Hi guys,
I’m new at babypips and currently going trough the School of Pipsology.
I like it so far, but have a question about “The ABCD and the Tree-Drive” lesson.
The retracement BC should be at the 0.618 level, I get that.
What I don’t get is how CD should be the 1.272 Fibonacci extension of BC.
If AB = 1 and CD should be equal to AB then if you start from 0.618 and add CD (so you add 1). Then CD should be the 1.618 Fibonacci extension of BC ( 0.618 + 1 = 1.618)
I’ve tried and looked trough forums and youtube but I can’t understand why CD should be the 1.272 level and not the 1.618 level.
I hope you guys can help me!
Thanks a pipslot!
It shouldn’t be. Maybe you are looking at a particular example. a BC fib extension is based on the straight vertical distance between B & C, so if BC’s “y-axis” distance is much smaller or bigger, CD which presumably has the same vertical distance as AB, could vary much differently than just 1.272 of BC.
Just that if CD happens to be 1.272 of BC or even 1.618 of BC (or other fib-derived numbers like 2.24 or 2.618 etc.), then it could be considered an area of “confluence” which could indicate a level area of possible s/r/target area.
Should is a word used loosely. In this case it is a generic comment about what is most likely to happen.
When I was looking into ABCD patterns and Harmonics I always found that the 1.272 was a target which price often stopped at. Sometimes price would extend further to the 1.618 extension, sometimes even more.
There are lot’s of occasions when price will go to the 1.618 level. Others when it stops at the previous high (or lower) and forms a Bat or Butterfly pattern.
Take for example a strong piece of news which negatively affects the currency pair in question, price may react to that and choose a different direction to what was expected.
Always have a verifiable trading plan and trade the plan and be ready to modify.
I hope this helps.
AJ - Blue Ocean FX
