Quadrant Lines & Custom Fibs
Measuring Things
In the market – we have a history of candle analysis that suggests previous price action holds insight into what price may do next. This is different than the “random walk” theory – as it is used in advance to anticipate future price behavior.
When we measure things in the market – the two most common things I measure for is the “mid-point” of what-ever I am measuring and then the breakout of the measured thing. Typically – the breakout offers 50% of the range and then 100% of the range (higher or lower).
But – we have to consider liquidity. We have to consider where traders are going to define their risk. When price sets a range – it’s common to expect traders to have stops outside of the range. These “zones of liquidity” can often make price breakouts fail and fall back into the range again… so it’s these zones we have to worry about.
Thankfully – we have a solution for this. We can adjust our drawing tools to highlight the zones where liquidity is likely to be and we can measure the breakout targets while also marking the mid-point of the range.
Trading-View Fib Tool
Half Back
In the picture above – is tradingview’s Fib Retracement drawing tool. I have adjusted the lines in there; on the left side I have fibs and on the right side I have Quadrants.
Highlighted at the moment is 0, 50, and 100. That is the bottom, mid & top of a range.
If we draw the drawing by clicking at the top of the range first and then the bottom of the range – we’ll have zero on bottom and 100 on top.
If we click from the bottom of the range and then the top of the range we’ll have 100 on bottom and 0 on top. 50 will be in the same location either way.
If we only want to mark the mid-point then it does not matter which way we draw the drawing but – if we want to mark a top-side breakout we need to start the drawing at the top and then end the drawing at the bottom.
If we want to measure a breakout to the downside – then we want to start the drawing at the bottom and end the drawing at the top.
Half of What?
When it comes to marking the -1/2 back… what are we measuring?
So many different things! Let’s start with the concept of yesterday’s range.
On the daily chart this is just a single candle – and THAT IS OK!
We can measure just 1 candle and we’ll revisit this topic again later.
So – let’s measure yesterdays range from high to low. This gives us the mid-point of that range. (see picture below).
One Day - 15 min candles
Yesterdays Range
In the picture above – we have Friday’s high & low marked which also gives us the -1/2 back level.
We were still in Globex (the time from 6PM to 9:30am) so the days “regular trading hours” (RTH) has not begun yet… but we already have levels to trade against.
If the market tries to fade – it has the -1/2 back below. If it tries to break-out it has Friday’s high as a resistance.
If we break that resistance there is likely to be sellers up there – but we’ll deal with those in a few minutes.
Yesterdays -1/2
In the picture below – we have Friday’s high & low and mid-point ... the -1/2 back.
As we can see in the picture – when price fell today it went right to the -1/2 back & bounced. Even when it broke the -1/2 back later – it was the level price fought to get back above. It’s a significant level and is worth putting on the chart to provide insight and clarity.
Yesterdays -1/2 back
But – once the bounce had begun – we also had a new thing to measure. We could measure from the low of day and the high of day – and identify where the -1/2 back would be. In the picture below – we have that -1/2 back.
Reversal off the -1/2 back of yesterday
Yesterdays -1/2
In the picture above – we have a zoomed in glace of the bounce as it began.
This intraday half-back is a line in the sand. If the market can get through that – it has a chance to get back to the RTH open and then into nHOD – but if that -1/2 back level rejects price we could revisit the LOD again.
Step by Step
As we can see in the picture below – price was unable to get above the -1/2 back and broke into nLOD after it failed.
Half Back Levels are GREAT
So – these -1/2 back levels are very easy to use and they are everywhere. We can measure things like last weeks’ candle – yesterdays candle – or even intraday price moves but we can also measure things like a “event candle” like CPI, PPI, or Non-Farm Payrolls.
Get comfortable measuring things and marking their -1/2 back levels. You'd be surprised how much the markets react at this level.
Typically – my baseline each day is a measurement of yesterday … but what if you wake up this morning and price is outside of yesterdays range already?
That is where – the “other” levels come into play. Remember that liquidity zone we talked about earlier? We need a way to define it. To mark it consistently and look for clues that it’s holding or not holding.
For this – I like to use a level called the “one – eleven” (it’s the 1.111% fib).
Failed Test of the -1/2 back
The One - Eleven
I found the One - Eleven a few years back - when I was measuring liquidity levels on breakouts and I recognized that if a breakout fails because liquidity is present ... that liquidity does not extend too far past the range.
Since then - I've really sharpened my approach to where this liquidity is at and look for clues to idnetify if they are present or not.
