Point and Figure Charts Compounded with Narrow Range Bars (NRBs)

As mentioned in Toby Crabel's book, Day Trading with Short-Term Price Patterns and Opening Range Breakout, range contraction days usually are followed by a trend day. The commonly used range contraction days are NR4/ID, and NR7.

Yesterday, we had extremely low volatility on all three markets. Yen, after a NR7/ID on 3/16/09, formed a NR20. That was the narrowest range in a whole month (20 trading days). Euro had a NR20 two days ago (3/13/09). And yesterday's daily range was just 7pips more than the bar of 3/13/09, it's alright to deem it as another NR20. Pound was a NR20/ID.

So we had the most promising contraction pattern yesterday. Today would be reasonable to anticipate a trend day.



Euro took off at 8:00am and surpassed both highs of last two days. So that was a legit NR20/ID breakout setup. On hourly point and figure chart, euro broke out from a double top pattern at level of 3066, which worked as resistance in January three times.



Yen broke down at 8:00am. At 10:00am the downside move took the low of yesterday and formed a double bottom pattern at 97.75 on hourly point and figure chart.



Pound formed a downward channel on hourly chart, and took the low of NR20/ID in London session. That's a double bottom breakout at 3066 on point and figure chart. At 8:00am, pound jumped back and sit just above the low of NR20/ID.

The ultimate move was triggered by the 2:15pm event - Federal Funds Rate. Yen's breakdown stop right at the former swing low 95.65, with a daily range of 317pips, which was a WS7 day with 3.1 std over the average daily range (ADR). Pound jumped from the bottom of the NR20 and surpassed its top, which indicated the breakdown in London session was a bear trap. Pound ended with a 454pips daily range, and a WS7 with 2.5 std over ADR. Euro's daily range was the highest - a whopping 511pips, which was 5.0 std over ADR.

All these breakdowns and breakouts are clearly illustrated by point and figure charts. That's the beauty of simplicity.

03/10/09 Forex Market Comments

EUR/USD: Monday euro formed a NR4/ID (narrow range 4 and inside day). If euro could either breakout or breakdown, we would have a nice swing setup.

There are two breakout signals. The 4:00am breakout is fake. The real breakout happened at 8:00am. In 30 minutes, euro reached its daily high with 1sd over its average daily range (The first green line is average daily range, the second green line is average daily range plus 1sd.) Then euro gradually slide back. Around 1:30pm, euro breakdown yesterday high (YDH) and the trend line, which nulls the breakout. After a brief test of YDH, euro crashed 100pips in 30 mintues and found support around pivot point (white line). The downside movements also reached its average daily range.