All financial markets move in cycles. The most simplistic mathematical representation of a cycle is the
sine wave. Let’s take a market’s swing low - it correlates to the bottom (trough) of the sine wave and as
the price rallies, the sine wave turns up, until it hits the steepest point upwards. This is an inflection
point and also, more importantly, the midpoint of the developing up swing (yellow highlight). Are there
specific candlestick or price patterns that form at these midpoints? I believe there are!
As price action develops, we take our Fib retracement tool, anchor the 100% level at the swing low,
place our 50% through the anticipated midpoint, which gives us our ultimate target for a swing high at
the 0% level. Pretty straightforward! The question now is of course “what qualifies as amidpoint?” Lets
explore, with no better way than through examples.
Here on the AUDUSD daily chart, note the highlighted strong 2-day up move which rallied price stronger
than any other two bars in the nearby price action. That split between the two bars is a midpoint
contender within two weeks or so in real time afterwards. Elliott wave guys would likely have those two
bars as part of an impulsive wave count. This is a more obvious and easier midpoint to identify since it
strongly correlates to the steepest upmove/inflection point in our sine wave shown above. Not all
midpoint patterns will be like this. I’ve identified a good half-dozen or so different types. This one is the
“barsplit” midpoint. Price eventually reached the target level and although there was some overshoot,
it was a good level to short or close longs.
In fact soon after the expected downturn in AUDUSD in our first example, another midpoint formed.
This time it’s a doji bar between two strong bars in an impulsive move down - a “doji” midpoint
Note the excellent resistance this midpoint level provided afterwards. Price bottomed at 0.6458, a few
pips shy of the expected target of 0.6454. We’re dealing with support and resistance zones here, not
necessarily exact levels. But, with a closer look at the final leg of the sell-off we have:
A great reversal target of 0.6484 that price only briefly wicked below. The midpoint is the highlighted
consolidation which terminates with the doji bar right before the breakdown. Doji bars always catch my
attention as potential midpoints, especially if they form during high volume action. On the contrary, a
doji bar that forms on a sunday night is less significant. An issue here is the low number of bars in this
down swing, so let’s zoom in to a lower time frame:
With the same previous midpoint we see here on the 4-hr that the midpoint at the end of the sideways
consolidation, a triangle in this case, turned out to be the start of the first breakdown candle. By the
time price action reaches the green highlighted area, this “breakout midpoint” is definitely on our radar
and put us on alert for a potential turnaround rally at a fairly good level not far from the ultimate low.
Let’s develop things a bit further. Here’s the recent daily Ethereum rally. I’ve added the 78.6% fib level.
The barsplit midpoint stands out as the most impulsive move in the area. It projected an excellent top
of 21111.60. The 78.6 fib level is significant here because it TWICE provided near-exact resistance (on a
closing basis) to strong rallies in the initial phase of the upmove (highlighted).
I like to see this 78.6 as the resistance on the initial reversal move at the time and it happens quite
often. It helps to confirm that I’ve indeed chosen the correct pattern/candlesticks as a midpoint. In fact
in most cases I will simply draw the midpoint projection with all the fib levels: The more significant
support/resistance I see developing at the additional fib levels, the more convincing my midpoint.
However, just to reiterate, I’m not using the fib retracement tool in the traditional sense of drawing it
from the beginning-to-end of a swing. Rather, I anchor the starting level on a recent swing high/low,
then PLACE THE 50% LEVEL through what I deem to be a midpoint, thereby deriving my target for a
reversal at the 100% level.
As you say, no two setups are ever the exact same but they tend to repeat certain tendencies.
Identifying midpoints in real time is a bit of an art and not an exact science but as any other good
method of TA, it works on all time frames and asset classes.
Below the Google 4hr has a good midpoint at the bar open after a big gap up. I've highlighted where the
additional fib levels provided good levels of support/resistance. This method is a bit more challenging to
apply to stocks or anything else that tends to gap a lot.
I’m currently watching this 4 hr silver setup. As of tonight’s Sunday open price is indeed pulling back
nicely as expected. Note the exact resistance levels on a closing basis offered by multiple fibs and the
target line:
Issues: Futures contract changeovers causing gaps. Differences among brokers, some brokers present
sunday night action as a separate daily bar, throwing off the bar counts?