Low Risk, High Reward Trading Experiment

Re-enter Trade Experiment #338B Sell EUR/USD at 1.2963 at the higher price of 1.3012

Our last trade experiment with EURUSD stopped out by only 2 pips. We should have advised a slight adjustment to the stop based on the Elliott Wave pattern that was forming. Trade Experiment #338A Sell EUR/USD at the higher price of 1.2988 (below) was stopped out by 2 pips when the price just rose to 1.3014.

Stop is 1.3033

Target is 1.2850

Risk is 24 pips

Reward is 158 pips

RRR is 6.6 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : very good

For research purposes only.

EURUSD Wave hypothesis : Wave 5 down of a larger Wave C of an even larger Wave 4.
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Previous Trade Experiment:

Tuesday February 6 at 13:45 ET

Re-enter Trade Experiment #338A Sell EUR/USD at 1.2963 at the higher price of 1.2988

Because the stop on Trade Experiment #338 was very small and we entered prematurely, we were stopped out. This second attempt has a better chance of success. The time of day (later in the New York session)is also on our side.
Stop is 1.3012
Target is 1.2850
Risk is 27 pips
Reward is 135 pips
RRR is 5.0 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.
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Previous Trade Experiment:

Tuesday February 6 at 11:45 ET
Trade Experiment #338 Sell EUR/USD at 1.2963
Stop is 1.2983
Target is 1.2850
Risk is 23 pips
Reward is 110 pips
RRR is 4.8 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

EURUSD Wave hypothesis : Wave 5 down of a larger Wave C of an even larger Wave 4.

Wednesday February 7 at 11:00 ET

Trade Experiment #339 Sell EUR/CAD at 1.5420

Stop is 1.5461

Target is 1.5100

Risk is 50 pips

Reward is 310 pips

RRR is 6.0 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis :

Thank you item,
Your #339 is good goal
I saw a W position so breakout is a Fibo AB=CD

The news was not supportive to either euro or the pound as both German and UK Industrial Production reports missed their mark. In the UK Industrial Production recorded a reading of -0.1% vs. 0.2% expected with large declines in oil and gas production and a 3.7% drop in quarrying and mining. The news could negatively impact Q4 UK GDP, however with oil prices 18% higher since the time of the IP report, the numbers next month could well bounce back. The currency market shrugged off the data, with the pound recovering all of its post release losses by the New York open.

The euro also received a boost from reports that ECB officials were not happy with the MNI story last week that they will halt rate hikes after a 25bp bump in March. The EZ central bankers want the flexibility to hike further should growth risks move to the upside. Furthermore, as all monetary officials they would like to retain some element of surprise in order to exert power over the markets. The MNI story, if true, would have essentially relegated them to “lame duck” status as it would have taken monetary policy out of the equation for the currency market for the rest of the year. Therefore, tomorrow’s ECB press conference could be particularly interesting as President Trichet may decide to assume ultra hawkish posture in order to reassert authority over the market.

EUR/USD continues to range trade and we do not expect any breakout movements before the ECB monetary policy meeting tomorrow - Thursday. Weaker economic data has not stopped the Euro from rising. Despite solid German retail sales numbers last month, the increase in Eurozone retail sales fell short of expectations. Yesterday's German factory orders also dropped 0.2 percent against the market’s expected 0.5 percent rise. Data has been turning sour and today's German industrial production report repeated the same pattern. However traders have been hesitant to take the Euro beyond its 1.2865-1.3065 trading range until they have the green light from the European Central Bank. The Euro sold off last Thursday and Friday on speculation that the next ECB rate hike will be their last. However this week EUR/USD has gained strength as a Bloomberg poll reveals that economists are expecting 2 more rate hikes.

