Low Risk, High Reward Trading Experiment

This analysis was instigated by an article in the News Column on the front page:

EURGBP - Correcting Lower then Much Higher by DailyFX, March 9 13:55
The daily chart for EUR/GBP shows 5 waves up from the 1/23 low at .6536. The 5 waves up compose a larger 1st wave and indicate that the longer term trend is now up. We...

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Article:

EURGBP - Correcting Lower then Much Higher
Analysis by DailyFX

Current Price: .6787
http://www.dailyfx.com/export/sites/...-07weekly2.gif
The daily chart for EUR/GBP shows a clear 5 waves up from the 1/23 low at .6536. The 5 waves up compose a larger 1st wave and indicate that the longer term trend is now up. We expect a correction to test fibo support (.6690-.6727). .6690 is also the previous 4th wave extreme. A decline to this level will be the larger 2nd wave. A strong 3rd wave rally is expected following a correction to the cited levels.

The weekly chart shows the long term triangle and double bottom just above .6500. The pair should work up to test triangle resistance. Given the clear 5 wave rally from the low, we are ultimately looking for the EUR/GBP to take out the May 2003 high at .7257. We noticed this triangle and double bottom previously at http://www.dailyfx.com/story/chartin...827839628.html


This is a close up view of the 5 wave advance from .6536. As mentioned, a 3 wave correction should unfold and take price close to .6690 before another 5 wave advance occurs (which will be wave 3). Wave 3’s are often powerful. If wave 2 ends at or close to .6690, then the 161.8% extension of wave 1 would be the bullish target at .7193.
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Analysis by Itme:

One more upwards wave is possible before the correction

The fifth wave up for EUR/GBP may not be finished. We may have just completed the fourth wave, which is an A-B-C downwards corrective wave. We may see one more upwards push to about .6850 - .6875 before the uptrend is over. The close today is .6787.

GBP/USD could continue with its current downtrend to about 1.9000 - 1.9100. This will probably cause EUR/GBP to rise strongly.

One possible solution to the system of wave equations is a decline of GBP/USD to 1.9000, a decline of EUR/USD to 1.3060, and a rise of EUR/GBP to .6875.

The current price of GBP/USD is 1.9322, and the current price of EUR/USD is 1.3113 going into the weekend.

EUR/USD is well supported in my system at 1.3060, which is the 50% retracement of the January 26 to February 28 - 383 pip uptrend. There is also a 40 day supporting trendline (and a 16 day supporting trendline also) that should both intersect the EUR/USD downtrend at about 1.3060 in a couple of days. EUR/USD is now in a Wave 4 upwards correction and consolidation pattern that should keep it range bound for a few days and could take the price up to about 1.3130 to 1.3140 before the predicted decline to 1.3060.

Presented trading opportunities.

If our hypothesis turns out to be correct, then the trading opportunities will consist of:

1) shorting EUR/USD at 1.3130 to 1.3140 (depending on the elaborated wave pattern), with a target at 1.3060.

2) shorting GBP/USD at 1.9400 to 1.9500 (depending on the elaborated wave pattern),with a target at 1.9000 to 1.9100.

3) shorting EUR/GBP at about .6850 - .6875. The target would be at about .6700 to .6750.

Sunday 3/11
16:45 NZD FPI m/m http://www.forexfactory.com/images/m...impact_low.gif 0.1% 1.4%
18:50 JPY GDP q/q (r) http://www.forexfactory.com/images/m...act_medium.gif 1.3% 1.3% 1.2%
18:50 JPY CGPI m/m http://www.forexfactory.com/images/m...impact_low.gif 0.0% 0.0% -0.2%
18:50 JPY Current Account http://www.forexfactory.com/images/m...impact_low.gif 1.19T 1.03T 1.78T

Comment on Friday's economic announcements:

February's US employment report was mixed; non-farm payrolls increased by only 97,000, in line with market expectations and December-January were revised up by a total of 55,000. Another Government report helped the Dollar; the US International Trade gap narrowed more sharply than expected to $59.1B in January, following a record trade deficit in 2006.

In the employment report, 39,000 of the total 97,000 jobs gains in February came from federal, state and local governments. That meant private companies added just 58,000 jobs last month, the fewest since November 2004. Some analysts found that a bit worrisome.

'There are clear warning signs of deterioration ahead,' said Ian Shepherdson, chief economist at High Frequency Economics.

Analysts predict the unemployment rate will creep up this year as economic growth slows. Some predict the jobless rate could climb to close to 5 percent by the end of the year.

