EURUSD—at support

I'm still short from 1.3924.

Euro has dropped to key support, touching 1.3805 this morning and forming a hammer on the hourly chart. The .382 retracement of 1.3429 to 1.4036 is 1.3803 so this is key support. If this doesn't hold, the next support is a zone between 1.3732 (50% retracement and last week's low) and 1.3685 (fib confluence).

The reasons I'm short, as I wrote yesterday, are that the move up from 1.3429, even though strong, didn't look impulsive. As a result, if it's not impulsive, but moving within a rectangle, it is corrective. In addition, the 1.4036 high looks as though it completed an ABC correction from 1.2874 on the daily chart. It satisfies a fib relationship as well. Third, is the extreme sentiment against the USD and finally, the longer-term charts, weekly and monthly, show a downtrend in place.

On the hourly chart, I can trace five waves down to show an impulsive move that doesn't violate any Elliott rules. This is another hint, although not definitive, that 1.4036 was the high. Euro also violated a trend line from 1.3529.

After five waves down one would expect a correction. There is negative divergence between price and RSI. I've also traced out a faint ABCD pattern (suggesting a harmonic butterfly). Both support the idea of a correction. I'll take some partial profits here, knowing I can add to my position on the retracement or on a breakout below support.

Where might that correction go? The violated trend line at 1.3887 is one possibility. It would be very bearish if the pair touches that trend line and reverses. 1.3950/60 is the next possibility. If price gets much beyond there, I'd suggest that the pair might be taking another run to break the 1.4036 resistance.











© 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.

EURUSD—How much longer is this going to last?

I finally shorted the Euro after I blogged yesterday, picking up some pips, but I closed and went long after the dip near support appeared to hold. The support was also at polarity, a level that has served as support and resistance in the past. Finally, the pair’s RSI was also climbing out of oversold. All reasons to go long so who am I to argue?

The pair fell out of its “broadening” formation that I wrote about yesterday, before its completion. I suspect it will find resistance at the lower line of that formation and plan to lighten my long there if not close it entirely. I may even short. If it makes it back into the pattern, I still believe the pair has formed a top and will turn again. But regardless of my “belief”, the pair is in an overall uptrend that has not yet been definitively broken—the daily uptrend line from March is coming in at around 1.4750. This was the reason I bought on the dip. Here’s the three-hour chart:


© Dianne Fecteau, 2009. 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.

EURUSD—Are we going anywhere yet?

If blustering is the art of making loud, empty threats, the Euro seems to have it down pat. Once it touched 1.5048 yesterday, the bulls were psyched and those who thought the top was 1.5063 were, if not quaking, clearing their throats and making noises along the lines of maybe the correction was going to take a bit longer. Then, as Emeril says, Bam! Two long, black candles on the three hour chart took price down to 1.4954. OK! Perhaps the bears were right, after all. Re-establish shorts. And up she goes, touching 1.4979 before sagging to 1.4927 early this morning. My long trade stopped out at plus ten pips during this bouncing around. And it’s not as though these moves are leading to serious pips. What is going on? More important, where do you place your trades?

A look at the three-hour chart shows the pair is in what could turn out to be a broadening pattern in classical technical analysis (TA) speak (should break downward) or an expanding triangle in Elliott Wave (EW) speech (should break up). Pick your poison.

This is what makes TA so damn hard, right? What is the pair going to do? And, by the way, could it just do it? Get it over with?

But this is the way trading is. Traders go back and forth, prices go up and down, dust is stirred up but there’s no definitive move. We just have to wait it out. So let’s look closer at the chart.

You can see the possible broadening pattern, a sign the market is undecided. We need five reversal points before it completes. At this point four are in place (1.5021 down to 1.4930, up to 1.5048, and down to 1.4927 on the three-hour candle that just closed). Ideally, there’s a Fibonacci relationship among the touch points--.618, .786, 1.0, 1.272, and 1.618. After point five one should see a general decline and it should never again exceed point five. So you’d short. But if the pattern fails you’d want to immediately look for an entry in the direction of the failure, in this case a buy. Flexibility is the key.

If it’s an EW triangle during some sort of funky correction, then you’d expect prices to break upward. There’d also be five touch points within the triangle, but whereas the broadening pattern uses the top of 1.5021 as the starting point, EW would use the first touch down at 1.4930 as the starting point. In both cases the next move would be up.

Momentum, as seen in RSI, is holding at bullish levels so far. But, the last time RSI was at this level, price was higher so that in itself reflects a loss of momentum. My bias is to short rallies

Here’s the three hour chart.


© Dianne Fecteau, 2009. 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.

EURUSD—Still struggling with 1.50

The Euro hasn’t fallen yet and it’s within hailing distance of getting above the 1.5060 area that would invalidate the Elliott Wave (EW) analysis I posted on Friday. As I wrote very early yesterday morning, its momentum is still good.

I was out of town on business earlier this week and haven’t had a chance to do a lot of trading. But before I left for the airport yesterday morning, I took a look at Euro’s 15-minute chart. I decided to buy a small position at 1.4978. I then had to log off and didn’t get a chance to look at my account until last evening. At that point the trade actually looked a bit anemic to me. But I had no reason to close so I left it open. It finally rallied in late Asia, early European trading and I moved my stop to above break even this morning.