Tomorrow's Bank of England Interest Rate Decision (Thursday 7:00 ET)
Consensus: 5 .25%
Previous: 5 .25%

Markets are unsure of what to expect for Thursday’s Bank of England interest rate decision, leaving considerable event risk for the domestic currency. This confusion is clearly visible through the past several weeks of price action, with the GBPUSD posting volatile moves on shifting sentiment and trading within a 400+ point range. Predictions clearly favor unchanged rates through the week’s end, with a Bloomberg News poll showing that 42 of 50 respondents expect no hike. Recent news supports such a hypothesis, with a January’s rate hike coming on the heels of a hotly contested Monetary Policy Committee vote. Bank officials approved an interest rate increase by a narrow 5-4 margin; four “no” votes represent the most closely challenged decision since 2005. Futures traders instantly bought interest rate forwards, leaving the March UK LIBOR rate lower through the day. More recently, however, strongly bullish domestic economic data has pushed forward rate agreements higher—leaving the March Euro Sterling contract to price in a 100% chance of a hike through the coming two meetings. The British Pound has seen considerable strength on the shift, but such an uptrend may be short-lived through coming trade.

The Swiss Franc is also stronger across the board after Swiss National Bank member Hildebrand suggested that “more interest rate hikes are needed.”

Wed. 2/7
1:45 CHF Unemployment Rate 3.0% 3.1% 3.1%
4:30 GBP Industrial Production m/m http://www.forexfactory.com/images/m...mpact_high.gif -0.1% 0.1% 0.4%
4:30 GBP Manufacturing Production m/m http://www.forexfactory.com/images/m...act_medium.gif 0.2% 0.1% 0.2%
6:00 EUR German Industrial Production m/m -0.5% 0.5% 2.0%
8:15 USD Philadelphia Fed President Plosser Speaks http://www.forexfactory.com/images/m...act_medium.gif
8:30 USD Nonfarm Productivity q/q (p) http://www.forexfactory.com/images/m...mpact_high.gif 3.0% 1.6% -0.1%
8:30 USD Unit Labor Costs q/q (p) http://www.forexfactory.com/images/m...act_medium.gif 1.7% 2.3% 2.3%
10:30 USD Crude Oil Inventories -0.4M 2.7M
15:00 USD Consumer Credit m/m 7.0B 12.3B
16:45 NZD Unemployment Rate 3.8% 3.8%
18:50 JPY M2+CD Money Supply y/y 0.8% 0.8%
19:30 AUD Employment Change 3K 45K
19:30 AUD Unemployment Rate 4.6% 4.6%

Wednesday February 7 at 13:00 ET

Trade Experiment #340 Sell EUR/JPY at 157.20

Stop is 157.71

Target is 155.00

Risk is 53 pips

Reward is 217 pips

Reward / Risk Ratio is 4.1

Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.

This is an attempt to trade the Fifth Wave of a large downwards Third Wave that may be just beginning.

p.s. - EUR/JPY rose to 157.77, 6 pips higher than our stop, at 2:30 ET February 8, 2007.

As I say in my intro, this is the most dangerous way to trade. Predicting the precise endpoints of trends is trading madness. But by aspiring to accomplish this, we are gaining knowledge which is being applied to development of a high performance trading system which may not necessarily involve trading in this fashion.

If you want to follow my experiments, I strongly suggest you put anything I do here through other analytical filters, and modify the strategies to make them more safe. Enter trades at more advantageus times and prices. Watch out for impending major news releases. Enter when there is some evidence of a trend reversal already, and chose a strategic entry point. Put the stop in a sensible, safe place. Exit at a sensible point, according to a coherent trading strategy. If you do chose to follow these daredevil trades, then be prepared for lots of losses along with some very high return winning trades.

Also, I don't suggest actually entering ANY trades with a reward / risk ratio of less than 5:1 and a high level of confidence. Corrective waves are the hardest to interpret.

Thursday February 8 at 6:30 ET

Re-enter Trade Experiment #340A Sell EUR/JPY at 157.45

Stop is 158.16

Target is 155.40

Risk is 74 pips

Reward is 202 pips

Reward / Risk Ratio is 2.7

Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.

Note: entry at 157.60 increases RRR to 3.7
entry at 157.70 increases RRR to 4.6
(assuming the stop is kept the same, which is a good idea

p.s. - EUR/JPY just rose to 157.89. If this was used as the entry point, then that brings the RRR up to 8.2

p.p.s. - EUR/JPY just rose to 158.01. If this was used as the entry point, then that brings the RRR up to 14.3 (assuming one were to employ the same stop of 158.16)
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Previous trade experiment:

Wednesday February 7 at 13:00 ET
Trade Experiment #340 Sell EUR/JPY at 157.20
Stop is 157.71
Target is 155.00
Risk is 53 pips
Reward is 217 pips
Reward / Risk Ratio is 4.1

Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.

