Friday, March 26, 2010

EUR/USD Elliott Count Update

EUR/USD is testing the upper purple trendline that has held price action since the start of the latest downtrend (what I count as a wave V) since March 17th.

So that I do not confuse anyone, I have changed the notation on the degree of counts that I am showing on the charts. I am showing the more commonly accepted Elliott notation for the degree of trend we are likely in. This doesn't change any of the analysis, except you will see a i in place of where a 1 was in previous posts.

Back to business...
I am sticking with the same count I have been showing unless we break back through the red trendline that we broke through a few days back... see post Anatomy of A Break, AND we break through 1.3501 (wave i). A break at this level would assure that this bounce is not a wave iv as a wave iv cannot cross over any of the area of a wave i per Elliott rules.

If we do break through these levels, then the most likely count is a bullish one... that the entire 5 wave decline from last November is complete. Prices need to fall back below the new short term yellow trend channel to get the bearish count back on track.

Because the alternate is so bullish, it is very important to assess your risk. Take a look at my post on the subject from yesterday morning: Time to Start Assessing Risk

Here's the primary and bullish alternate counts:

Bearish fib fans have been broken, we had a new low on diverging RSI, we may have a break of the upper purple trend channel, and at the very short term, I can count a possible 5 waves up.

It looks to me like the market wants to try to head back up to the previous significant trendchannel that it broke a few days ago (red). This started getting some crazy ideas in my head about a possible touch and go scenario that might be much more bearish than my primary count. It's a long shot at this point, but I thought I would introduce to get your thoughts. This may be a way for the market to fulfill the scenario I map out in my EUR/USD Longer Term View. We'll see what the market gives us...

We're getting close to the weekend so I doubt any major moves are going to happen either way on a Friday afternoon. 

I took profits yesterday on my shorts near lows, attempted to get back in at 1.385 for a potential quick reversal, but sold after the move above 1.3408. Still a very, very good week for me, and now it is time to watch and wait for the next opportunity. Hope you all had a successful trading week!

Wave 5 in jeopardy. Trendline broken to the upside...

A full post later this morning, but I just wanted to discuss the price action overnight and this morning in the EUR/USD (and as correlated as an inverse, the dollar index). A few minutes ago, right after the open of the NYSE, we had a break in the upper trendline that has governed price action since March 17th. This happened after what was can arguably be counted a five wave move to the upside followed by a 3 wave correction. It is possible that wave 5 is over and that we are in the largest correction (wave 2) we have seen since the resumption of the down trend last November. It is also possible that this is a false break, and just part of wave 4 of 5. We are still near fib. 38% retracement levels which is common for a wave 4.

I am not ready to throw the towel in on the downtrend, because it still only looks to be in 3 waves since March 17th, however it is time to exercise extreme caution, because the market might be telling us that it is time for a breather in the downtrend for awhile.

It is the end of the week, and some decent gains for the EUR/USD bears and dollar bulls. We may head into the weekend near current levels as profits get taken off the table.

Thursday, March 25, 2010

EUR/USD - 1 HR Elliott Count on Wave 5 (or "C" Wave for my friend Binve)

Taking a bit of a step back to look at the larger structure to mentally test my short term bearish view.

3 waves down so far - Check!
New lows in EUR/USD - Check!
Rebounds in corrective waves so far - Check!
Peaking RSI in wave 3 of my count - Check!
Major trend channel defining the move down not broken - Check!
Price movement adhering to Fibonacci fan support - Check!

The short term bearish view is on strong legs so far. Only thing to do now is keep in mind the long term, most probable count (EUR/USD Longer Term Elliott Count), manage trading account and risk tightly, and follow the trend!


EUR/USD - Still decining, but time to start being careful.

We may be in or near completion of a small degree 4th wave in the larger 3rd wave decline that started on March 22nd. The move up off last nights low looks corrective so far with overlapping waves.

Again, the fibonacci fan is proving its worth on today's chart. Notice the movement maintained within the short term fan created off the high of wave 2 of 3 for the duration of wave 3 of 3.

I kept the lower green trend channel line that was broken yesterday on the charts. I thought we might come back up to re-test it, and sure enough, notice on the chart how wave 4 came back to retest and break the lower green trend channel line. Even though it broke to the upside, it immediately came back down under the trendline... bearish in my view. However, if the break is to hold, the next trend channel support is the upper purple.

What should follow is another wave down to new lows, likely underneath 1.3250, before a larger degree 4th wave takes over.

A very important note: The likelyhood of a significant low is coming ever closer. By my count, we are in a fifth wave down from last November highs of 1.51+ (EUR/USD Longer Term View) The small degree squiggles do not look finished to the downside for now, but the name of the game right now is to manage risk very tightly. I don't use stops, but I accomplish this with smaller position size, and watching the rebounds very closely to determine their "correctiveness" before considering entering into a short position.

I am always skeptical of moves when large news feeds start following the trends. I can't tell you how many advisors near last Novembers highs were coming out with their predictions of EUR/USD above 1.55. A tell-tale sign of the last leg of any move. We now have that same effect happening now, but to the other extreme...

Stay safe out there! There are infinately more possibilities to get back in the market when you are out of the market, than when you are stuck in a position in the market that has gotten away from you.

Wednesday, March 24, 2010

Forex Leverage Regulations Will Kill The Industry in America.

I am sure most of you have heard about this issue by now. 100:1 leverage regulated to 10:1 max is the bottom line. Unfortunately, many do not understand the implications for traders like myself... especially those who do not trade currencies.

