GBPJPY Forecast (24 Feb 08)

I had a friend who asked me for my opinion on GBPJPY, so I thought I give it a shot. You would probably have known by now that I'm a support of the Elliott Wave Principle, but honestly, doing wave counts on the current charts is quite a nightmare!

I do also use conventional technical analysis from time to time, and that's exactly what I've done this time. Well, instead of just one image, you are getting four charts from me today! *clap clap clap*


For the first chart, I've added some general support and resistance levels and a price objective based on the head & shoulders (H&S) pattern which formed the peak. We can see that prices have remain range-bound for a year usually before it moved up to the next level. That is until 2006 where we find prices moving in what looks like a parabolic blow-off. In anycase, using the distance from the peak to the neckline to project from the break of the neckline, we find a price objective at around the 186 level. The second chart shows another interesting tidbit:


The price objective based on the H&S pattern is just below the 61.8% retracement level from the multi-year high and low! How's that for coincidence? Now, let's zoom in on to a smaller time frame to see what the chart can tell us.


Well, now I'm employing alittle Elliott Wave here. I think you'll agree with me that the movement doesn't seem all that impulsive, so I'll use an A-B-C count for now. If however, we are to use a 1-2-3-4-5 impulse wave count, that only means that there's much more downside potential.

Using a A-B-C count, we can see that the 161.8% multiple of wave A is actually rather near the H&S objective and the 61.8% retracement level. I didn't label the purple coloured fibonacci, but its an estimate based on a 1-2-3-4-5 wave count for the previous downmove. Actually, the next (and final) chart will make things a little clearer.



I'm not entirely sure of this count, but, here's what I've got. I counted 5 waves down, followed by an expanded flat. What follows could be

a) In Black : The formation of a triangle, followed by a small upside break before a downmove, or
b) In Purple: Wave B has already been formed, and price continues to move up to form wave C. In this case, Wave C is almost equal to Wave A.

In both cases, prices near the H&S Neckline and wave 4 of the downmove.

So in summary, I think there's further downside to the GBPJPY. Like I said, my fundamentals are horrible, so I can't say what events might support these movements. In anycase, do keep a good risk/reward ratio if you are trading this pair. I'll probably enter near the neckline, or the region of my wave 4 (see the last chart) in anticipation of the move down.

Usual Disclaimer holds. :) Good luck with your trading!

Lesson in Trading

Have a method in trading, trust in your method and do not be swayed by opinions of others.

Most of experienced traders already know this, and personally, I know this too. But theory is different from practice, and one can buckle under pressure when you see price hitting some consolidation and friends are asking why you are still holding on to that position.

What actually happened
I was holding on to a long position GBPUSD (No charting for that pair provided yet because the wave counts are horribly difficult to do at this time) with a longer term target of 1.9900. I entered at around 1.9600 with a Stop loss at 1.9300, below the 12month low.

I endured the drop from 1.9600 to 1.9360, and actually entered another small position around 1.9400.

Last night, a friend was asking me why I was still holding the position when it hit one of the Fib levels. I relooked at the charts, and saw:
a) There was some resistance at that price level
b) There was a MACD negative divergence at the 15min chart (I usually look at higher timeframes for this).

So I decided to close my position, and even entered a short position at 1.9600 (a key psychological resistance level), with a SL around 1.9630, and a TP at 1.9550. Well, the trade went against me, and a positive trade turned into a profitless trade. At least no losses were made, but its a learning point.

P.S. I'm still bullish on this pair and expect it to trend up higher. I've closed all my GBPUSD Positions and will probably re-enter on the next dip.

P.P.S. Remember to check out the free Elliott Wave Theorist Issue. It is very rare for EWI to be providing free issues! What's more, its only for a limited time only. You don't want to miss out on it. :)

Free Issue of Elliott Wave Theorists (Valued at $29)

Our friends at EIliott Wave International have just released another compelling freebie. They're giving away one of Bob Prechter's most recent Elliott Wave Theorists.

I've read Bob's work before, and his insights are always intriguing and never conventional.

I recommend you take advantage of this special chance to read his publication free of charge. Single issues are normally priced at $29. Go here to get your complimentary issue: Free Elliott Wave Theorist.