This is an attempt to trade the Fifth Wave of a large downwards Third Wave that may be just beginning.

p.s. - EUR/JPY rose to 157.77, 6 pips higher than our stop, at 2:30 ET February 8, 2007.

The Monetary Policy Setting Committee has decided to leave interest rates at 5.25% after their monthly meeting as it was widely expected by the market.

This decision comes after the surprising rate hike of a quarter of a point after January’s meeting and amid rather gloomy figures in inflation, with the yearly inflation at 3.0%, a point over the 2.0% upper boundary of the comfort target, and British economy growing at a healthy pace; 0.8% growth in the fourth quarter after a 0.7% growth in the previous three months.

Thursday February 8, 2007

0:00 JPY Eco Watchers Survey 47.2 49.0 48.9
1:00 JPY Machine Tool Orders y/y 5.7% -1.9%
1:45 CHF CPI m/m -0.7% -0.3% 0.0%
1:45 CHF Consumer Climate 17 14 13
2:00 EUR German Trade Balance 10.8 17.0B 18.3B
7:00 GBP Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 5.25% 5.25% 5.25%
7:45 EUR Interest Rate Statement http://www.forexfactory.com/images/m...act_medium.gif 3.5% 3.50% 3.50%
8:15 CAD Housing Starts http://www.forexfactory.com/images/m...act_medium.gif 249K 216K 213K
8:30 USD Unemployment Claims 311K 310K 307K
8:30 CAD New Housing Price Index m/m 0.5% 0.5%
8:30 EUR ECB President Trichet Speaks http://www.forexfactory.com/images/m...mpact_high.gif
10:00 USD Wholesale Inventories m/m 0.6% 1.3%
Announcements pending:
18:50 JPY Core Machinery Orders m/m http://www.forexfactory.com/images/m...act_medium.gif -0.5% 3.8%

Thursday February 8 at 9:00 ET

Re-entry opportunity for Trade Experiment #339 Sell EUR/CAD at 1.5444

Stop is 1.5484

Target is 1.5100

Risk is 49 pips

Reward is 335 pips

RRR is 6.8 to 1

Wave hypothesis : This is the top of a large Wave B or a large Wave 2, and thus the beginning of a new large 5 wave trend.

p.s. - bring stop down to 1.5471 from 1.5484. The price could rise to 1.5500 later. The current price is 1.5440. The highest price reached today is 1.5470.
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Wednesday February 7 at 11:00 ET

Trade Experiment #339 Sell EUR/CAD at 1.5420
Stop is 1.5461
Target is 1.5100
Risk is 50 pips
Reward is 310 pips
RRR is 6.0 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis : This is the top of a large Wave B or a large Wave 2, and thus the beginning of a new large 5 wave trend.

Thursday February 8 at 12:30 ET

We should have adjusted the stop for Trade Experiment #338B Sell EUR/USD at 1.3012 to 1.3055 since it rose to a new high a day later than the entry was made, and our system gave us a different stop because the configuration had changed. The previous stop was 1.3033. The high reached today is 1.3040. The upwards trend appears to be complete now.

The small stops of 23 to 27 pips (including the spread of 3 pips) can work sometimes on EUR/USD and even some other currencies at times, but they require a great amount of care and conservative patience to pull off.
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Previous Trade Experiment:

Wednesday February 7 at 10:30 ET

Re-enter Trade Experiment #338B Sell EUR/USD at 1.2963 at the higher price of 1.3012

Our last trade experiment with EURUSD stopped out by only 2 pips. We should have advised a slight adjustment to the stop based on the Elliott Wave pattern that was forming. Trade Experiment #338A Sell EUR/USD at the higher price of 1.2988 (below) was stopped out by 2 pips when the price just rose to 1.3014.

Stop is 1.3033
Target is 1.2850
Risk is 24 pips
Reward is 158 pips
RRR is 6.6 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : very good

For research purposes only.

