fib on the low of that and stretch it up to the high made during the Asian session (right now (8:36 Central US time) that is 2748) and lay the OTE on that high.  The 100% level hopefully will be near some of the resistance levels noted above.  This is the reflection pattern noted in the definitions blog post.

Basically I'm trying to get an idea of where price will react.  I look for price to climb out of the Asian session and will only enter shorts if it is above the Asian session low.  If it "drops out of bed" and simply goes lower out of the Asian session I get to go back to sleep and see if something develops during NYO.  

If it climbs to one of the levels above I will look for SMT divergence and USDx divergence.  If I have those I may enter the trade at 1% risk.  If I have Type I and/or Type II divergence and/or A/D divergence I may up the risk on the trade to 2%.

Stop loss is either 30 pips or 10 pips above the high of the swing the OTE is retracing.  

If I don't get an entry off these levels and price reacts to another level I will wait for an OTE of a 20+ pip move.  

TP profits will depend on my entry price.  For this trade I may be pretty aggressive and take of half at the figure or yesterday's low and keep the rest on until Friday 1500-1800GMT with final take profit at January's low of 2624.

Devil's Advocate or reasons not to take this trade:

• Today's daily bar a bullish doji star
• If price breaks above the 2758 level market flow on the 1 hour and 4 hour turn bullish

So there's the idea of tomorrow's LO.  If I wake up and price has moved wildly in the Asian session or some other scenario has developed I go back to bed.  I then try to catch a retracement during the NYO on cable, fiber, aussie, or the kiwi.

Let's see what happens!