These were my reasons for buying on the 15-minute chart even though there was a lack of clarity on the 3-hour chart I’d posted earlier yesterday morning.

First, even after a series of bearish candles, the pair held above a prior low. I’ve placed an arrow on the chart below to show that. Second, was the momentum as measured by RSI. The positive momentum had been bugging me all weekend and into Tuesday morning. Why wasn’t it dropping? Third, on the five-minute chart (not shown) it had pulled out of a double bottom formation. Finally, sentiment was bullish about the US equity market. This sentiment may be misplaced but it’s there. For me, all this meant I could risk a buy.

I then had to leave for the airport and never checked it until early yesterday evening when it looked sort of blah. So I missed those three, long black candles that most likely would have made me believe I had been wrong. But notice the RSI still held its bullish readings—it wasn’t dropping into oversold. It barely missed my stop.

The pair climbed smartly this morning and is now in a range of 1.5019 to 1.5048. I moved my stop earlier to plus 10 pips profit. What it does during this correction will lay the foundation for its next move. The 1.5060 is a “sexy” target since so many would be proven wrong. It will have to definitively hold above there to be meaningful.

Here’s the 15-minute chart:

© Dianne Fecteau, 2009. 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.

Euro--Back to its struggle with 1.50

On October 21, I blogged about how Euro was finally reached 1.50. Now, here it is again, touching a high of 1.5021 yesterday, then falling back, and now struggling again.

Looking at the chart, it may indeed make it past and reach a new high for 2009, just as the US Stock market did yesterday. Those holding shorts from last week that didn't have tight stops are not very happy. Elliott Wave people are not very happy (I looked around after my post yesterday--a lot of interpretations expect that 1.5060 to hold). Those who theorize the global financial collapse is coming aren't very happy. So who's happy? Obviously, anyone long the Euro that didn't get taken out in the dip overnight.

Based on the three hour chart this morning, the pair is clearly uptrending. The long shadow two candles back show it rejected lower prices. However the candle just before the current one is a doji that hints at indecision and uncertainty. No clarity there.

The RSI has dropped out of overbought. What this could mean is that it's regrouping for another run at the top. One thing I realized over the weekend is that on the daily chart, momentum, as measured by a simple Rate of Change (ROC) indicator, has not dropped lower than its June lows. This means there is still some energy behind the pair. It could keep it climbing. If the RSI drops below its trendline and if the price also drops below its trendline (thus confirming each other), then we can say the pair is exhibiting weakness. Until then it's not clear and I'd stay out of shorts. If price does drop back to the trend line and depending on what else is happening, it might be worth trying a long.

Here's the three hour chart:



© Dianne Fecteau, 2009. 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.

EURUSD—Daily EW Count of Correction

Trading is boring this morning prior to NFP so instead of trading I’m taking another look at some of my Elliott Wave (EW) counts. As I’ve posted on my past Euro EW charts, these are my two “beliefs”:

1) This is an ABC correction off first wave down that ended March ‘09
2) Euro formed an ending diagonal

What would invalidate the second belief is if Euro climbs above 1.5060. Otherwise, I’m shorting rallies. We’re currently at a .618 retracement of the move down from 1.5060 so I’ve placed a short trade. I’ll be watching RSI closely to see if it drops.

Here’s the chart:

© Dianne Fecteau, 2009. 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.

EURUSD—Euro EW Update

Here’s an Elliott Wave (EW) analysis of the Euro since I usually do these on Tuesday.

For the last two weeks I’ve suggested an ending diagonal was forming on the Euro daily chart. Its correction in the latter part of last week certainly seems to bear this out. Prechter and Frost write in their book, Elliott Wave Principle, that an “ending diagonal occurs primarily in the fifth wave position at times when the preceding move has gone ‘too far too fast,’ as Elliott put it.” On the daily chart below you see the ending diagonal traced out in blue.

If my overall interpretation is correct—that this is a zigzag correction from the primary wave down that ended last fall—then the Euro has been in wave C of that zigzag. Of course as with any discussion of Elliott Wave, five people results in six opinions. It conforms to the rules of a zigzag which are:

1) It subdivides into three waves
2) Wave A always an impulse or leading diagonal
3) Wave B always subdivides into a zigzag, flat, triangle, or combination thereof (in other words, just about any old type of correction, right?)
4) Wave B never moves beyond the start of wave A
5) Wave C always subdivides into an impulse or diagonal

Since it has dropped below the lower boundary of the ending diagonal, a correction is possible back to the start of the ending diagonal which is 1.4510/60. This is also polarity and an uptrend line comes in around this point. It would be worth looking at as a buy if it gets there depending on what else is going on with the charts. Here’s the weekly chart:

© Dianne Fecteau, 2009. 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.

EURUSD--Where to from here?

What's next for EURUSD?

The run up that brought lots of profits from March through September is on pause. While this past Friday’s close was 1.4733, the close three weeks ago was 1.4712. A sideways market.

From the point of view of a classical technical analyst, the pair is in an uptrend. No trend line has been violated; no serious level of support breached.

On the weekly chart (see below) the upward trend line is steep, perhaps too steep to easily continue. The last time it was this steep was the run-up from 2007 to 2008. We all know what happened then.