High leverage makes the relatively small percentage moves in currencies comparable to instruments in other markets (such as equities, futures, commodities, etc.). Risk of loss beyond trading balance is managed with automatic liquidations margin agreements, so there really isn't risk beyond what you invest (which cannot be said the same for other markets or instruments).

If this passes, I will not be able to trade as I do today. I trade at 50:1 leverage and would have to consider setting up a foreign entity to trade through a foreign brokerage, or consider another market which I really don't even want to consider. I was MADE TO BE A FOREX TRADER. 10:1 would not allow me to do the style of trading I do without significant (5 times as much) additions of capital to my trading account.

Glad to hear that a broker who I have an account through is taking a stand...

OANDA Deems CFTC Leverage Proposal Unfair and Non-Competitive

Also, a solid interview with Robert Green (full disclosure, I have used Greentradertax for tax advice and other related services) from Greentradertax about the nature of the proposed regulation and impact on the forex business.

Candlestick Reversals

I am not a big candlestick trader, but have been using them as part of a bollinger band analysis that I have found useful in conjunction with Elliott wave analysis (see Bollinger Band Experiments).

While I havent used candlestick patterns as trading tools yet, I have noticed quite the pattern on the 3 hour timeframes with reversals. Uncanny really, but a long tail seems to indicate a significant reversal to follow... almosty every time!

Would love to hear thoughts from others who have used candlestick analysis in their approach. Is there a rhyme to this reasoning?

Anatomy of a Break... Trend Channels & Elliott

Wave 3 of 5 is here! Wanted to show the wave counts and the trend channel lines that I have been following to give as clear a picture as possible as to the break.

Trend price channels do an excellent job holding price action, until they don't! Elliot waves tend to follow them at every degree. The peak of waves 2 and 4 defining 1 trend line and 3 and 5 defining the other.

One of the reasons I was able to have a high level of confidence in this move down before it happened was, of course, the impulsive elliott wave, but also the adherence to the trend lines.

It looks like the yellow trend channel may be in play. More downside to come. Very nice when the analysis pays off!

Up next (but not quite yet)... getting ready for a big wave 2 bounce.

Tuesday, March 23, 2010

EUR/USD Breakthrough! Or is it...

Special evening post to focus on what may be a key breakthrough in the short term bearish count I posted this morning. The EUR/USD has broken through key trendline support near 1.3460, and while it appears to be trying to reclaim that support as I write, I thought I would review the short term counts with you.

Here is the counts from this morning with lower trendline support in red:
EUR/USD 3/23 Morning Counts

The primary count has not changed. The alternate count, however, has changed a bit. It is still possible that we are in wave 2. This alternate has legs primarility because of the structure of the decline from the proposed primary count wave 2 high. It doesnt look impulsive... at least yet.

Again, neither of these scenarios change the longer term counts, so is really a matter of whether we begin declining impulsively now or wait for another pop up (probably to near 1.3624) to complete wave 2 first.

Personally, I am going to give the wave form time to stretch its legs and the primary count to take shape. Would hate to get scared out of position at this point, only to watch wave 3 develop out from underneath me.

Hopefully, but the morning the picture will be clear as to which scenario is in play.

Positioning for the next wave down in EURO

Two scenarios most likely, with both having the same ending... next leg down takes us below 1.3434. The only real question right now is, which one will play out?

The alternate is a real close call. so as not to be fooled by the 5 wave impulsive looking move down on the 5 min charts, the (b) leg down could be an expanded flat.

If the alternate is in play, we could head up to resistance near 1.3624. If we get there, an even better opportunity will present itself. We'll know soon enough, and I won't be waiting too long...

Monday, March 22, 2010

EUR/USD Long Term View Posted!

Trading without a longer term view, is akin to entering a boxing ring without having studied your opponent first. It is all about confidence...

Select the link below for a complete analysis and write up:


EUR/USD - 1st wave of 5 complete!

Wave 1 of 5 is likely complete. We are now in corrective wave 2. Two primary options in consideration on the very short term count. Either an wave 2 expanded flat has completed or nearly completed with the move this morning to 1.3568, or the "a" leg completed this morning and should be followed by more corrective action in a "b" and "c" or some variety to complete wave 2. If the latter, we could see wave 2 move up to around the first fib level of 1.3624 where there should be some considerable resistance. This area represents the previous wave 4 at a lesser degree, a very common area for wave 2's to retrace.

The flat is a bit more probable that a more extended wave 2 IMO due to the internal wave structure of the move down to lows. It counts best as a series of 3 waves. 

Either way, the correction represents an opportunity to place shorts for a move below 1.3434.

Notice the purple trend channel lines. This mornings move up broke through the upper purple, and then came back to retest before heading up in what appears a 5 wave pattern.

Also notice the longer term red channel lines. If you remember, I drew these last week to represent the EURO bulls last line of defense. It appears that the market has respected this line as support in the short term. Wave 3 down should break cleanly through this on its way to a new low.

I was glad to see the rebound take place BEFORE a break below 1.3434. If it had taken place later, it would have left us with an impulsive wave down to new lows, which meets the minimum requirements to count the entire move down from 1.51+ as complete. As traders, we are now left with a clear short term impulsive wave down, not to new lows... and an opportunity to place short positions with probability on our side.

The analysis side of our work is now complete for the moment. Now we simply have to watch and wait.

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