Monday 3/12
0:00 JPY Consumer Confidence 48.4 48.1r
4:00 EUR Italian Industrial Production m/m -1.4% -0.5% 1.4%r
4:30 GBP PPI Input m/m http://www.forexfactory.com/images/m...mpact_high.gif 1.3% 0.8% -2.5%r
4:30 GBP PPI Output m/m 0.3% 0.2% 0.4%r
7:30 CAD Labor Productivity q/q http://www.forexfactory.com/images/m...act_medium.gif 0.3% -0.4% 0.0%r
11:45 USD Fed Governor Kroszner Speaks
16:45 NZD Retail Sales m/m http://www.forexfactory.com/images/m...mpact_high.gif .5% 0.2% 0.5%r
16:45 NZD Core Retail Sales m/m http://www.forexfactory.com/images/m...act_medium.gif 1.0% 0%r
19:01 GBP RICS House Price Balance http://www.forexfactory.com/images/m...act_medium.gif 24% 24% 28%
19:30 AUD NAB Business Confidence 12 6r
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Inflation data underpins Sterling
Analysis by Investica LTD
The UK producer prices data reported a 0.3% increase in prices for February compared with an expected 0.2% while there was a 1.3% increase in input prices.
The core monthly increase for output prices was important with a 0.5% increase for the month and the annual rate of 2.7% was the highest rate since June 2004.
The data will increase fears that companies are having more success in increasing prices and this is not what the Bank of England wants which will maintain a tightening bias on interest rates.
The data will tend to underpin Sterling, although the impact will be offset by the fact that the consumer inflation data will not be released until next week.

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On Tuesday March 13 the dollar continued to trade lower versus the euro and yen on a combination of growing concerns stemming from the US subprime mortgage market and upbeat sentiment on the growth outlooks for both the Eurozone and Japan. Worries over further unraveling among subprime lenders and its potential impact on the housing market as a whole weighted on the greenback. Meanwhile, robust growth data from Japan and an upbeat growth outlook for the Eurozone provided support for their respective currencies against the dollar.

Markets will shift their focus back to assessing the state of the US economy with several important reports this week that could also provide additional insight into potential changes in Fed policy. In the session ahead, data due out include February retail sales and January business inventories.

Trade Experiment #356 Sell USD/JPY at 117.68 (limit order) was stopped out. The general strategy was correct, but the details were slightly off. The pivot point was at 118.50, followed by a fall to 117.25. [March 13 update: the price of USD/JPY has declined to 116.50 now. ] But my limit order was at 117.68, and stop at 118.21. The target is 115.10.

Due to the complexity of the diverse criteria that I have been experimenting with, sometimes I forget to use all the tools at my disposal. There is a very important and useful guideline that I have discovered that helps me to predict where a fourth wave retracement will often come to. In this case this method would have exactly predicted the reversal point of the retracement, which was at 118.50. I will call this method the Typical Retracement Analysis. It doesn't work 100% of the time, but it is often effective. (It is, in this sense, similar to Fibonacci retracement theories.)

From the perspective of Elliott Wave theory, the fifth wave up of Wave C was strong, but not abnormally large. I should have been more conservative, and placed the entry price for the short trade at 118.50, which is not only the most likely reversal point according to Typical Retracement Analysis, but a high probability reversal value according to the Q Theory on two timeframes. At the very least, I should have placed the stop above 118.50, not at 118.21.

The price did rise to 117.66 and then retraced to 117.19. At this point there was not a viable 5 wave pattern in evidence, so the entry order at 117.68 should have been removed, and another major upwards impulse wave expected to a higher price than 117.66.

In general, my striving for trade opportunities with a 5:1 RRR should be achieved through identifying optimum low risk entry opportunities, and not by entering at modest entry targets and then skimping in the Stop placement. Also, limit orders should be re-evaluated closer to the time of possible entry, in light of the latest information and wave patterns.

Fundamental considerations:

Yen rallies, pound falls as investors unwind carry trades
LONDON (AFX) - The yen strengthened and the pound was sold off as investors unwind their carry trades -- where money is borrowed in low-yielding countries to be invested in economies with higher returns.
Although the yen was weaker this morning after robust US data on Friday, investors are worried about the level of risk in the global economy, particularly after the Chinese trade surplus came in above expectations. Exports for February totaled 82.1 bln usd, up a stunning 51.7 pct year-on-year.
'Strong Chinese exports suggest the economy isn't cooling off there and have sparked fears that the (Chinese) government might try to curb future investments to keep growth in check,' said Hans Redeker at BNP Paribas.
Redeker noted this would weigh on commodity prices, raising risk in the global economy and making carry trades more expensive.
Investors are worried that this sort of domino-effect should spiral out of control...
The euro also rose against the dollar as confidence in the US economy remains shaky.
'The dollar is also under selling pressure as the jobs data on Friday is not as strong as the headline figure suggested,' as a fall in unemployment in February was caused by a fall in the participation rate, according to Redeker, who noted jobs growth may even turn to negative in coming months.
On top of that, 'risk aversion has picked up as sub-prime mortgage lender New Century edges closer to bankruptcy,' suggesting the US housing market is still under heavy stress, according to Jamie Coleman at Thomson's IFR Markets.
With little in terms of data flow today, investors are expected to focus on positioning themselves for risk reassessments and ahead of data later this week.
The biggest test will be US CPI on Friday, said analysts, although any sell-off in equities and risk assets will likely be a big mover, triggering more unwinding of carry trades.
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Previous trade experiment:

