EURUSD—monthly

With the ups and downs of daily and intraday movements, it's helpful to back off and look at the much larger picture. Below is a monthly chart of the Euro beginning in March 2006.The low then was 1.1860. Interesting that the pair came within pips of that low during the current downtrend. This means the Euro basically went nowhere in the last five years although there was a lot of money to be made during this time.

An obvious characterisic of the chart is that the pair has been in a downtrend for 31 months from its July 2008 high. There have been two touches of the downtrend line which is all it takes to make the line valid. So far at least, each correction in this downtrend has been well capped by the downtrend line. In addition, each correction is sharp (defying the Elliott guideline of alternation but that's neither here nor there), each retracing about 75% of the prior move down.

Another thing to note about the chart is that at least on a gross basis, an Elliott impulsive count down that assessed the current action as being within a wave four correction, doesn't apply for the simple reason that if wave one ended at 1.2329 and wave three at 1.1892, then wave four, peaking so far at 1.4282 has violated the territory of wave one. This would violate one of the three ironclad rules of EWT.

Perhaps this is currently wave three where two ended at 1.5144 and we're in two of three? This is possible. If this is true, wave three of three either began at 1.4282 or will be beginning from the top of the current corrective rectangle up (note that price could exceed 1.45 under this scenario).

So what's a trader to do if one is not still long from either 1.6041 or 1.5144 or even 1.4282? If one believes this is a downtrend, all one can do is sell highs. If one believes it's an uptrend after a temporary ABC correction which ended with 1.1892 (it's possible—but note that for a zigzag correction, wave C exceeded .618 of A but fell far short of equality with it), then buy rallies. Or one can trade this as a sideways, upward slanting movement which I actually like and is the reason I go long sometimes and short other times based on patterns on shorter time frames. Every long term movement is made up of numerous short term patterns. I'll look at some of these in the next couple of days. This approach requires flexibility. More important, it requires giving up preconceived notions of bullishness or bearishness and relying on the chart to guide one's trades. This approach means profits.

Here's the monthly chart:










© Dianne Fecteau, 2011. 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.