S90/Crossover with Gaps, Holes, and Fibonacci Levels

_T

he perfect S90/Crossover is found on a Fibonacci level when the horizontal line that is drawn from the original support or resistance of the founding trading range ac- tually cuts precisely through a gap in the market. I am referring to the combination

of a gap, Fib level, and an S90/Crossover.

This chapter provides 15 charts that illustrate these gaps; the captions on the figures explain the gaps, to help you understand the potential target values.

_GAPS

Because the normal rule or thought about gaps is that they must be filled, the odds of filling the gap become extremely good, and you can see how many other types of confir- mations will signal the return of the market to fill the gap. When an occurrence like this happens, you will observe that a perfectly precise S90/Crossover strike is often followed by an immediate reversal. If you’re trading toward the gap, this type of target offers a second reversal entry with an extremely tight stop of normally less than 10 pips. As the market bounces from the strike, the reversal target should be a Fibonacci level based on the previous trading range, such as a .618, .50, or even .382 level.

_{Figure 5.1 illustrates a gap and how gaps are filled by bodies, not wicks.}

_{HOLES IN THE MARKET}

Patterns that appear on charts often have great significance; one of these patterns in particular is what I refer to as holes in the market. Figure 5.2 is an illustration of a hole

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FIGURE 5.1 Illustration of a gap and how bodies, not wicks, fill gaps. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.2 Illustration of a hole in the market. Courtesy of Concorde Forex Group, Inc.

in the market—the space between when an S90 becomes legal and the time the market reaches the S90 level.

Figure 5.3 is an illustration of a large hole in the market, while Figure 5.4 is an illus- tration of a small hole in the market.

Figure 5.5 is another illustration of holes in the market.

Figure 5.6 shows how the perfect resistance crossover is found crossing over exactly at the bottom of the gap, and the perfect support crossover is found crossing over at the top of the gap. Another variable to consider regarding S90/Crossovers is what I call a first strike, shown in Figures 5.6 and 5.7. Figures 5.7 and 5.8 are found on 30-minute time compressions. Larger time compressions have more value and strength when the S90/Crossover is combined with a gap. Figure 5.9, a weekly chart, shows a gap that was filled in association with an S90/Crossover. Figure 5.10 illustrates another classic hole pattern.

There have been many books written about gaps. A gap is useful as long as it is a legal gap as opposed to an illegal gap. The difference is that an illegal gap appears due to data loss and the gap may not be filled at a later date, whereas a legitimate gap will be filled, especially if an S90/Crossover is involved.

Traders frequently do not consider the holes in the market that are often associated with the S90/Crossover. Small holes and larger holes all predict a return of the market

FIGURE 5.3 Illustration of a large hole in the market. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.4 Illustration of a small hole in the market. Courtesy of Concorde Forex Group, Inc.

The first candle to open and close completely below the support line, which is the horizontal line, is a black candle with a long wick at the top. This candle turned the support into an S90. The very next candle is a small white candle. This white candle did not move up and touch the S90. The third candle, however, did,

and then fell off. The distance between the top of the white candle and the S90 can be considered a hole. Holes can be generated with a single candle.

General rule of thumb: The smaller the hole, the greater the subsequent move. You can see how much the market fell after the third candle touched the S90 for the first time after it became legal.

FIGURE 5.5 Illustration of a hole generated by a single candle. Courtesy of Concorde Forex Group, Inc.

First Strike

FIGURE 5.6 A 30-minute chart showing a resistance S90, gap, first strike, and a hole. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.7 A 30-minute chart showing a support S90, gap, first strike, and a hole. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.8 A perfect S90/Crossover with a horizontal line drawn through a gap with a first strike entry opportunity.

^{Courtesy of Concorde Forex Group, Inc.}

FIGURE 5.9 Weekly chart illustration of a support S90, gap, first strike, and a hole. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.10 A classic hole pattern illustrating how holes play a part in S90s and the market. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.11 Five-minute chart showing that S90s and gaps can happen even on small time compressions.

^{Courtesy of Concorde Forex Group, Inc.}

FIGURE 5.12 Zoomed-in view of the same five-minute S90 and gap as in Figure 5.11. Courtesy of Concorde Forex Group, Inc.

FIGURE 5.13 The 30-minute view of the same S90 as in Figures 5.11 and 5.12 shows subsequent movement.

^{Courtesy of Concorde Forex Group, Inc.}

FIGURE 5.14 How resistance becomes support and how gaps, S90s, holes, and first strikes all play a role.

_{Courtesy of Concorde Forex Group, Inc.}

FIGURE 5.15 How resistance becomes support and vice versa. Courtesy of Concorde Forex Group, Inc.

to certain historical areas, which will allow you to trade toward targets that fill holes. If by chance an S90/Crossover with a legal gap is in the target range of a market hole that needs to be filled, then the odds of the target being reached are very great.

In summary: When a hole is forming and an S90/Crossover and/or a gap that is close to the hole target become(s) apparent—and will be needed to complete the hole in the market—then the probability of a successful target strike has increased tremendously.

Smaller time compressions are not as reliable as larger compressions. In my opinion, starting with the 30-minute time frame and going higher toward the weekly time frame is much more valuable. I do know traders who trade in five-minute gaps and have been rea- sonably successful (as shown in Figures 5.11, 5.12, and 5.13), but their stops are usually greater than their profit targets; therefore, when a loss occurs, that loss usually takes all of the profits those traders have made from previous profitable gap entries.

Figures 5.14 and 5.15 show how resistance becomes support (and vice versa).

C H A P T E R 6