Friday March 9 at 4:00 ET
Trade Experiment #356 Sell USD/JPY at 117.68 (limit order)
Stop is 118.21
Target is 115.10
Risk is 57 pips
Reward is min. 254 pips
RRR is min. 4.5 to 1
Confidence level: fair
Accuracy: good
Reward / Risk Ratio : good
For research purposes only.
Wave hypothesis: Wave 5 of Wave 5 down.

Recent Japanese news:

Thursday 3/8

2:00 JPY Eco Watchers Survey http://www.forexfactory.com/images/m...impact_low.gif 49.2 47.2
18:50 JPY Core Machinery Orders m/m http://www.forexfactory.com/images/m...act_medium.gif 3.9% 1.8% -0.7%

Sunday 3/11

18:50 JPY GDP q/q (r) http://www.forexfactory.com/images/m...act_medium.gif 1.3% 1.3% 1.2%
18:50 JPY CGPI m/m http://www.forexfactory.com/images/m...impact_low.gif 0.0% 0.0% -0.2%
18:50 JPY Current Account http://www.forexfactory.com/images/m...impact_low.gif 1.19T 1.03T 1.78T

Monday 3/12

0:00 JPY Consumer Confidence 48.4 48.1r

Based on the analytical tools currently at my disposal, I estimate that I am only able to predict the approximate turning point and time of a trend reversal about 30 - 50% of the time, assuming that I employ very conservative criteria, such as conservative wave count, conservative Q theory assumptions, conservative announcement trading assumptions, conservative macro-economic trend assumptions, conservative entry price and conservative stop price.

However, many of the false trend reversal prediction attempts are nevertheless true and successful wave reversal prediction attempts.

This is because to successfully predict a trend reversal one must accomplish two very difficult tasks:

1) predict the turning point of the current wave, and

2) correctly identify the wave within the higher order wave pattern.

Both of these are quite difficult. However, the first is probably quite a bit easier than the second.

If one were to attempt to predict a trend turning point, but attenuate the target to the typical target not for a full trend but for a corrective wave (usually Wave 4) within a trend, then the target distance would be reduced from over 200 pips to about 75 - 200 pips, depending on the currency pair and wave pattern. By doing this, the percentage of winning trades should increase dramatically. Not only that, but the average trade duration would be dramatically reduced. The typical Reward / Risk ratio would also probably be reduced from about 5:1 to about 2:1.

Depending on the size of increase in win rate and frequency of trades, however, this change in trading strategy could bring about an overall trading system performance enhancement. It should be noted that there is a very large simple mathematical advantage to increasing the frequency of trades - and that is the increase in trading system performance caused by compounding the capital more frequently.

Discriminative quantitative analysis of the trading system experiments conducted so far, plus backtesting on the charts, may be able to shed light on this question.

Furthermore, by introducing an element of flexibility into the target price of the trade (intra-trade target adjustment) based on developmental evidence such as:

a) news and economic data releases immediately before and during the trade,

b) the wave form in development during the trade, and

c) time period analysis of trend cycling,

it should be possible to make informed guesstimates during the trade of whether the new wave is a corrective wave of the original trend, or an impulsive wave of a new trend.

If this could be accomplished, then in some cases the trade could be promoted from a corrective wave prediction trade to an impulsive trend prediction trade, which would obviously enhance the trade performance and overall system performance.

This approach is consistent with my developing quasi-deterministic market model, which posits that some market movements are very highly probable, verging on pre-determined, many are quasi-determined (the move is quite probable, but the exact endpoints and path of travel are only loosely determined) , and some market movements are non-deterministic. ie - they depend almost entirely on market reaction to world events and economic news. (We're speaking here about substantial swing type movements that shape larger order wave patterns.)

As a result of the third case, the market sometimes comes into "null points" or "non-deterministic zones" where the probability of being able to successfully predict the subsequent price movement is very low. The discriminative forces which assess market conditions are able to recognise these zones, and behave accordingly, progressively reducing commitments to short term trend participation, resulting in a converging triangle, narrow range bound price pattern, or erratic, "choppy" price action. I am not referring here to a normal consolidation phase in an established trend, but to a genuine null point where the next direction of movement is essentially undetermined.

Once a sufficient incentive to initiate a new trend direction enters the equation, in the form of a powerful world event or constellation of economic news releases, comments, etc., or a new trend direction is sufficiently demonstrated, then the medium term traders will have sufficient justification for and therefore be once again willing to take a directional position in the market. Until then we should stay out of the market, or choose another currency pair to trade.