For this level – once we “snap a fib” from yesterdays high to yesterdays low – we turn on the 1.11% level and identify the buy & sell zones. Let’s go back to Friday’s price range but this time – we’ll add the 1.11% level to things.
There are no rules to Fibs that we can not break. I've read a LOT of books on this - and many of those books disagree with each other while suggesting that "their way" is the "only way" and yet - so many different ways exist.
So - I say - try something. See if it works. Be consistent. Develop a set of rules and stick to it. The only rule I have about the fibs - is to be consistent in your approach and your analysis.
Add the "One Eleven" level
Sell Side Liquidity
Between 1.0 and 1.11 is the “sell zone” – it’s where we would expect to see sellers or “sell side liquidity” and it’s where we would expect price to fail if the breakout is going to fail.
One Eleven
Reversal Zones
Between 1.0 and 1.11 is the “sell zone” – it’s where we would expect to see sellers or “sell side liquidity” and it’s where we would expect price to fail if the breakout is going to fail.
As you can see in the picture below – it was perfectly measured!
Intraday as well
But – as we did earlier – we can also use it intraday as well. In the picture below we have the high & low of day already marked out… if price tests the lows and breaks out into new lows – where is liquidity? We can snap a fib on this – and look to see if buyers step up at the lows within that buy-side liquidity.
On the left - we have the range without the One Eleven. In the middle we have added the One Eleven. On the right we have the market reversal off that One Eleven range.
We have to break through the One Eleven to continue lower
So – now we have a clear idea of where we could expect to see buyers defend this market … and if they are not there – we would expect to continue falling and we would use the measured move to identify where the next low would be. If we see the start of a reversal exactly where there was supposed to be a reversal - then it's a nice validation that we are on the right track.
See the picture above on the right - price was unable to get through the buy side liquidity.
Price DID give us a new low – but the buyers were there and bought it back up again. Notice that we still have a -1/2 back level? If this pop gains legs it’s got a date with that resistance level. Only if we can get through that level – can we rise back into today’s open.
Also – since price tested that area & gave a new low – we can either move the fibs to the new low area or we can turn on the next level (the 1.236%). If the buyers are still down there – then they will likely defend that level again – and if we can’t get through the 1.236% or the new fib level 1.11% - then the selling will stop & we’ll try to bounce again.
I know – I know… people want ONE way to do things. Let me show you the “moved” 1.11% level first.
As the picture below shows – the new buy zone is at 5621.75 … buyers are expected to be there. But with if we didn’t move the fib & just turned on the 1.236 instead (yellow line).
Then the level would be 5622!
Look Close - the lines are in two different places.
I suppose – then … that it really does not matter if we move it or not. But – what DOES change – if we move the fibs low side – is the mid-point. If you want to keep the “middle of the day” at the middle of the day – then you have to move the fibs so that 0 or 100 is at the top & bottom.
As you can see in the picture below – the buyers were still present and that 5622 level held AGAIN. This is just a great example of marking breakout points and knowing how far price has to break out before it’s past the liquidity zones.
Let’s talk about pullbacks now… for a minute. Looking at the last picture above – we can see the 5631 still marked as “low of day” even though it was no longer the low of day any more… and when price was first popping up from that low – could we measure how far up the pop needed to go – for a chance to make it back to the -1/2 back? Lets add a picture - going back to earlier in the day.
As you can see in the picture – that 78.6% level was taken out but that is also where price stalled. It was unable to go any further and began to fall back again. As a side note – when / if I am going to turn on the fib 78.6% level I don’t like to use the wicks for the 1.0 placement.
I know – that can get complicated cause we already have it set to the “low of day” – but hear me out. If you want the LOD and the -1/2 back – then measure from the lowest point (even the wick). But – if you want the 78.6% level – it’s best if you avoid the use of the overly long wicks – (or any wicks for that matter) on the 1.0 side of the fib drawing.
Here is how I like to do things – when looking to measure the 78.6% level. I used the last red candle body – because it was a bearish move I measured. If this was a bullish move – I would snap the level at the last bullish body placement (see below).
So – we have gone over a LOT today. I am sure you’ll want to read through this a few times!
Everything has a range – even if it’s just a single candle. We can measure important candles like a economic event candle or the previous days trading range – or even today’s highest and lowest point.
Each time we have a chance to breakout – we can project a 1.11 level to identify the “zone of liquidity.” That liquidity zone is where we expect the market participants to step up.
All of this article was an example of my approach to measuring out the “levels in play” and preparing for "where to next, boss?" Some of this - is my own work that I developed over the years and some of it comes right out of the textbooks. What can you develop for your trading?