On the monthly chart, the fall from the summer ’08 highs did breach a trend line that began in early 2002 and had nine touches before that violation. The pair is struggling with that old upward trend line now. It poked its head above it briefly in September as well as last week but seems to have the willies about taking up residence there. This is in the 1.47 area, the area I have talked about as resistance for several weeks. Until the Euro closes definitively above 1.4865 (a weekly and ideally monthly close), I can trade it sideways and the range (1.4480 to 1.4845) is respectable, allowing for more than a few pips to be earned by agile traders.
Here’s the hourly chart showing the trade I entered last week. The stop is now a profit stop. Note the pair violating the two trend lines. Note the negative divergence with RSI. Finally, RSI is staying at or below 50%. The pair needs to drop below the lower shadows I pointed out on the prior candles in order to continue its drop. It could bounce from here as well. The thing is, if you’re in a short, lighten up a bit or close, depending on your style. I’ve lightened a bit. If it fails from the uptrend line (this is, it bumps its head on it and starts down again, dipping below the lower shadows), one could look for another short entry. Or if it climbs back towards 1.48 one could short. Remember though, you want to trade where your stops can be tight.

Thinking about the larger picture, even when one is going to trade short-term, is valuable. Is this a simple pause for breath? Or is it the beginning of a reversal? Ah, the age old question and the question that all the hundreds, if not thousands, of trading techniques and approaches seek to answer.

The dynamism that accompanied the push up to 1.60 last year is not present on this rise from March. A look at the weekly RSI shows it isn’t reaching the levels it did last year. Looking at it from an Elliott Wave (EW) perspective, this could be corrective. In some types of corrective waves, as Frost and Prechter write in their book, Elliott Wave Principle, “Momentum indicators reveal an ebbing of the market’s power (i.e. speed of price change, breadth, and in lower degrees, volume).”If this is true it’s a bearish scenario.

As I’ve mentioned before, the weekly chart here looks corrective to me. I’ve traced the corrective zigzag in red. If the pair can’t move definitively above 1.4865 then it’s possible the path forward is down, down, down. Note that since I’m currently trading this as a sideways market, the bounce off the 13-EMA has been a buy point in the past. Here’s the weekly chart:

These are not trade recommendations. 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. You have to decide on your own approach to trading. Trading is risky. But you know that already.

© Dianne Fecteau, 2009. 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.

Euro, Cable, and Swissy

EURUSD and GBPUSD are up; USDCHF is down. With equity futures bidding up so strongly over night as I wrote in my last post, there was little doubt the dollar was in for a drubbing today. I went long both the Euro and Cable and short the Swissy earlier today. They’re all in about 45 to 50 pips profit and all are profit stopped. I had to use both the USDCHF chart to decide to buy the first two and short the Swissy. It was the only definitive chart.

Someone emailed me the other day and asked me to please give signals in advance. First, I’m not a signal service. They don’t usually work, anyway because the market can change in an instant—start contracting whereas before it was expanding and vice versa, etc. Second, I hope that by showing why I did something (and actually showing I’m in the position—let’s lynch all these so-called gurus who only talk and don’t trade but are still out there pushing their signal services) that someone will be able to learn to trade on their own. Besides, often I do give levels I plan on buying or selling. You just have to stay alert and take the trade at those levels. If anyone has a pair they want me to specifically comment on, just post a comment here asking and I will.

Getting back to the Euro, it hasn’t found its way to a definitive close above 1.48. Heaven knows its bulls have pushed and pushed and pushed. As long as that’s the case, I’d prefer to be short, but the buy signals were just too compelling on the shorter term charts this morning. I’m keeping my stop close because I expect to be stopped out on all of these at a small profit. Should the Euro manage to start decisively closing above 1.4868 then I’ll start looking for long positions. Here are the hourly charts for both the USDCHF and EURUSD. The GBPUSD is too boring to throw up at this point: None of the above are trade recommendations. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. 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.

EURUSD and EURJPY

EURUSD

My experience this week with the Euro has been decidedly mixed. Monday I was short. That stopped out with a loss of 25 pips. Yesterday I was long. That profit stopped overnight at 40 pips. Now the pair is hanging around its typical resistance level, wondering, I guess, which way to go.

Being whipsawed tells me that the market doesn’t know what to do at the moment. Nor do I. Bowing to Gann’s advice of staying out until I have a better sense of direction, you can bet that I will be tearing up those charts in the next hour or so.

EURJPY

I did short the EURJPY yesterday at 130.83. It’s up 103 pips as of now, 6:20 AM EST. Where might it go? Let’s look at the charts.

On the daily chart there are some interesting patterns. First, is the up channel from early in the year (its lines are drawn in black). When it fell out of that channel it entered some sort of corrective pattern or perhaps a consolidation. That’s confined between the purple lines. While the bottom purple line shows an up trend, the red line indicates a slight down trend since June (the red line). This shows it coiling in a triangle. Going along with the upward trending red line there is also divergence with the RSI.

What to make out of all this? In part it depends upon your personal approach to trading but the most conservative statement is that the market is pausing right now, storing up energy to make another move.

Why am I short? It broke below the triangle once. Now it looks as though it’s doing so again. It’s as thought it’s compelled to at least venture lower. Also, one can make the case for a double top although it’s not perfect. But if it is one, it broke below its neckline and is hanging out there.