Tuesday 3/13
4:30 GBP Trade Balance http://www.forexfactory.com/images/m...mpact_high.gif -6.2 -7.0B 7.0Br
5:00 EUR German ZEW Economic Sentiment http://www.forexfactory.com/images/m...act_medium.gif 5.8 3.1 2.9
5:00 EUR ZEW Economic Sentiment 5.1 4.5 6.8
7:30 USD Retail Sales m/m http://www.forexfactory.com/images/m...act_medium.gif 0.1% 0.3% 0.0%
7:30 USD Core Retail Sales m/m http://www.forexfactory.com/images/m...mpact_high.gif -0.1% 0.3% 0.2%r
9:00 USD Business Inventories m/m 0.2% 0.1% 0.0%
10:30 GBP Leading Index m/m 0.3% 0.1%
16:45 NZD Manufacturing Sales q/q http://www.forexfactory.com/images/m...act_medium.gif 2.7%
18:30 AUD WMI Consumer Sentiment m/m 1.7%
23:30 JPY Industrial Production m/m (r) -1.5% -1.5%

Overall, today the EUR/USD rose, GBP/USD was flat, USD/JPY fell, and GBP/JPY continued the almost 500 pip predicted decline it began early on March 12. The EUR/USD rose 60 pips to 1.3220 for the first time since March 4 after the German ZEW Economic Sentiment showed the single currency zone's largest economy in relatively good health, far better than analysts expectations, while US retail sales data came in below market expectations, raising fears that a stalling housing market is beginning to spill over into consumption indicators. Also this is the fourth consecutive monthly increase of the German ZEW. The good survey result is likely to cement expectations that the ECB will raise its key rate by another quarter point to 4.00 pct sometime this summer. In addition, ECB council member Axel Weber said today that it is too early to give the all clear on interest rates.

This continued uptrend in the EUR/USD forces a revision of our March 10 Wave Hypothesis ("EUR/USD is now in a Wave 4 upwards correction and consolidation pattern that should keep it range bound for a few days and could take the price up to about 1.3130 to 1.3140 before the predicted decline to 1.3060."), but does not yet necessarily undermine the Three Wave simultaneous wave solution prediction or trade opportunity assumptions yet.

GBP/USD rose to 1.9435 as predicted, then fell to 1.9250, and could possibly rise to a new high before it declines as predicted to 1.9000 to 1.9100. As we said on March 10, "GBP/USD could continue with its current downtrend to about 1.9000 - 1.9100. ....the presented trade opportunity consists of shorting GBP/USD at 1.9400 to 1.9500 (depending on the elaborated wave pattern), with a target at 1.9000 to 1.9100."

EUR/GBP rose to a new medium term high at .6845 today, as predicted, when the original article posted by DailyFX posited the hypothesis that the uptrend was complete, and yet I saw the probable need for one more impulse wave upwards to a new high before a major A-B-C correction occured. As I said on March 10, "The fifth wave up for EUR/GBP may not be finished. We may have just completed the fourth wave, which is an A-B-C downwards corrective wave. We may see one more upwards push to about .6850 - .6875 before the uptrend is over. The close today is .6787."

As predicted, the JPY remained well-supported (USD/JPY fell to a new low at 116.34) by the continued unwinding of carry trades as investors looked to further reduce risk amid concerns that the US housing market will drag the world's largest economy down.

Federal Reserve officials have so far downplayed a falling housing market as being contained in the real estate sector. But the market is now growing concerned that consumers are feeling the pinch from the declining values of homes. "Consumption is coming under pressure" and "it won't get better soon," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Investors also have to brace for inflation numbers on Wednesday and Thursday. Still strong inflation pressures might fuel concerns that the Fed will refrain from cutting interest rates. "There are increasing fears that perhaps we're headed for slower economic growth coupled with higher inflation," said Peter Cardillo, chief market economist at Avalon Partners. "We also have the expiration of options this week. We'll see continued volatility."

U.S. Retail sales rose 0.1 pct in February, lower than the 0.3 pct gain economists had expected. January retail sales were also revised down to 0.2% from 0.3%, further pressuring the dollar. Retail sales have risen 3.2 pct in the past twelve months.

Several more key US economic indicators are due this week, including Producer Price Index, net treasury international capital flows, and CPI.