EURUSD Wave hypothesis : Wave 5 down of a larger Wave C of an even larger Wave 4.

p.s. - the price rose to 1.3026, surviving the stop, then corrected down to 1.2976, then rose to a new high the next day - February 8.
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Previous Trade Experiment:

Tuesday February 6 at 13:45 ET

Re-enter Trade Experiment #338A Sell EUR/USD at 1.2963 at the higher price of 1.2988

Because the stop on Trade Experiment #338 was very small and we entered prematurely, we were stopped out. This second attempt has a better chance of success. The time of day (later in the New York session)is also on our side.
Stop is 1.3012
Target is 1.2850
Risk is 27 pips
Reward is 135 pips
RRR is 5.0 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.
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Previous Trade Experiment:

Tuesday February 6 at 11:45 ET
Trade Experiment #338 Sell EUR/USD at 1.2963
Stop is 1.2983
Target is 1.2850
Risk is 23 pips
Reward is 110 pips
RRR is 4.8 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

EURUSD Wave hypothesis : Wave 5 down of a larger Wave C of an even larger Wave 4.

Itme,

Why not just forget the danger and madness ...and just trade with the trend??

It is sooo much easier and soooo much more profitable.

.

.

Thursday February 8 at 1:00 ET

Since February 6, EUR/USD rose 127 pips from 1.2913 to a recent high at 1.3040.

At the same time GBP/USD rose 144 pips from 1.9588 to 1.9732, but then it fell 187 pips to 1.9545 following the Bank of England interest rate announcement.

GBP/USD formed a completed downwards 1-2-3 wave pattern at 1.9550. I intended to issue an interim exit order at this point, in anticipation of a sizeable Wave 4 upwards correction, but was busy with other things. By doing so we could consolidate 150 pips of profit and then re-enter our short position at a higher price to continue the trend down to 1.9500 or lower.

The price of GBP/USD subsequently rose to 1.9592, and could rise at total of 105 pips over the course of the day up to 1.9650. We should re-enter the sell position when a completed A-B-C wave is evident. The current price is 1.9570. If anyone is still short, we recommend exiting to consolidate profits and attempt to reposition at a higher price.
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Previous trade experiments:

Tuesday February 6 at 15:00 ET

GBPUSD apparently completed one more pulse upwards in the form of a 5 wave pattern on the one minute chart reaching a new high of 1.9717, taking out our stop in the process. The new high of 1.9717 would have been a good re-entry price. A price rise to about 1.9710 will provide another re-entry opportunity. The wave pattern suggests the possibility that there may be one more wave up to a double top (failed 5th wave) or to a new high, so we may exit this trade at the bottom of either a possible A-B-C pattern, or 1-2-3 pattern and then re-enter our short position to either catch the new high or to re-enter at the top of wave 4.

Trade Experiment #337A Sell GBP/USD at 1.9710
Stop is 1.9761
Target is 1.9500
Risk is 55 pips
Reward is 206 pips
RRR is 3.7 to 1

Confidence level: fair
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.

p.s. - the price of GBP/USD rose after the trade experiment to 1.9719 to trigger the entry, then fell 37 pips on February 7 to 1.9672, which would have been the best exit price ("The wave pattern suggests the possibility that there may be one more wave up to a double top (failed 5th wave) or to a new high, so we may exit this trade at the bottom of either a possible A-B-C pattern, or 1-2-3 pattern and then re-enter our short position to either catch the new high or to re-enter at the top of wave 4."). Then the price rose on February 8 to a new high at 1.9732, 22 pips above our previous entry price. This would have been the ideal re-entry price. From there it fell 187 pips to 1.9545.
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Previous trade experiment:

Tuesday February 6 at 5:00 ET
Trade Experiment #337 Sell GBP/USD at 1.9670
Stop is 1.9706
Target is 1.9500
Risk is 40 pips
Reward is 166 pips
RRR is 4.2 to 1

For research purposes only.