Another thing is that divergence. Divergence has been all over the charts lately and it’s troubling. Why? If a price is trending up you expect to see any particular indicator you’re looking at also trending up. That’s known as confirming the price trend. When it doesn’t do so, that’s known as divergence. Divergence can be an early warning of a trend change. Note the words “can be.” It doesn’t mean it is a trend change. It means you have to watch prices more carefully than you might if everything was moving together. Divergence can last a long time. That’s why it’s not tradable in and of itself.

I don’t enter trades based only on one time frame. What really caused me to short was the daily in combination with the signals on the hourly. There it broke a short term uptrend line on both price and RSI and had a bearish candle.

Here’s the daily and hourly:

None of the above are trade recommendations. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. 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.

Thursday morning trades, canoodling with EW Theory, and other thoughts

GBPUSD

Yesterday's short trade is still on. I took a third off the table earlier and have my stop at plus 60 pips. I may move it again soon. I also took another short position earlier this morning and have the stop at breakeven. Note on the three hour chart below how RSI respected its Fib levels. The horizontal orange lines are why I said yesterday I wanted to short around 1.6150. I explained yesterday that I shorted under that because of price behavior. The thing to watch now, in my mind, is how the pair begins to behave as it nears the short uptrend line. Here’s the 3-hour chart but I’ll be watching shorter time frames.
USDCHF

My short was obviously taken out yesterday morning at profit. I entered long on the pullback where it continues to do well. But it’s nearing the top of that channel I’ve shown on prior charts so I need to assess this.

EURUSD

I got in and out of a quick short yesterday. I’m carefully analyzing the recent price activity. My “belief” is that the pair is headed down but you know how beliefs can blind you to what’s really happening? A good price analysis will tell the story.

AUDUSD

Yesterday I wrote that I was out of the Ozzie until I could form a clearer picture. I hypothesized that perhaps we could be in some sort of B wave (Elliott wave speak for corrective waves that are often choppy and difficult to decipher).

I’m not a big fan of the Elliott Wave Theory (EWT) for actual trading because it’s difficult to use it for trades by itself (although I know some people do and more power to them if it is profitable for them). I do, though, count waves. I do spend oodles of time canoodling with my Elliott Wave Principle book (Frost and Prechter).

Why does EWT appear so difficult? Why is it that there are so many interpretations? One reason is that while there are several rules—and these are inviolate—there are many more guidelines. These are just that—guidelines. The guidelines lead to arguments among EWT practitioners. Another reason is that many so-called EWT practitioners don’t seem to have memorized the rules and say things that simply aren’t true. A third reason, as I’ve mentioned before, is that the corrections are devilishly difficult to identify until well after the fact as to what they are and what they mean. While they’re in process they can lead to some strong arguments among practitioners.

Arguing over interpretations of anything on the charts is a valid activity. After all, if one person or theory held the absolute answer then that would be the fountain of youth, Eldorado, and the lost city of Atlantis rolled into one. Wouldn’t all who practiced that theory be lucky? But people that hold strongly to any given theory get extreme in their arguments, often using emotion where reason fails. So you hear such phrases as “I have this on absolute authority from a close relative of Elliott himself who verified it had never been written down and therefore I’m right and you’re not and you’re also stupid.”

Where I find EWT most useful is in gauging market psychology. It supplements my other analysis. I won’t necessarily act on a wave count that seems to be present if it goes against other factors I consider more important.

Briefly, since I don’t have the time to write a treatise on the topic, certain waves are technically strong and have real oomph. Others are not strong at all. Often, such as the B wave I mentioned as a possibility yesterday, they exhibit divergences, non-confirmations and the like.

Getting back to the AUDUSD, I studied charts dating back 30 years yesterday, in an attempt to clear up my confusion over what the pair was doing. I can make a case for three alternative wave counts based on the monthly chart. This is not helpful. One can’t trade this. But it’s a good exercise to write down the reasons for each. Briefly, though, my favored wave count is that we’re in a primary wave two correction (wave one being the steep drop from July, 2008). If this is true then it could retrace most or all of wave one. So it can’t exceed .9851. Since its high yesterday was .8860, this isn’t helpful, either. At least not to me, a small trader, who is not going to buy now, damn the torpedoes, and put a stop quite a distance away. I can make a good case for why I should have gone long at .8590 and stayed in. Had I done that I wouldn’t be doing all this work right now. I didn’t buy but should have doesn’t cut it in trading. Or anywhere else.

So I need to work on a smaller chart, right? Yes. But before leaving the monthly chart I drew an uptrend line from the lows earlier in the decade and it is coming in right about where the pair traded yesterday. Sometimes these old trend lines, once violated, serve as resistance. If I draw a horizontal line back in time to the early 80s on the monthly chart, I also see this is an interesting area known as polarity. Price has roughly used it for support and resistance.

Is it worth a short then? Well this would tie in with my belief we might be in a B wave correction. But there’s a bit of cognitive dissonance here. I’ve been calculating resistance ever since the secondary low in November, 2008. At each key resistance level I dutifully lightened or closed my longs, only to have to find a way to get back in. I’ve been trying to go long since the beginning of September and had some decent trades, e.g. one at 90 pips, but, for the last couple of weeks, have only found short setups where I’ve made small amounts of pips or taken small losses. (I’m not trashing 20 pip profits—they can add up—but one hopes for better than that, usually).

