Friday, October 29, 2010


My short from 1.3882 yesterday stopped out at 1.3912 for -30 pips. The pair rose to 1.3951 and then turned down again. The high of 1.3951 was just above the 1.3948 I wrote about yesterday as a possible stop point if one felt the 1.3905 was too tight. It was also a .618 retracement of the most recent leg down from 1.4080 to 1.3759. Because of this, I removed almost all my channels from my chart and redrew the current sideways action as a triangle (In Elliott theory, a triangle's legs often bear a fib relationship to each other). If this triangle is the correct interpretation then there's not going to be any serious move down—last week's low of 1.3697 was it. Instead Euro should thrust upward from the triangle to at least 1.4455.

Does 1.4455 ring a bell among any readers? As I wrote on October 11 (and before that):

The .618 correction of the entire move down from 1.6041 is at 1.4450. A downtrend line drawn from that 1.6041 high comes in at 1.4557. The high this past January 13th was 1.4579.

This is compelling. The problem is that there is also a compelling case to be made for a drop as well. For example, on the three-hour chart on which I'm drawing the triangle, there is negative divergence (higher lows but RSI lows staying flat). In fact, there is negative divergence going back well before this triangle.

I have two choices as a trader. First, I can sit it out. Second, I can take a position in line with one set of arguments or the other. If I believe the triangle/downtrend line/fib retracement to 1.4450 then I go long at some point towards the bottom of the triangle. If I believe the case for there being a high, I wait for it to rise again to the shorter-term downtrend line.

Decisions; decisions. For the moment, though, the wisest course is to stay flat. There are opposing arguments with good evidence for each and the pair is obviously consolidating. If price approaches 1.40, it will be important to watch momentum.

Here's the three-hour chart:

© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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