A bit more explanation on the reasoning behind the trade I'm in from yesterday's post. The trade is based on two results from my last research project (go to my site, click on "Research Archives" and it's the project at the top dated January 2008).
1. Trend extension legs like the HHLL we've just had on EUR/JPY are followed by legs with a median pullback of 60%. Such a pullback would be a LLLH which is generally followed by a trend extension (down in this case) of 110%.
2. In my notes near the end of the first section, there is a part where I say "Note the weirdness." This is in reference to what looks like a very non-random behavior by which uptrends and downtrends tend to alternate (instead of continuing) after interruptions AND the type of interruptions to trends (range expansion or range contraction legs) also alternate. We have seen a downtrend interrupted by a range contraction which was then followed by un uptrend interrupted by a range expansion, so this follows that pattern. If the pattern continues, I expect that we'll next see a series of downtrend legs followed by a range contraction.
Downtrend legs are shown in orange, uptrend legs in cyan, and interruptions (range expansions or range contractions) in white. Anyway, that's why I'm bearish here, even though we're in a short term up move.
Here's the updated situation on the trade. The 4,5,6 and 7 unit sell orders have filled as the price moves north. The trade is well within expected parameters, currently at a 100 pip loss on a total of 4+5+6+7 = 22 units. Below is the zoomed in annotated view of the action.
1. Trend extension legs like the HHLL we've just had on EUR/JPY are followed by legs with a median pullback of 60%. Such a pullback would be a LLLH which is generally followed by a trend extension (down in this case) of 110%.
2. In my notes near the end of the first section, there is a part where I say "Note the weirdness." This is in reference to what looks like a very non-random behavior by which uptrends and downtrends tend to alternate (instead of continuing) after interruptions AND the type of interruptions to trends (range expansion or range contraction legs) also alternate. We have seen a downtrend interrupted by a range contraction which was then followed by un uptrend interrupted by a range expansion, so this follows that pattern. If the pattern continues, I expect that we'll next see a series of downtrend legs followed by a range contraction.
Downtrend legs are shown in orange, uptrend legs in cyan, and interruptions (range expansions or range contractions) in white. Anyway, that's why I'm bearish here, even though we're in a short term up move.
Here's the updated situation on the trade. The 4,5,6 and 7 unit sell orders have filled as the price moves north. The trade is well within expected parameters, currently at a 100 pip loss on a total of 4+5+6+7 = 22 units. Below is the zoomed in annotated view of the action.