Here’s my opinion. It’s in an uptrend although it seems to be struggling with robust, sustained up moves. It’s at a resistance level that held once, yesterday. I may short it if it reaches .8860 again, depending on the behavior on the charts. Or I may go long if I can find behavior to support that position. That’s the best I can do at this point. Wait and see.

None of the above are trade recommendations. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. 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.

Uncertainty

AUDUSD—standing aside for now

I’ve been a bit buffeted by the Ozzie during the last several days. I’ve been out at breakeven or tiny little profits in its sideways movements. I stopped out overnight at .8770 with a loss of 48 pips. This morning I took a closer look.

From the longer term charts—monthly, weekly, and daily—we’re still in an uptrend although the movement has been strongly sideways the last couple of weeks. Lately it’s been waffling with ranges, false or premature breakouts from ranges, negative divergences, etc. Now it looks as though it may be pushing up which is what I thought it would do in the first place.

Why, I ask myself, would a pair behave this way? I mean besides the obvious reason that nobody can make up their mind about what to do—is the sky falling or is it not? Maybe that is the reason but what else comes to mind? I think about what Frost and Prechter wrote in their book, Elliott Wave Principle (New Classics Library, 10th ed. 2005), about B waves on page 81:

B waves are phonies…sucker plays, bull traps, speculators’ paradise….[They’re] rarely technically strong, and are virtually always doomed to complete retracement by wave C. If the analyst can easily say to himself, “There’s something wrong with this market,” chances are it’s a B wave.

That’s what I’ve been thinking to myself—there’s something wrong with this market. Of course there may be something wrong with me and my analysis but I’m not going there right now.

OK. What do I have? A belief we’re in an uptrend although Dow Theory tells me it could be an intermediate correction. A market that seems unclear. What choice do I have? I can only stand aside. As Gann wrote, if you “don’t know what to do, there is but one thing to do. Get out and wait until you know there is a definite trend.” When I see something more clearly and have a good entry point, I’ll trade it.

USD/CHF

I’m out of this pair I bought at 1.0288 and have a short on from near the top of the channel at 1.0386. Remember that yesterday I wrote it could bump its head and scoot back to its lower trend line? Well it did. Look at the candles as it approached the top of the channel on the hourly chart:
Now it’s falling out of its channel. Is this a fake move prior to all the news today? (ADP, GDP, Corporate Profits, and CPI). Look at how RSI is dipping. Note the negative divergence. All this is not good. I am, after all, in an overall downtrend as I pointed out yesterday. I’m uncertain here, too, but will stay in the trade until I’m stopped out at profit. Hmm. There seems to be a theme of uncertainty this morning.

EURUSD

I stopped out overnight with 100 pips profit. Not bad, but what’s up with the Euro? I’m analyzing it now and will post later. Hopefully I won’t have to say I’m uncertain, LOL.

GBPUSD

Thank goodness I don’t have to say I’m uncertain! Alas, there’s no trade at the moment. I consider the market to be contracting and I’m waiting to sell, hopefully at or above 1.6150. I’ll post more, later.

None of the above is a trade recommendation. These are just my early morning thoughts. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. 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.

Observation, Generalization, Verification--Euro and other trades

I’m still short the Euro from the sell order that was triggered last Friday at 1.4712. I moved my stop to 100 pips profit if taken out. In addition, I this moment (10AM EST) took a third of my position off the table at 170 pips profit.

I wondered yesterday if I’d see another push up in the Euro. It hasn’t happened yet. One can see a few reasons for being short this pair. Some of them (from the three hour chart below) are:

1) It broke below an uptrend channel (on daily as well as the 3- hour)
2) There was prior divergence between the RSI and the upward movement in price
3) The 1.47 area was proving to be resistance
4) It broke below trough (1.4723) of a double top on the 3-hour chart
5) Long bearish candles were taking out small bullish candles

Some might argue a Head and Shoulder (H&S) pattern was forming on the three hour. If so, it’s a bit messy. More important is that it’s currently loitering just below the neckline. Until that’s definitively broken, there is no pattern. This is something new traders often forget. “Double top!” they’ll say, or “Head and Shoulders!” They correctly detect the beginnings of the pattern but don’t wait until it proves itself to be really that. Good observation of the possible but too much generalization and no verification. Trading is a matter of patience (forbearance, I wrote earlier this month).

But there is enough here to say, in short, a short. If it continues down and definitively breaks the upward channel on the weekly chart this could be the beginning of something big. Before one starts counting profits, though, note the three hour bullish divergence on the three hour chart. We’ll just have to continue watching. Here’s the three hour chart:

By the way, most will realize that as far as correlation goes this is a mirror of my long USD/CHF trade. I could have doubled up in either instead of trading them both. The important point, though, is that I realized this as I calculated position size for each trade.

Last week I wrote that I shorted the AUD/USD at .8738. It stopped yesterday at 20 pips profit. Talk about sideways movement. I shorted again at .8722. As soon as I finish writing this I’m going to analyze this again. This is how I spend my days as a trader. Analyzing and re-analyzing price movement from several different points of view. When I first started trading I heard many stories about how people would trade from the beach, grabbing 500 pips here or a thousand pips there. It hasn’t proven to be the reality for me. I have to work at this stuff.

