Use Fib Confluence for Price Moves after News Release
I agree with the video of Hubert Senters and the 3 swings. I think this is what happens:
(1) News comes out: Some traders are hitting the button, this creates a short term impact on price.
(2) Larger traders are waiting in the trenches and trade price back into the area where it has started. But here we need to differentiate:
(a) the news it not expected -> the second swing might be dangerous to trade
(b) price has already anticipated the news during the day -> it can be very rewarding to trade the first countermove, often the expected outcome is discounted by price and the first swing following the release is the final high that traps new with-trend traders
(c) news is as expected -> price moves to support or resistance and retraces back to where it was before the news release
Below is a chart with today's price action and you will notice the impact of two news events
- Unexpected: Spain's downgrade by Standard & Poors
- Expected: FOMC release
The spain downgrade was clearly used by larger traders to trap and take out weak longs. This game is part of many topping or bottoming formations. It clears the market from vermin, and nothing is better than a news release to do this.
The FOMC release was less exciting, but good enough to push price up to the next Fibonacci line.
A note on those Fib lines: Both are confluence zones. The dominant lines of the zones are:
- lower line which stopped price after downgrade of Spain is a 127.2% extension
- upper line which stopped price after FOMC meeting is a 38.2% retracement line
Note that price stopped exactly at the fib line in both cases.
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