Free Forex Essentials Course by PFX

Profiting with Forex (PFT) has recently launched a brand new course designed to introduce people to the forex in all its glory and nuances. Basics such as what is Forex, what economic news impacts the Forex markets, simple charting etc are explained. Video's are provided at the end of each section to illustrate the points.

I think it is a good course for any beginner to look through. This coupled with babypip's school of pipsology could help cut short the learning journey of anyone keen on the Forex Markets.

Do check it out and have fun! Once again, another free and useful Forex Trading resource found and shared on this blog. :) (yes yes... I need to hoot my horn little once in awhile.)

Asia Trader & Investor Convention (ATIC) 2008

(Note: Animated Gif, so you have to click on the thumbnail above)

For those who missed last year Asia Trader & Investor Convention (ATIC), this year will be held 01-02 March at the same location at Suntec Singapore. Five reasons to attend this convention:
1. Learn new investment methodologies, trading strategies and money management techniques
2. Get your answers from over 30 industry and trading experts
3. Discover the latest financial products, services and tools
4. Enjoy special promotional offers by our sponsors & exhibitors!
5. Meet & interact with Asia's trading & investment community

For more information click here.

p.s. I don't benefit from publicising this event. Just think some of you might be interested in attending. :)

USDCHF Updates (14 Feb 08)

Happy Valentine's Day to one and all! For those who are single and looking for a partner, you have my blessings. For those who are attached, take a break from trading and enjoy your time with your loved one. For those who are single and not looking to be attached.... Trade on! haha.

Alright, my main PC has actually crashed today, so I'm actually pretty handicapped since most of my software etc are all there! So I can't really post any charts for the time being.

But a word of caution again for the USDCHF. The movement after the previous five wave up is, in my opinion, undoubtedly a corrective pattern. It has in-fact taken out the high at the wave five, which means that its unlikely for us to see a strong impluse wave downwards for the time being. There is also a MACD Divergence at the 4-hourly chart, so you can consider trading shorter timeframes based on that. For Elliott Wave Perspective, I'll keep out of the market for abit until I see a more readable wavecount.

Well, good luck and take care out there!

G7 Economic Meeting

The G7 held their most recent meeting over the weekend, and I think we can expect the currency prices to move onces the markets open for the new week.

I am really not good with fundamentals, but I think there's value in understanding what transpired during the meeting. For your own reference, check out reports by CNN Money, MarketWatch and Bloomberg.

The report by CNN Money states that

"Trichet said the ECB's priority was to fight inflation."

and that

"The European Central Bank, which sets policy for the euro-zone, appears to be leaving the door open for a rate cut, but it is unlikely to make as drastic a move as the U.S. because of inflation concerns."

If my knowlege of economics serves me well, the ECB will have to raise interest rates to fight inflation, but since they are also leaving the door open for a rate cut, that means that no clear direction has been set. Meanwhile, consumers are wondering if the EUR is currently overvalued and if it is time to short it (see here, here, and here).

Personally, I'm unable to glean much from what's available on the recent G7 Meeting. What's going to happen next is anyone's guess perhaps.

USDCHF Forecast (9 Feb 08)

Happy Lunar New Year To Everyone! I hope the markets have been treating you well this week. For those who are still eligible for 'ang baos', I hope you had received a bountiful harvest. 恭喜发财，万事如意。

Now, let us revisit the USDCHF Charts we looked at last week and see what has happened since then. I forgot to mentioned that I've used the 4-hourly chart.... just so you know which timeframe you are looking at.

5 Waves Completed for Wave C

Alright, now if you look at the 4-hourly chart above. You can see that prices have not quite hit the sell-zone I marked out last week. But what's interesting is that prices appeared to have unfolded in five very nice waves.

I'm not too optimistic about prices hitting 1.1120 at this point, because wave 3 at this point is actually shorter than wave 1. So for the 5 wave impluse to be intact, wave 5 should not actually reach 1.1126 at all. So I've actually gone short at 1.1044 when I saw the market reject the price rather sharply at 1.1100. My price objective is still 1.0750, around the previous significant low.

I was looking for a sign of divergence at the 4-hourly chart, but alas, there was none. While it is always good to have divergence at a higher timeframe, sometimes having a divergence at a lower timeframe could still be helpful. So let's see what the 1-hourly chart shows us...