The GBP/USD has had its fun with me, stopping me out yet again at break even. Talk about the need for more analysis. I’m also out of GBP/JPY.

None of the above is a trade recommendation. You have to develop your own ideas. I only hope to show some of the tools I use that can help you do so. Remember that trading involves substantial risk. Get written permission from Mommy before you attempt it but only if you and Mommy have a good financial cushion and are risking money you can afford to lose.

© Dianne Fecteau, 2009. 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.

Is it really Friday?

First, a word cloud based on the text of the FOMC minutes from Wednesday. I hope you had a chance to read the lighthearted take on the minutes I posted a couple of posts ago. This word cloud tells me that their most frequently used words are federal, committee, economic, and markets. Why am I not surprised?

I’m still in the AUD/USD (currently at 78 pips) and USD/CHF (currently at 38 pips) trades from yesterday. The USD/JPY trade stopped out at 20 pips profit. GBP/JPY stopped out at a 40 pip loss and I’m currently short in this pair with my stop at breakeven. Since the AUD/USD and USD/CHF both have stops at a profit point and the GBP/JPY is at breakeven they are “free” trades. Traders love those things because once the stop is at or above breakeven you can't lose money or are profitable. But I’m in these trades thinking bigger things could happen. Whether they will or not is the question.

Today began looking like one of those days when the USD could continue to strengthen. Why? Equity futures are bidding down. Plus there’s lots of buzz and chatter out there about how the equity markets have seen their highs and a turning point is here. Of course some of those buzzing have been saying this for at least six weeks or so, some longer. Much in the area of market prediction is downright silly. That said, I do believe the market provides clues and markers for those alert to them. Seeing them requires awareness, something I’ll write about this weekend.

Ten days ago I did an Elliott wave count on the EUR/USD. I’ve updated it in the daily chart below. The trouble with Elliott Wave is that when you’re in a correction it’s difficult to reach agreement on what it is until after the fact. This makes it less than tradable in most cases. But I do believe it reflects a market psychology. I still believe we’re in wave C of a correction on the daily chart. Once the Euro reached past 1.4720 I put a sell order in at 1.4849. My thinking was that it would reach towards its September ’08 high of 1.4868. It climbed only to 1.4845 so it didn’t quite reach the order. Frankly, I’m a bit surprised. A sell order I put in place this morning at 1.4712 was just triggered. I’ll move my stop to breakeven (if possible—it can reverse quickly but it’s a tight stop so I won’t pay too stiff a price) as soon as it looks as though it’s going to continue down. I won’t be troubled if I’m taken out since there may be one last push up. In any case, the pair is looking a bit top heavy.

Besides that I went long the pound this morning at 1.5987. I don’t have time to include the chart right now but I have a tight stop on it.

None of the above are trade recommendations. Remember that trading involves substantial risk. My hope is that by posting this analysis on some of the trades I take, people can start to learn an approach for themselves. The biggest part of trading is handling emotions and this is something I'll be dealing with in future posts.

© Dianne Fecteau, 2009. 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.

Other trades this week

To be honest, I usually am exhausted by the end of the week. TGIF and all that. I frequently lighten up or go flat. Often I don’t trade at all on Fridays.

But I wanted to touch on the other trades I was in this week.

On Tuesday I went out at 90 pips profit on the Ozzie. That was a mistake since I'd forgotten to move my profit target up as I moved my stop up. That was .8660 and I was looking for a place to go long again. It's high was .8775 for the week so I definitely, stupidly, missed out on more profit but since I would have kept moving my stop and target up, I wouldn't have gotten all of it. So it's not too big a disappointment. I put in two buy orders, one at the top of the range and one at an uptrend line. I also shorted the Ozzie at minor support of .8720 yesterday (gosh, was that only yesterday? It feels like such a long week with the sideways movements on the charts). Since that point it dropped back to the top of its range (As in home on the range? Mama? It’s me, your pogo sticking but not too high, wayward child) and triggered my buy order at .8678. It's ranging around this point so one position is slightly in profit and one is slightly underwater. Back to the charts for that one.

I also shorted the drearily dwindling USD/CHF at 1.0309 on its tiny rally yesterday. One would think there’d be at least a dead cat bounce soon, wouldn’t one? By gosh, the 1-, 5-, 15-, 30-minute and even one hour chart is showing an uptrend. It’s nasty little low yesterday at 1.0275 must have brought out the bottom fishers as well as those that love to buy lows whether or not there is any near term support under them. A quick look at the three-hour chart isn’t all that encouraging. The three white candles could be interpreted as something Steve Nison calls the Three White Soldiers (aka Three Advancing Soldiers). These can indicate more strength is coming if they appear after a period of stable prices or a low price area. (Japanese Candlestick Charting Techniques). Well the prices have been low but they haven’t been lingering there long. The three white candles could also be interpreted as what he calls the Three Methods. This is a long black candle followed by three small, often white real body candles that “hold within the first session’s high-low range.” (Ibid. p. 276) It’s bearish. Thank you, candlesticks, for those two equally interesting interpretations. But I don’t mean to sound sarcastic. I do use candles but as Steve himself would be the first to say, they can’t be used in isolation. Also, to be fair, the third candlestick shows some weakening with its upper shadow. And then there’s that bearish shooting star. This uptick doesn’t look sustainable right now but as I said earlier, there’s a dead cat bounce in here somewhere. My suspicion is it will retest those yesterday lows at least. Here's the three hour chart:

Finally, ta-da, the Euro. It’s currently up 110 pips from last week. Wow! For this we waited? The resistance it’s encountering is real so we’ll just have to wait and see for that one. I’m out of it for now.

