Elliott wave analysis of the week - October 31, 2009

Sorry for the crowded and small image. Here is the larger sized image.

On Thursday, October 29, the equity market rebounded with positive GDP, and so did EURUSD. This short term uptrend clearly had the characteristics of impulse wave black A, and it went all the way to 50% retracement of the purple .1. In Elliott wave principle, the corrective 2nd wave should be a zigzag ABC wave with A and C being impusive, and B being corrective.

What I would had expected is B to be very weak gradual trend down, not exceeding the starting point of A (=1.4680 and marked purple .1).

What made me cautious was this B looked like an impulsive, making gap around 1.4780. So, I was waiting at least the price to bounce back significantly in 15 min chart, now marked as purple iv. So I assumed the bottom is near. I gave a shot and bought 1.4756 with 1.4710 stop.

The price action slowed down as you can now see as the ending diagonal (black a, b, c, d, and e), but continued to go down. So I thought the end is near and bought another unit at 1.4726.

EURUSD kept going down gradually, and I was thinking hard what to do with my 1st and 2nd positions. As a discipline, I should never move the initial stop loss position in the direction of increasing the loss. So I kept 1.4710 cover for the 1st unit.

My hypothesis of EURUSD currently being in the 2nd wave zigzag up won’t be rejected fully until 1.4675 beaks. So, I decided to keep the latter unit bought at 1.4726, and set the stop at 1.4675 as I had thought very beginning.

In the worst case, both units would be covered with loss, and in this case, the total loss would be 97pips. October was not a good month for me but I was already 120+pips ahead, so I approved this idea.

Now I had nothing to do but sit back, and to see what happens. 1.4710 traded, and my 1st unit is covered with 46pips loss. My 2nd unit is still alive.

I labeled this chart this morning, with 2 scenarios. The second scenario is labeled with brackets, and it is less favorable than the initial scenario I had constructed before entering the position.

In the second scenario, we are already in mighty 3rd wave down, which is not good news to me. But within the 3rd impulsive wave, we should see 5 wave structure, and we should have just witnessed the end of the 1st wave, labeled as black (1) with ending diagonal (black a, b, c, d, and e). Ending diagonal usually is a reversal sign, at least to where it started (labeled as purple .iv). So, even if the second scenario will be the right answer, I might still able to cover the 2nd unit with ~50pips profit, that would make up the loss of the 1st unit.

Because this ending diagonal happened at the very close of the Friday market, I am not sure if the reversal predictor aspect of ending diagonal would be true this time. So keep my 1.4675 stop order tight to be prepared for the worst case scenario.

Elliott wave analysis of the week – October 24, 2009

I am currently flat on EURUSD, and just observing the price action on the following two different scenario:

$EURUSD ending diagonal with truncated E


$EURUSD ending diagonal alternative scenario

First scenario (the first chart) assumes that EURUSD’s rally from March of this year finally ended with “truncated” E of ending diagonal. In this case, EURUSD will not likely go higher than the lower blue trend line that would works as the resistance.

In the second scenario (the second chart), I actually learned the idea from Mr. Todd Gordon, and think the ending diagonal just marked the first peak (A), and making the way to mark the valley (B), and EURUSD will draw C-D-E, possibly peaking around 1.5084, which is high of the week of August 15, 2008.

In either case, best strategy now is to be out of the market.

$EURUSD Be wanred of ending diagonal and 1.5069 resistance. Potential reversal.

$EURUSD Be wanred of ending diagonal and 1.5069 resistance. Potential reversal.

This is just a quick warning. I saw the chart this morning, and my EURUSD long position from 1.4990 was trailing-stopped with a very small profit. The price is clearly following the ending diagonal

pattern towards the Fibonacci resistance line of 1.5069 that I mentioned a couple of days ago.

At least EURUSD should pull back to 1.4900 level after finishing this ending diagonal possibly at 1.5069. If this is really the end of bigger Elliott wave cycles, we will see a new EURUSD down trend from here towards the end of this year.

Also I recommend you too watch Mr. Todd Gordon’s Strategy of the Day video for other currency pairs.

So, I keep my position flat, and watch what happens.

Real time trading tweets

The plan in the article may get rejected any time, so please check out my tweets on Twitter.

Current risk exposure:

"","","","","$29,058.30","","","","","","","","","","","","","","","","","","","","41.95%","","","2.00%","","","","","","","","","","","","","","","","","","","","","","","","","","","",""
Rational Move always use stop loss orders, and this is the worse case potential loss over the capital for the currently open positions. This is unrealized loss is less or equal to the risk exposure.

Capital growth

From recent 100 trades (%) The growth right before the 1st trade is set to 0%.
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Drawdowns

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Total returns

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(Aug 10, 2009)
Year-to-date Quarter-to-date
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This is a normalized value: the return on each trade is normalized against the capital just before the trade execution. This way, it is eliminating the effect by the capital change from deposits and withdrawals. The calculation thus reflects the trading performance of each trade. The value does not contain unrealized profits and losses. RM's trading strategy never risks more than 5% of the present capital. Not including subtraction by tax.

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