Negative Divergence on USDCHF 1-Hourly Chart
And the 1-Hourly Chart shows a very nice and clear negative divergence on the MACD, which would indicate that the five wave rally has completed.

Possibility of Extension
There is a possibility for an extension, but I think chances are slim. Besides, Wave 5 is unlikely to be extended because Wave 5 would then be longer than Wave 3, thus breaking one of Elliott's rule. In addition, it is also unlikely that Wave 3 is extended because wave 4 of 3 would have entered the territory of wave 1 of 3.

What would technically work is for Wave 1-5 to be part of a larger rally, but I think that's unlikely too. Since I'm counting this leg as a larger wave C, I don't really think it will be moving up that much. In addition, with the Fed cutting rates that much, I really doubt that the USD will rally strongly over the long term. One might argue that Technicals and Fundamentals shouldn't be used together, but that's just an opinion I hold.

What Worries Me
What worries me is that with the conclusion of a Wave C, I should be looking out for the next five wave decline. But what I'm seeing on the charts after my five wave rally hardly looks implusive. I'll approach this with caution and will close my position if future price action does not conform to my wave counts.

Well, that's it for today. Good luck with your trading!

P.S. If you are reading this and like what you see, please leave a comment so I'd know. It does take some time to put all this up, and some comments would help me know at least someone is reading it. :)

Disclaimer: All materials on this blog are purely the writer's opinion and should not be regarded as professional trading or investing advice.

Commitments of Traders (COT)

I had come across COT many months back when I was first learning about trading the Forex spot markets, but I really hadn't had the time to study its use thoroughly. And while fairly common for commodities, I think not many Forex traders are fully aware of what COT is, or how to use it for trading. Or perhaps the professional traders are aware, but most retail traders aren't.

Rather than attempt to provide a half-baked explanation of what the COT is, I'd rather point you to an appropriate source to read up on it : Using COT Report To Forecast FX Movements

If you are a frequent reader of Forex news from various website, you may have also come across mentions of COTS and how it is used as a bullish or bearish indicator : Euro Extremely Bullish According to COT

I hadn't been paying much attention to COT thus far, but I think its a legitimate tool to look at for trading the markets. If anyone dives into this, do let me know how it turns out for you.

To Everyone - Have a Happy and Prosperous Chinese New Year!

USDCHF Forecast (2 Feb 08)

Rants
The GBPJPY Forecast went quite well, so I'm attempting another forecast now. I really hadn't had the time to follow the markets the past two weeks due to work commitments. Because of that, I'd missed quite a few targets.... sad... but its all part of work life balance.

Wave Analysis
Ok, now to my USDCHF Forecast. I think that the larger trend is downwards from the high of 1.1596. However, despite the negative USD sentiments, I think USDCHF is now in a A-B-C expanded flat correction, and has completed its wave B. Looking at the MACD, we can also see that some divergence has set in. This might indicate a larger move upwards, which constitutes the wave C rally.

Possible Entry Zone
Again, based on my analysis, I think the USDCHF is on a C Wave rally. Using a 1.618% extension of my wave A, the price target actually exceeds my wave i slightly. Assuming that the larger trend is still to the downside, I think that one can sell in the range of 1.1120 - 1.1170. (That's a 50 pip range).

Stop Limit
I'll place my stop above 1.1200, i.e. above the start of my wave i. Once the price hits that, it will have invalidated my wave count and we'll have to look at it all over again. But for now, if we do enter at 1.1120-1.1170 and place the stop at around 1.1200. That's a risk of about 30-80 pips depending on where you enter the market.

Price Objective
I'm really not very good at setting price objectives, but I'll give it a shot anyway. If this really is a wave C rally, we can potentially expect it to drop back to at least its low of 1.0728. To be (very) conservative, my first price objective would be about 0.618% of the entire drop, i.e. around 1.0955. That's about 165-215 pips profit. The risk/reward ratio is about 80:165 to 30:215 (i.e. 2.06 to 7.17).

And my second price objective would be around the low of wave-B which gives about 390-440 pips profit.

Well, that's all for now! Good luck with your trading!


Disclaimer:
The opinions expressed here is solely mine and should not be regarded as trading advice. Trading Forex, a leveraged tool, carries significant amounts of risk. Any trader who heeds the analysis here, trades at his/her own risks.