None of these are trade recommendations. All trading involves substantial risk.

© Dianne Fecteau, 2009. 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.

Waiting it out

AUD/USD
Can the market move any slower? Well, yes, I guess it could. My long that I entered yesterday at .8570 has gone up as much as 70 pips but has now fallen back.

I closed half my position at 50 pips and have moved my stop to breakeven. It’s either going to make it up to the top of the range or it won’t. It’s like watching paint dry. But little has changed since my analysis so there’s no reason to do anything else but wait. This situation won’t last forever.

EURUSD

I was stopped out yesterday on the brief move to 1.4653. After looking at the price action on the 15 minute chart I decided to short again. I entered at 1.4632. What made me do so? Remember, I had lightened up on my short position yesterday because of overall bullish sentiment, a slight expansion on the hourly chart, and the fact of triple witching this week which traditionally has resulted in a positive week for the Euro.

Look at the candles on the 15 minute chart below. The upper shadows were long, suggesting that the higher price was being rejected. A gravestone doji formed. This was bearish. The price had rallied, yes, but was dragged down to the low of the 15 minute session. Steve Nison wrote in his book that “the gravestone doji represents the gravestone of the bulls that have died defending their territory.” (Japanese Candlestick Charting Techniques, 2001). There was also divergence between price and RSI. The small triangle represents my entry.

As with the Ozzie, price will not stay in this narrow range forever. Yesterday afternoon I plotted out my interpretation of the Elliott waves on a daily Euro chart which is below. I don’t consider Elliott Wave Theory (EWT) tradable in and of itself but I do believe one can gain insight into the market by looking at it from this viewpoint. The problem of course is that if you have five EWT analysts in a room you usually have six interpretations. One reason this is true is because of the nature of corrections—it’s often hard to see them until well after the fact.

My interpretation is that we’re in a correction known as a zigzag. This is a three wave correction (ABC). EWT involves rules (which are inviolate) and guidelines. The rules for a zigzag are simple and are found in Frost and Prechter’s book, Elliott Wave Principle. First, it always subdivides into 3 waves. I think wave C is forming now, making it the third wave. Second, wave B always subdivides into a ZZ, flat, triangle, or combination thereof. That’s pretty broad, guys, but what I’m labeling B conforms to this. Third, wave B never moves beyond start of wave A which it did not. Finally, wave C always subdivides into an impulse or diagonal. An impulse is five waves up which I’ve labeled with 1 being in March of this year at 1.3740. So, by this interpretation, we’re in the fifth wave up.

Now the question is where might it end? Ha! That’s always the question.

The guidelines for zigzags say wave C is often about the same length as A and usually ends beyond end of wave A. If this is true then we could expect it to end above 1.4720 which is where wave A ended in December of last year. Another guideline says that a line connecting waves A and C is often parallel to a line connecting the end of wave B and the start of wave A. If that’s true then again we’re looking at about 1.4720.
I could buy all this but I think even if it’s true that there is some serious sideways action going on in the Euro (in most pairs actually) and one can make a few pips while it works itself out.

Frost and Prechter also write about the Golden Section. The golden section has to do with how you divide a total length of something. It’s applied to wave theory in that the distance between the start of wave 1 and the bottom of wave 4 will be either .618 or .382 of the whole. You can decide which one by observing how wave five behaves. You need to know whether wave 5 “extends” or not. This is where EWT makes me grind my teeth and clench my jaw. If I have to wait until the end of wave 5 the first question is how will I know it has ended? But never mind that.

I’m going to make an assumption both ways and see what it gets me. If I decide that the distance from the bottom of wave 1 at 1.2456 to the bottom of wave 4 at about 1.38 is only .382 of the whole length, well you can see that the Euro could go up rather sharply to about 1.73. That would be interesting, for sure. If I make the opposite assumption—that .618 of the entire move had already occurred at around 1.38 then the entire move would end at 1.4663. This to me seems very reasonable especially combined with the wishy-washy way the pair has been behaving.

You could say this entire correction isn’t a zigzag at all but a flat. But I’m not going there. For one thing, I have a life to lead. Also, there are other pairs I want to look at.

Remember where I’m at right now. I entered at the top of this little range with a tight stop so the worst that can happen is that I’ll take a small loss. If I take that loss the market is telling me something important and I’ll have better information to base the next trade upon. I can also move to breakeven as it hits the lower part of the range so I’ll have no loss at all if taken out.

GBP/JPY

Yesterday I also want long GBP/JPY. I’ve moved my stop to 60 pips profit. This was a straightforward buy at support after a steep fall. It’s as simple as falling off a log, not that I’ve ever actually fallen off a log. It’s my favorite kind of trade—very small risk because you can set a tight stop and good upside potential. To be honest it’s probably time to start looking at shorting it but I’ll keep you posted. Ranging, sideways markets seem to be the rule right now.