U.S. stocks sell off as subprime bites again
Dow falls 242 points amid subprime meltdown, weak retail sales
By Nick Godt, MarketWatch
Last Update: 6:33 PM ET Mar 13, 2007

NEW YORK (MarketWatch) -- U.S. stocks sank on Tuesday, causing the Dow Jones Industrial Average to give up 242 points, as the rising tide of problems in the subprime mortgage market spurred fear of contagion across the whole financial sector, while weaker-than-expected retail sales confirmed a slowing economic outlook.
The major averages all suffered daily losses of about 2%.
The market is gripped by "subprime contagion," said Peter Boockvar, equity strategist at Miller Tabak. "These are the same problems that have been weighing on the market for the last couple of weeks," he said, referring to the downtrend seen ever since the Dow fell 415 points exactly two weeks ago.
The market's downturn accelerated in the early afternoon after news that the number of homeowners unable to meet mortgage payments and entering the foreclosure process hit a record high in the fourth quarter. See full story.
"The subprime issue is a little more contagious than people thought and it is spreading some fear in the market," said Jay Susskind, director of trading at Ryan Beck & Co.....


New Century Gets Default Claims, Says It Lacks Cash (Update8)
By Bradley Keoun and Yalman Onaran
March 12 (Bloomberg) -- New Century Financial Corp., the nation's second-biggest subprime mortgage lender, said it doesn't have the cash to pay creditors who are demanding their money, increasing speculation that the company will go bankrupt.
The New York Stock Exchange, citing the credit crisis, halted trading of New Century this morning until it decides whether to keep listing the company's securities. Shares of the Irvine, California-based company, already down 90 percent in 2007, lost half their remaining value in pre-market trading, and rivals fell as much as 25 percent today.
``They're one step closer to bankruptcy,'' said Bose George, an analyst at Keefe Bruyette & Woods in New York who rates the shares ``market perform.'' ``The only possibility for survival now is for someone, potentially an investment bank, to step in.''
New Century may be insolvent because too many of its own customers -- most of whom have poor credit histories or heavy debt burdens -- aren't repaying their loans. Bad U.S. subprime mortgages are at a seven-year high, forcing more than two dozen lenders to close or sell operations. Their woes may contribute to more than 1.5 million Americans losing their homes and 100,000 people losing their jobs, according to real estate executives, economists, analysts and a Federal Reserve governor.
New Century said in a federal filing it doesn't have funds to repay lenders including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. The creditors want New Century to repurchase all outstanding mortgage loans they financed.
Shares Plunge
The company's shares traded for as little as $1.36 in pre- market trading, compared with $3.21 on Friday, a day when the stock hit an eight-year low. The company said March 2 that U.S. prosecutors in Los Angeles are investigating trading in New Century's securities before a Feb. 7 announcement that it planned to restate earnings. Investigators also are examining New Century's failure to properly account for the cost of bad loans.
``It's kind of the perfect storm,'' said Vince Arscott, an analyst in the financial institutions group at Fitch Ratings. ``You throw in accounting issues and delayed filings, you throw in a criminal inquiry, and then the whole secondary market is really sour on subprime.''
Rival lenders including Fremont General Corp., Accredited Home Lenders Holding Co., and NovaStar Financial Inc. have shed more than half their value this year, and Countrywide Financial Corp., the nation's biggest mortgage company, has tumbled 17 percent.
Ripple Effects
Accredited, which fell 28 percent today, was ``considered a better player in the space,'' said Matt Howlett, an analyst at Fox-Pitt Kelton in New York. ``But they're not immune to the deplorable conditions in the subprime space. You can't create any value in this market, and the likelihood of a sale, which we thought was really the only exit, just seems more unlikely every day.''
Fremont, which shut its subprime lending operations last week under pressure from U.S. regulators, lost 16 percent today. NovaStar shed 19 percent and Countrywide declined 2.7 percent.
Analysts including Merrill Lynch & Co.'s Kenneth Bruce predicted last week New Century will go bankrupt. New Century has used up cash as rising default rates forced it to buy back loans it sold to investors when borrowers didn't make their payments. The company said last week it's in talks with lenders and potential partners about refinancing or ``other alternatives.''
.... Subprime Loans
Subprime loans, a term applied to some of the riskiest home mortgages, are made to borrowers unable to qualify under traditional, more stringent criteria. The loans often carry interest rates 2 to 3 percentage points higher than regular mortgages and sometimes have low initial ``teaser'' rates that adjust higher in later years. Some lenders also lowered their standards last year to bolster revenue because slumping home sales had hurt demand.
The combination made the loans more prone to default, with delinquencies at more than 12 percent in the third quarter, according to the Mortgage Bankers Association. The Washington- based trade group is scheduled to release updated numbers for the fourth quarter tomorrow. Investors are increasingly shunning bonds backed by subprime loans.
``It's like a hot potato with these loans, no one wants them,'' Fitch's Arscott said.
OceanFirst Financial Corp., the holding company for OceanFirst Bank, said today it will revise 2006 earnings because buyers of some of its subprime loans are forcing the company to take them back. Borrowers of the loans -- which the bank offered starting last year through the Columbia Home Loans unit -- are already defaulting, the Toms River, New Jersey-based lender said. The loans offered to cover 100 percent of a home's value.
Countrywide's Report
Countrywide said late payments on home loans that it manages for others held steady last month. Loans at least 30 days past due remained at 4.71 percent of total loans serviced, the same as in January, the Calabasas, California-based company disclosed in monthly data released on its Web site. A year earlier, 4.29 percent of those loans were late.
Jim Shanahan, a senior analyst at Wachovia Capital Markets, cut his rating today on Countrywide to ``underperform'' from ``market perform.''
``While the origination and sale of subprime mortgages represents only a small part of the Countrywide story, we are more concerned that the weakness has spread to other sectors of the residential mortgage market,'' Shanahan wrote.
March 12, 2007 17:28 EDT

