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The Interchange Zone and The Continuation Patterns

The document discusses interchange zones, which are price areas created at the intersection of two candles on a chart. Interchange zones can help identify continuation patterns (CPs) that form when a higher timeframe gains control over price. CPs often form within interchange zones consisting of candles with small or tight shadows. Identifying the right timeframe combinations, like a weekly CP within a monthly interchange zone, allows patterns to be spotted easily. Examples are given of interchange zones containing lower timeframe CPs in currencies and stocks.

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106 views5 pages

The Interchange Zone and The Continuation Patterns

The document discusses interchange zones, which are price areas created at the intersection of two candles on a chart. Interchange zones can help identify continuation patterns (CPs) that form when a higher timeframe gains control over price. CPs often form within interchange zones consisting of candles with small or tight shadows. Identifying the right timeframe combinations, like a weekly CP within a monthly interchange zone, allows patterns to be spotted easily. Examples are given of interchange zones containing lower timeframe CPs in currencies and stocks.

Uploaded by

mikestar_tar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The Interchange zone and the continuation patterns

26th January 2017, 08:29 AM


The Interchange zone is the price area created at the intersection of any two
candles, this zone is made of the lower and upper shadows (wicks) of any two
candles on the chart. It's often to see interchange zones where candlesticks have no
shadows or very tight shadows.

Interchange zones can help us identify continuation patterns. In order to identify CPs
we need to apply a multiplier fractal factor in our sequence otherwise the CPs won't
be identified. It's very important that you use the timeframe sequences used in the
strategy because those timeframes are use a very common fractal multiplier.

These interchange zones and CPs are very common when a big timeframe imbalance
or confluence gains control, it's exactly the moment where CPs are formed. A bigger
timeframe gains control, big investors start filling their orders (accumulation and
distribution stages), two or more ERC candles are created and right at the
interchange of those ERC candles the CPs are usually created. By looking at the
charts this way, it will help you tremendously to locate continuation patterns and
plan trades at these imbalances. The interchange zones work best with two ERCs.

By choosing the right timeframes, we will be able to spot continuation patterns easily
by looking at any two candlesticks on any timeframe of our sequence:

• A Weekly CP on a Monthly interchange zone


• A Daily CP on a Weekly interchange zone
• A H4 CP on a Daily interchange zone.
• A Monthly CP on a 3 months interchange zone

The length of these shadows will tell us a lot about one timeframe lower and
what kind of candlestick formations will will find in that lower timeframe.

These are the combinations of shadows that work best to find interchange zones.
These scenarios refer to a combination of two consecutive candles

• Small or tight shadows


• Small upper shadow, no lower shadow
• Small lower shadow, no upper shadow
• Medium upper shadow, no lower shadow
• Medium lower shadow, no upper shadow

The interchange areas in blue have valid shadow formations, upper and lower wicks
are small, tight or one of the extremes have no shadow. The ones in red have very
long shadows, these areas are usually valleys or peaks in lower timeframes.
FACEBOOK WEEKLY / DAILY INTERCHANGE ZONE

The weekly interchange area is usually made of a one timeframe lower D1 CP if the
upper and lower weeks of the bullish candles are not too big. W interchange at #1 is
made of a D1 CP demand at #2
USDCAD MONTHLY / WEEKLY INTERCHANGE ZONE

• Monthly interchange areas at #1, #7 and #4


• #2 and #3 and CPs nested at the Monthly interchange at #1. #1 has tight and
small upper and lower shadows, it's common to see one timeframe lower CPs
in these formations and when price is starting to rally
• Sometimes failed ERC candles are created instead of a tight CP, like at #6.
This one is a failed ERC candle (almost a 50% candle) created at M
interchange #7
• Weekly CP at #5 is created at the Monthly interchange at #4 right before the
Monthly CP breaks out

GOLD DAILY / H4 INTERCHANGE ZONE

• D1 interchange #1 with small shadows is made of a H4 CP SZ at #4. First


retest worked out pretty well
• D1 interchange #2 is made of H4 CP DZ at #5, similar scenario with #3 and
#6
NZDCAD WEEKLY / DAILY INTERCHANGE ZONE

• Weekly interchange zone at #1 contains a D1 CP DZ at #2 created right after


the Weekly bullish engulfing pattern
• Price is reacting to M 20 EMA and W DZ zone to the left. These interchange
zones (CPs) are common in a bigger picture trend and when a HTF imbalance
or confluence gains control.

COCOA MONTHLY / WEEKLY INTERCHANGE ZONE

• Weekly CP supply #1 at monthly interchange area #2 with a clear monthly


downtrend.
ADOBE US STOCK WEEKLY / DAILY INTERCHANGE ZONE

• Daily continuation pattern #1 nested at weekly interchange area #2

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