EUR/GBP

Finally, I think the EUR/GBP is interesting. Take a look at my 3 hour, 3 box Point and Figure chart. It consolidated tightly and had a simple quadruple top before breaking out. The many small columns tell me there could be accumulation taking place. It now has drifted back near the breakout point. I’ll study this one further and keep you posted. None of the above is a trade recommendation. All my analysis may well be wrong, wrong, wrong. Trading carries a substantial degree of risk.

© Dianne Fecteau, 2009. 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.

EUR/USD Monday Morning

I'm still short the Euro but I did close out more than half of my position a little while ago. Take a look at the following 3 hour chart. It's still showing the weakness in the shorter time frame that I wrote about last week and some nice selling came in early in the Asian session last night. Then you see the hammer so the behavior of the current candle is going to determine whether the pair will continue to break down or whether it's going to pick up strength. Given the overall bullish sentiment and given the fact of triple witching this week (see my Sunday post), it's time to lighten up shorts for now. My stop is above the high this month of 1.4635 but I closed enough of my position that I will still be at slight profit on the trade as a whole if it takes out my stop.

The hourly chart also supports my decision to lighten up on my short. Although there is still weakness showing--the divergence between RSI and price and the breaking down through the upward trend line for both RSI and price, the market is slightly expanding rather than contracting. It will take a high above 1.4622 to maintain this expansion (and since high from last week is 1.4635 it would ideally close above that to show a continuing pattern of higher highs and higher lows). Why not take the paltry profit and get out completely at this point? Well, we're at a very interesting price level based on my Gann analysis on the numbers of extreme highs and lows and of the fib level 1.4623 from high of 1.6041 to low of 1.2329. So we'll just have to see and the only way to see is to watch the price action.

None of the above is a trade recommendation. It's only my musings. We all know that trading carries a substantial degree of risk.

© Dianne Fecteau, 2009. 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.

Triple Witching Week

This week is triple witching week which happens once a quarter on the third Friday of March, June, September, and December. For the last five years, pairs such as the Euro, GBP, and AUD have usually ended such weeks up although five years does not a statistical study make. All the expiration activity doesn't seem to predict future prices but of course your limit and stop orders can sometimes be triggered. Just one more variable that can interfere with technical analysis.

Waiting for Entries

What will the Euro do this coming week? It doesn’t take much in the way of technical analysis to see that the pair is in an uptrend. Then there was the strong move up this past week—it started the week at 1.4295 and ended it at 1.4570 (the high for the week was 1.4635). Sentiment is bullish, judging by the news reports (see the word cloud from the last post). Even if you believe that this is a primary wave correction (Elliott wave speak), there’s little doubt, it seems, it could go higher, possibly up to 1.48 or so. But as I said in my last post it’s not moving right now. If you want to go long you’d have to wait for a reasonable entry point. So two questions:

1) If you were going to go long where is a reasonable entry point?
2) What do you do while you wait for it to get to that point? That’s the forbearance part I mentioned last time.

The first question is easy. Depending on your approach you can answer it a number of ways. I could use my 3 hour P&F chart I posted last time and hope for a retracement back to 1.4420/45. The pair closed Friday at 1.4570; its daily average true range (ATR) is 129. So that wouldn’t be such a stretch. Or I could use Fib levels, which would also bring me in at 1.4410/55. Finally, I could wait for something with more upside potential such as letting price come back to an uptrend line drawn from May which also coincides roughly with the 50 EMA on the daily chart. That would mean I’d enter around 1.4225/75. That would probably require waiting a few days at least. (Note that if I did take that approach, I’d want to carefully assess market conditions when it reached that point). Or I could wait for it to break out of some major resistance levels which would involve the highs in late 2008.

Why not just go long now if you think the Euro is bullish? Jessie Livermore answered it best when he wrote, “In a narrow market when prices are not getting anywhere to speak of but move within a narrow range, there is no sense trying to anticipate what the next big movement is going to be—up or down. The thing to do is to watch the market…and make up your mind that you will not take an interest until the price breaks through in either direction.” (Reminiscences of a Stock Operator, 1993)

Regardless of approach, what do you do while you’re waiting for your entry? If you think a market is going up you can fall into being fearful that you’ll lose out. This can make you jump in when the market is at a top. One answer is distraction. This can be as simple as putting on your headphones and listening to some music or doing the analysis on another pair. Or focus on how much you can lose if you’re wrong. Actually write down the numbers or plug them into Excel. Read them out loud to yourself. Traders often trade from the silence of their inner thoughts or with the babble of financial news in the background. Hearing your voice speak the results of an analysis, especially if it involves potential loss, can be effective in combating the urge to just put on a trade.

Relaxation anchoring is another technique. You do this by practicing progressive relaxation and then, when deeply relaxed, breathe in with the phrase, “I am relaxed,” and exhale with the phrase, “I am calm.” Each time you say the word “relaxed” squeeze your right thumb. If you practice this a few times it will only take squeezing your right thumb to bring on a more relaxed state during your normal activities. You can also anchor to a pleasant experience. I’ll include some audio links sometime in the future with both these approaches. Email me at dianne@feldyusa.com or post a comment with your email if you want to be on a list to receive them.

None of the above is a trade recommendation—in fact I’m short the Euro right now but that’s not a trade recommendation either.

© Dianne Fecteau, 2009. 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.