http://quote.bloomberg.com/apps/news...d=aY3mu1qdRq94

My friend you are excellent!

Please keep it up...

I wonder what you are thinking of, when you compliment me. I see that you've been able to accomplish 90% winning trades on GBP/JPY. If that can be maintained, and the reward /risk ratio isn't absurd, then you have accomplished the highest level of skill attainable. Congratulations. What methods have you used to master this "Forex Dragon" , as I call GBP/JPY?

I personally have certainly made huge strides in understanding, but there still so much ground to cover. These are the main areas which I've studied so far:

The Q theory, which is based on my own observations of trend termination reversal points

Elliott Wave theory

Economic Announcement short term price reaction behavior

Macroeconomic Analysis pertinent to predicting Forex price movements

The mathematics of the individual trade and the series of trades

However, this above body of information is all so vast that I still haven't figured out how to exactly synthesise it all into a practical, effective trading system. I would still require a group of trained, experienced specialists in various fields working together in harmony to do what my research is leading to. The results would be potentially stupendous, but it may be a unrealistic fantasy. The reason why I say they could be stupendous is because if we were able to monitor many currency pairs around the clock looking for optimum conditions according to all or most vital criteria according to several systems of analysis, then the success rate of the trades might approximate 75% and the RRR exceed 2:1. Numerically, these performance criteria add up to stellar gains within acceptable risk parameters.

In the meantime, for practical purposes, we all need a concrete, discrete, practical trading system. Apparently there are some good ones being explained on this site, and there are dozens and dozens of others here and there.

On March 10 we did a three pair analysis of EUR/GBP, EUR/USD and GBP/USD. We identified a potential trade opportunity for EUR/GBP at the top of a possible fifth wave of the current uptrend. Following this will be a sizeable corrective wave on a higher order.

In line with conservative assumptions, I would say we are in the fifth wave of the fifth wave up in EUR/GBP, and although the uptrend could be complete, I will assume that there will be an extended third wave within the fifth wave, so we are still due for some more upwards price movement targetting about .6875.
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Previous analysis:

One more upwards wave is possible before the correction

The fifth wave up for EUR/GBP may not be finished. We may have just completed the fourth wave, which is an A-B-C downwards corrective wave. We may see one more upwards push to about .6850 - .6875 before the uptrend is over. The close today is .6787.

GBP/USD could continue with its current downtrend to about 1.9000 - 1.9100. This will probably cause EUR/GBP to rise strongly.

One possible solution to the system of wave equations is a decline of GBP/USD to 1.9000, a decline of EUR/USD to 1.3060, and a rise of EUR/GBP to .6875.

The current price of GBP/USD is 1.9322, and the current price of EUR/USD is 1.3113 going into the weekend.

EUR/USD is well supported in my system at 1.3060, which is the 50% retracement of the January 26 to February 28 - 383 pip uptrend. There is also a 40 day supporting trendline (and a 16 day supporting trendline also) that should both intersect the EUR/USD downtrend at about 1.3060 in a couple of days. EUR/USD is now in a Wave 4 upwards correction and consolidation pattern that should keep it range bound for a few days and could take the price up to about 1.3130 to 1.3140 before the predicted decline to 1.3060.

Presented trading opportunities.

If our hypothesis turns out to be correct, then the trading opportunities will consist of:

1) shorting EUR/USD at 1.3130 to 1.3140 (depending on the elaborated wave pattern), with a target at 1.3060.

2) shorting GBP/USD at 1.9400 to 1.9500 (depending on the elaborated wave pattern),with a target at 1.9000 to 1.9100.

3) shorting EUR/GBP at about .6850 - .6875. The target would be at about .6700 to .6750.

I think the first step in turning your discoveries and and theories into a trading system would be to limit the amount of data you have to look, and that could be done by limiting your studies to just a few pairs.

Very true! For now I am just one person, so I have to limit my field. What I've been thinking is that with some backtesting I can probably confirm my suspicions about which currency pairs most consistently conform to my chief system features. I suspect that GBP/USD, EUR/USD, USD/CAD, USD/CHF, and EUR/CAD could be good candidates for a short list. These are the pairs I'm most familiar with, and seem to like.