Wave hypothesis : Wave 5 down of a larger Wave C of an even larger Wave 4.

p.s. - After our entry at 1.9670 the price fell to 1.9650. This would have been a good time to possibly adjust the stop to Break Even, in case there would be another wave up. There was another wave up, and at 8:25 on February 6 the price rose to 1.9705, 1 pip short of our stop. There was another high probability reversal value at about 1.9700, which is why we placed our stop 6 pips higher. In actuality, we really should have placed it at 1.9716, but we were being over-confident that we had already found the top of the Wave C based on wave proportions, wave count, etc. If we are very lucky this trade experiment may be successful, by a hair's breadth.

p.p.s - GBPUSD apparently completed one more pulse upwards in the form of a 5 wave pattern on the one minute chart reaching a new high of 1.9717, taking out our stop in the process. The new high of 1.9717 would have been a good re-entry price. A price rise to about 1.9710 will provide another re-entry opportunity. The stop should be 1.9761. Target is 1.9500.

The conventional wisdom of traders is to trade with an established trend. People often say, as an alleged formula for success, one of the two homilies:

1) "Buy high and sell low", or

2) "Trade with the trend"

These aphorisms are offered as self-evident strategies for making an indefinite series of successful trades, as if the trend direction was self-evident.

Of course, to trade with the existing and future trend is to win at the trade, and everyone wants to win. So why doesn't everyone trade with the trend? Why do 98% of traders lose money? Because they deliberately trade against the trend? Do they trade against the trend on purpose? No, I don't think so. I think they are trying to "trade with the trend". To win a trade is, by definition, to "trade with the trend". Trading against the trend is the same as losing money.

The problem is to know what the trend is, and how far it will go. To know which direction the trend is, one must know where the trend began. To know where to exit the trade, one must know where the trend will end. So to trade with the trend, one must know both where the trend began, and where it will end. If one knows these two values, one can trade with the trend. If one doesn't know the beginning and end of the trend, then one cannot trade with the trend effectively.

The strategy of "trading with the trend" is complicated by the fact that there isn't just one trend. The trend depends on the time frame one chooses. For example, at a given moment the market may have been going up for 5 minutes, down for one hour, up for 6 hours, down for 24 hours, up for two days, down for one week, etc. on and on. So the trend depends on the time frame.

The primary purpose of my experiment is to develop a system and competence to identify the beginning and endpoints of certain trends that are useful for making a high return on investment. Once a person can identify a trend direction over a certain time frame, and estimate or discern the probable endpoints of the trend, then that person may trade at will within that trend. The person who knows the beginning and end of a trend can take a position at the exact beginning of the trend and hold to the exact end. Or alternately, they can enter and exit at various points along the trend, trading either in the direction of the trend or in the opposite direction, or both. Trading in the direction of the trend is the better strategy in general, unless one is very skilled and is in a big hurry to make a high return on investment. For example, by trading from one end of a two day 150 pip trend to the other one will produce a certain return on investment, which depends on the reward / risk ratio and risk factor. By trading within the two day trend on a smaller time frame, either in only the direction of the trend or in both directions, one can make more pips and compound one's capital more frequently, and thus achieve literally thousands of times higher return on capital over a sequence of a few dozen trades. However, this requires more frequent and detailed analysis and intervention in the trading program.

Knowing the two endpoints of a trend provides a trader with total flexibility to enter and exit at any points within the trend according to a strategy that balances risk and reward within the context of the trader's character, competence and time constraints.

To me, the first step in taking a trade is to identify the trend. That is what this experiment is for. Once having identified the trend, which means the probable beginning and end of the trend, as well as the probable duration of the trend, and even the probable price path within the trend, then the next step is to develop a strategy for trading in the direction of the trend. The trading strategy might involve taking all or a portion of Waves 3 and Wave 5, which are two of the three impulse waves in an impulsive trend. Some elliotticians only trade one of these two waves. The entry and exit criteria could be extremely diverse, and involve a wide variety of technical indicators and factors such as price, time, candlestick formations, wave pattern, trendlines, pivot lines, fibonacci lines, wave proportions, announcements, astrology, hunches, intuition, etc.