I could prioritize the list, and maintain a basic level of oversite on approximately three pairs. If all three appear to be devoid of impending trading opportunities, then I can proceed down the list of candidates to the next one until I find a choice impending trading opportunity.

If time allows I could identify and track one, two, three and perhaps even four or five potential impending trade opportunities. When one comes into entry range, I will do a confirming analysis, and if everything checks out, enter the trade. Once in the trade, the focus will go into trade management, with a maintenance level of attention given to two or three other currency pairs. That is one possible approach.

The other general strategy option would be to focus all my attention of just one currency pair, and learn its nuances like the palm of my hand. This would be difficult for me to do, but it might be the most effective way forward.

If I monitor a few major currency pairs with independent movement, such as GBP/USD, EUR/USD, USD/CHF, USD/CAD, and USD/JPY, then when clarity emerges from time to time on trend reversal likelihoods on more than one pair, and the wave cycles are out of phase, then I will be able to identify the major trend reversal points on the corresponding cross pairs like GBP/CHF, EUR/JPY, GBP/JPY, EUR/CAD and CAD/JPY from the individual pair analyses, and then confirm the prediction on the cross pair chart. This will generate a three point mutually confirming wave analysis which should be highly reliable .

Wednesday March 14 at 4:50 ET

Trade Experiment #357 Buy EUR/USD at 1.3181 (limit order)

Stop is 1.3149

Target is 1.3250

Risk is 34 pips

Reward is min. 67 pips

RRR is min. 2.0 to 1

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

For research purposes only.

Wave hypothesis: Wave 5 up of Wave C up of Wave B up of Wave 4 down.

Recent EUR and USD news:

Tuesday 3/13
4:30 GBP Trade Balance http://www.forexfactory.com/images/m...mpact_high.gif -6.2 -7.0B 7.0Br
5:00 EUR German ZEW Economic Sentiment http://www.forexfactory.com/images/m...act_medium.gif 5.8 3.1 2.9
5:00 EUR ZEW Economic Sentiment 5.1 4.5 6.8
7:30 USD Retail Sales m/m http://www.forexfactory.com/images/m...act_medium.gif 0.1% 0.3% 0.0%
7:30 USD Core Retail Sales m/m http://www.forexfactory.com/images/m...mpact_high.gif -0.1% 0.3% 0.2%r
9:00 USD Business Inventories m/m 0.2% 0.1% 0.0%

Wednesday March 14 at 5:20 ET

Trade Experiment #358 Sell EUR/USD at 1.3255 (limit order)

Stop is 1.3286

Target is 1.3075

Risk is 33 pips

Reward is min. 178 pips

RRR is min. 5.4 to 1

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

For research purposes only.

Wave hypothesis: Large Wave C down of a downwards Wave 4.

well here we go. the b-wave reached today 1.9212. man i did the prediction but thought we are already gone to 1.9150, this is crazy.

let´s see where the last part, the c-wave of this horrible wave-4 goes. could be standing where it is could also go to 1.9431. the worst scenario i dont wanna see is cable going to 1.9525.

I'm on the same page, Wallboroff. Although I see it going a bit higher than you to about 1.9460/80 before reversing to 1.9100's (wave 5). It's interesting to see Itme's prediction as well.

Regards

yeah this one is not easy to predict although the price stopped exactly at 61.8% of wave-a. i´ll rather wait one and half hours before going in this trade.

my prediction for the downside is 1.9150, why do you think it´ll go to 1.9100?

I'm with you, JimboFX. My best guess for an upwards target for GBP/USD is about 1.9500. But anywhere from 1.9400 to 1.9550 is possible. Since for me its a guess, I prefer to trade the Fifth Wave down, not the C Wave of Wave 4 up. This first part up of Wave C is fine, though. So far, the high is 1.9368, and I think we're in a wave 4 correction, though it could be a wave 2 correction.

From where I sit presently, the size of Wave C is only semi-determined; how it precisely plays out depends on the news over the next few days. Today's US news was fair, as was the GBP news, so that might ameliorate the size of this upwards move on GBP/USD.

Wed.3/14
4:30 GBP Claimant Count Change http://www.forexfactory.com/images/m...mpact_high.gif -3.8K -8.0K -13.3Kr
4:30 GBP Average Earnings Index +Bonus q/y http://www.forexfactory.com/images/m...mpact_high.gif 4.2% 4.0% 4.0%
7:30 USD Current Account http://www.forexfactory.com/images/m...act_medium.gif -196B -204B -229Br
7:30 USD Import Price Index m/m http://www.forexfactory.com/images/m...act_medium.gif 0.2% 0.8% -1.9%r

The downwards target of Wave 5 is 1.9000 to 1.9100, but that's only an estimate at this stage. As I said on March 10 based on EWT and the Q Theory, " Presented trading opportunities.

If our hypothesis turns out to be correct, then the trading opportunities will consist of:
.........
2) shorting GBP/USD at 1.9400 to 1.9500 (depending on the elaborated wave pattern),with a target at 1.9000 to 1.9100."

Wed. 3/14
2:45 EUR French CPI m/m 0.2% 0.3% -0.3%
4:30 GBP Claimant Count Change http://www.forexfactory.com/images/m...mpact_high.gif -3.8K -8.0K -13.3Kr
4:30 GBP Average Earnings Index +Bonus q/y http://www.forexfactory.com/images/m...mpact_high.gif 4.2% 4.0% 4.0%
4:30 GBP Unemployment Rate 5.5% 5.5% 5.5%
5:00 EUR Industrial Production m/m -0.2% 0.2% 1.0%
5:00 CHF ZEW Expectations -28.0 -17.3
7:30 USD Current Account http://www.forexfactory.com/images/m...act_medium.gif -196B -204B -229Br
7:30 USD Import Price Index m/m http://www.forexfactory.com/images/m...act_medium.gif 0.2% 0.8% -1.9%r
7:30 CAD Industrial Capacity Utilization Rate 82.5% 83.7% 83.4%r
7:30 CAD New Motor Vehicle Sales m/m -3.3% -4.0% 5.6%
9:30 USD Crude Oil Inventories 1.1M -4.8M
13:00 EUR ECB President Trichet Speaks
13:30 NZD RBNZ Governor Bollard Speaks
19:30 AUD Employment Change http://www.forexfactory.com/images/m...mpact_high.gif 14.5K -3.6K
19:30 AUD Unemployment Rate 4.5% 4.5%

This seems like a mixed bag of not too earth shattering news. Yesterday (Tuesday March 13) The JPY rose broadly for the second consecutive session as investors unwound risky trades due to growing concerns that turmoil in the US sub-prime mortgage market may impact the broader economy. Strength in currencies with low interest rates suggested that the shakeout started two weeks ago in carry-trades may not be over. The Yen was also boosted by comments from Asian Development Bank President Haruhiko Kuroda, who said a real scale unwinding of Yen carry-trades has yet to come. USD/JPY went down to 115.75, then bounced sharply to 117.50. It also posted sharp gains against the Sterling, New Zealand and Australian Dollar. US market worries had triggered the second biggest sell-off of the year in US Stocks and dealers said that weakness in Asian Stock Markets would further boost the Yen.
US Retail Sales increased by just 0.1% yesterday (consensus 0.3%), with the January figure revised down by to 0.2%. These weaker than expected figures may be a reflection that February's winter storms and unseasonably cold weather had a bigger effect on consumer spending. Meanwhile in Europe, the rise in the ZEW survey of investor sentiment for Germany has been encouraging given the recent fall in the Global Equity Market.
Released in the New York morning, the current account shrunk to $195.8 billion compared to estimates of a $204 billion shortfall in the fourth quarter. The improvements were attributed, for the most part, to lower crude oil imports and larger amounts of investment income paid to US investors. Foreign investors, on the other hand made less in US investments, with the US government paying approximately $2.5 billion less in interest payments to foreign entities and investors. Although the recent Commerce Department report does calm fears of infrastructure weakness, the potential continues to remains as the US needs to attract $2.1 billion a day to fund the current gap. The notion is especially threatening when considering the record gap in 2006. Last year, the current account shortfall swelled to $856.7 billion, the largest on record. The gap exceeded the previous year’s $791.5 billion, equaling a whopping 6.5 percent of gross domestic product.
Stocks in Europe and Asia dropped Wednesday after Wall Street chalked its second-biggest point decline in four years and rattled already nervous markets worldwide.
The tumble came just as international markets were recovering from sharp declines earlier this month amid concerns about overvalued stocks and a slowdown in the U.S. economy.
Those worries resurfaced as troubles at subprime lenders and lackluster retail sales pushed the Dow Jones industrials down nearly 2 percent Tuesday, sparking selloffs across Asia and Europe.

The daily low for EUR/USD was 1.3176, just 5 pips lower than our entry price for our long trade, and our exact most probable reversal value according to the Q theory. Also, the Elliott Wave predictions on all time frames, including 1 minute, were clear, accurate, unequivocal, and precise. It seems that our systems excel on this currency pair, as a highly successful parallel systems developer using essentially the same methodology has discovered and confirmed.

The daily high is 1.3244, 6 pips short of our target. We anticipate a further rise to hit our target.

I can't vouch for the quality of education at the Online Trading Academy, but I always enjoy their weekly email market updates, and I think the general outline of their CD education package sounds like a good overview of how one might organise an approach to learning how to trade successfully.

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