Don't confuse my trading experiments for a trading system. I originally couched these experiments as "trade signals" but later changed the name to "trade experiments". The proper name would be "trend endpoint prediction experiments". I am framing my research project as a trading program because that creates a useful structure for defining the objectives - determining an entry price, stop price and conservative target, which is in effect a trend reversal point prediction. These are literally experiments in trend endpoint prediction and recognition. They could be employed as a trading system one day, but it would probably be better to add other components to enhance the performance, unless I developed the capacity to predict trend reversal points quite accurately and consistently, in which case it might be best just to enter and exit at the trend endpoints or at some points within the trend as determined by subtrend prediction.

To clarify what I am saying, as an example GBP/CHF (on the one day chart) reached the top of a very clear Wave 3 (of WAVE 5) Elliott Wave impulsive 5 wave pattern with magnitude of 933 pips on January 23 at a price of 2.4752. There was a strong probability of an impending correction of magnitude about 750 pips to a price of about 2.4000.

Knowing this, there are many options to trade this long downwards corrective trend. Corrective trends usually have alot of overlap of their component waves. One can trade the impulsive waves in Wave A. One can trade the entirety of Wave B, which is usually a zigzag. And one can trade the impulsive waves in Wave C. If one doesn't want to trade the Wave 1's because the trend is too immature, and one only wants to trade in an established trend, then one can trade only the Wave 3's and Wave 5's in the impulsive waves of Wave 4 - Wave A and Wave C. Wave 1 of Wave A was 265 pips in size. Wave 2 of Wave A was 175 pips. Wave 3 of Wave A is still underway, but it has already travelled 350 pips downwards to a low of 2.4300. This provides an example of how knowledge of an encompassing trend can be used to trade the impulsive swing trends within a larger identified trend.

Thank you for the very nice posts in which you describe the trend perfectly.

This is very informative and helpful.

I have continually followed your thread specifically to see your entry and exit points for the GBP/USD.

It is refreshing to actually read something that makes very good sense.

Most members on the forum would benefit to read the remarks you have posted, especially when you speak of the EW Theory.

Thank you, and keep up the awesome work!

I am always learning, which is why I have made it a routine coming here.

Ken

Itme are you sure you see the GBP/USD price going all the way back up to 1.9650 before heading back down? Are you expecting it to do that before tomorrows gbu trade balance or will the move upward be a result of the trade balance figures?

I said "GBP/USD could rise a total of 105 pips over the course of the day up to 1.9650". But I have no way of knowing in advance for sure how high GBP/USD will bounce, or knowing in advance exactly when it will complete what I believe is an upwards Wave 4. It normally would rise to between 1.9635 and 1.9675. But we can recognise the top of the correction by the time of day and the wave pattern most of the time quite accurately, once the wave pattern has revealed itself.

If one exits midway in a trend trade in anticipation of a bounce, then obviously the hope is that there will be a large bounce. But in strong trends often the correction is quite small, such as in this case. It is important that one gets back into the trade in the direction of the trend, or else one sacrifices the potential return on capital. So if there is any doubt about whether the correction is finished, one should always err on the side of caution by re-entering the trade. The stop can be set at about the previous high, which is usually closer than the original stop. The market often moves at about 2:00 ET, so one should be back in the market by this time unless one has good reason to expect the correction to continue against the trend.

p.s. - Because this downwards trend in GBPUSD is quite strong, and the target is fairly far away, the height of the correction was only 56 pips, and only went up to 1.9600 before the downwards trend resumed, carrying the price down 145 pips to 1.9455. This upwards correction represents exactly 30% of the previous downtrend. Is 30% a fibo number? I see the size of the correction depending on a variety of factors, and varying from almost 100% of the previous trend to only 10%. The top of the correction wave is best identified imho from the wave pattern and the time of day.

Friday February 9

2:00 EUR German Wholesale Price Index m/m 0.0% -0.2% 0.0%
2:45 EUR French Industrial Production m/m http://www.forexfactory.com/images/m...act_medium.gif 1.1% 0.2% -0.4%
4:00 EUR Italian Industrial Production m/m 2.0% 0.7% 0.5%
4:30 GBP Trade Balance http://www.forexfactory.com/images/m...mpact_high.gif -7.1B -7.0B -6.9B
6:00 EUR Composite Leading Indicators m/m 109.9 109.3
7:00 CAD Employment Change http://www.forexfactory.com/images/m...mpact_high.gif 89K 25K 52K
7:00 CAD Unemployment Rate http://www.forexfactory.com/images/m...act_medium.gif 6.2% 6.1% 6.1%
9:00 USD St. Louis Fed President Poole Speaks
All Day ALL G7 Meeting Begins http://www.forexfactory.com/images/m...act_medium.gif

The euro unwound yesterday’s rally, dropping below the 1.3000 level in early London trade in the wake of a survey by ECB that noted a drop in housing loan demand in the fourth quarter of 2006. Traders sold the euro on speculation that future rate hikes from ECB will be fewer and more spaced out given their impact on consumer demand in the region which still remains rather fragile. The industrial data from both France and Italy was quite impressive, not only beating market expectations but in the case of Italy registering significant upward revisions for the month prior. However, trading in the EURUSD remains largely range bound as both Euro-zone and US data tend to offset each other. For now markets appear to be at a stalemate.

Friday February 9 at 12:30 ET

EUR/CAD fell strongly as predicted, as both EUR/USD and USD/CAD fell at the same time. The wave pattern and time of day suggests that there will be a sizeable bounce at about this time. USD/CAD fell strongly today 150 pips today in a 1-2-3 pattern, and is now due for a largish Wave 4 correction upwards, which will cause EUR/CAD to rise also.

Therefore exit Trade Experiment #339 Sell EUR/CAD at 1.5444 at the present price of about 1.5250 to consolidate about 190 pips of profit.

Re-enter EURCAD at the top of an A-B-C Wave 4 upwards correction.
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Previous Trade Experiment:

Thursday February 8 at 9:00 ET

Re-entry opportunity for Trade Experiment #339 Sell EUR/CAD at 1.5444

Stop is 1.5484
Target is 1.5100
Risk is 49 pips
Reward is 335 pips
RRR is 6.8 to 1

Wave hypothesis : This is the top of a large Wave B or a large Wave 2, and thus the beginning of a new large 5 wave trend.

p.s. - bring stop down to 1.5471 from 1.5484. The price could rise to 1.5500 later. The current price is 1.5440. The highest price reached today is 1.5470.
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Wednesday February 7 at 11:00 ET

Trade Experiment #339 Sell EUR/CAD at 1.5420
Stop is 1.5461
Target is 1.5100
Risk is 50 pips
Reward is 310 pips
RRR is 6.0 to 1

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis : This is the top of a large Wave B or a large Wave 2, and thus the beginning of a new large 5 wave trend.

Friday February 9 at 12:30 ET

On February 7 at 22:00 ET the price of NZD/USD rose 91 pips from our entry price of .6800 to .6891, forming a very clear 5 wave pattern, and reaching a high probability reversal value. I wanted to issue a temporary exit order in anticipation of a sizeable Wave 2 reversal, but because I was pre-occupied, and because the "Thread Search" function at the top of this page doesn't work any more when one puts "NZD/USD" of "#336" into the search field, I didn't get a chance.

Exiting this long trade with 90 pips of profit would have been particularly strategic since it is possible that we may not have properly identified the turning point of the larger NZD/USD downtrend. We might be trading a Wave C of a Wave 4 uptrend, instead of Wave 1 of a new uptrend. Exiting at the top of the 5 wave set in these situations is a good idea, as one will win the trade in either case. If one holds through the correction, if the wave hypothesis is incorrect, then the downwards trend will be large and continue until it hits the stop.

The price of NZDUSD then fell 90 pips from .6891 to .6801 in an A-B-C Wave 2 correction. The downwards correction may not be over yet.
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Previous Trade Experiment:

Thursday February 1 at 15:30 ET

Trade Experiment #336 Buy NZD/USD at .6800
Stop is .6748
Target #1 is .7100
Risk is 56 pips
Reward is min. 296 pips
Reward / Risk Ratio is min. 5.3

Confidence level: good
Accuracy: fair
Reward / Risk Ratio : good

For research purposes only.

Wave hypothesis : Wave 5 up of a large trend that began September 2001.

While I don't want to get into any long dialogue, some of you statements need to be considered from a different viewpoint. As a confirmed Trend trader, I would like to quickly offer my views on your comments:


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