Is FOREX predictable ?

There are trading opportunities that lead you against the trend. They are dangerous, rare, and sometimes disappointing. But they exist. And if you are confident enough, experiences enough, and sure in your analysis, they are opportunities like the others. So let's go the example of one of the so called "against the trend" opportunities.

On November 01 I published my weekly Forex Bulletin, in which I suggested that we're gonna see another intraday rally in EURUSD. Here are the exact chart and the commentary.

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"EURUSD - Correcting, then higher.
We expect to see another intraday low for wave e from the triangle, and after that is very likely to see another rally with appropriate target at 1.4208. Critical level at 1.3692."

And the market indeed rallied. Actually it passed just a little bit my target, but in general the forecast came true. What's more interesting what should you do, when your analysis tells you to expect a top, and that top actually occurs. After the market reached my target, I was waiting for some signs of at least an intraday reversal. The the market was grateful. I saw a downside movement, which had five waves in it, and then a sideways correction. It was enough for me. I waited til the market broke its low, and I opened my short position, with a stop loss level at the previous top. All I had to do was to wait for wave iii to develop. Having in mind the low time frame, the whole position was supposed to happen in a day.

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After I saw the sharp downside rally that I was waiting for, some corrective hesitation for wave iv, and a new low for wave v, I decided that it's enough for me. I took my near 150 pips in a few hours. Yes, the market continued to fall, but at that time, I wasn't completely confident that I should keep my position. That's what I do. When I am not totally sure in my position, I close and stop. Confidence is the most needed sense for successful trading.

People's Republic of China but ahead of Germany at 4th. It may be interesting to observe whether the long going crisis in the land of the rising sun will end soon, or the opposite. Financial media are optimistic. But why isn't that surprising.

"Japan economy in surprise growth"
BBC Business NEWS

"Japan’s economy grew more than forecast in the third quarter as consumer spending increased, shielding the expansion from a stronger yen and export slowdown likely to have a greater impact this quarter."
Bloomberg

Now, let's take a look at the real charts and try to do some real forecasting. For the moment I see two different scenarios for the NIKKEI 225, Japan's overall stock market index.

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Scenario 1 - If we consider the top of B to be at 11,448, then we can expect to see a renewed bear market rally, going below 5000 points. Critical level at the top of wave B.

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Scenario 2 - It is very likely to see another rally with appropriate target at 13,280 for wave B, before the market reverses. That rally could be a good opportunity for intraday trading, because of the expected volatility, although it could be also very dangerous, because of the expectations of a top.

In both of the scenarios, the technical indicators that I use show a same perspective - primary bear market, started in 1990's and still not over. The only market breakthrough, that eventually can exclude both of the bearish scenarios is 18,342. Being an extreme optimist could dangerously harm your financials.

The majority of traders are now talking about the Japanese yen and the strong advantage that it takes against the US Dollar. Lots of volatility on the market in both directions is what attracts traders, especially those who like to trade in the small time frames.

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Basically we suggest that the market is going below the historical bottom (79.50), to complete wave V. During that fall I would like to see some RSI divergence in the lower time frames. In other words, there's a big reversal gathering sentiment. But before seing that reversal, the market needs to exhaust completely. Ignoring today's ongoing excitement about USDJPY, I wouldn't advise any investor to take a long term short position on USDJPY. Signs of reversal will come at a time. Be patient and the market will reward you with good opportunities.

Market analysis is the basis of wining or losing on a market. But the real adventure, the real game is trading or investing on it. And what I find quite intriguing is that there are as many and different trading systems, as the number of people on the market. Everyone has his own trading system or methodology, depending on his temperament and will to risk. Now, I prefer to use a mixture of pure technical analysis, Elliott wave Theory and intermarket analysis, implementing all those three in my trading system that I call THE THIRD WAVE TRADER. Today I want to show you a brief log of two of my recent EURUSD trades. That major currency pair is what I trade mostly.

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After we saw the sharp fall from 1.4286 to 1.3445 I was a little bit confused, because I expected to see a clearly impulsive pattern. I actually went on the market at that time. After the down move was done for that time, it had quite a choppy structure, which made me think that it's possible to be counted as wave a or i. Then we saw the correction to 1.3785 and I started to pay more attention to the market and to be more specific - to an eventual breakthrough of the previous bottom (1.3445). That's what THE THIRD WAVE TRADER claims to be the confirmation (or as some people call it - the signal). After the market confirmed that there is wave iii or c in action I opened my short position and put my stop loss right above 1.3785. As the market continued to fall I moved my stop loss in the major resistance levels that my Elliott wave count showed.

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Obviously my analysis was wrong at a time and the market hit my stop at 1.3198, returning me a profit of 250 pips. Some will say that I missed even more pips with that risk management, but I will say in my defense that it is part of my trading psychology. Doesn't matter how strange this may sound to you, but I prefer to let the market close my trades. I rarely close positions manually.

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But here's the thing. After my position was closed by the market, I moved in a 30 minutes chart and saw some impulsive pattern, which I thought could be the beginning of an A-B-C pattern, or even renewed short term bull market. After the market confirmed that wave iii or c is ahead, I opened a long trade. As the market climbed higher in a few hours, I moved my stop to a level that I couldn't lose money and even take some small profits. And I waited.

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After a short sideways price action, the market exploded and this time I closed my position manually, because I had my doubts whether the really is going to continue, or not. So I added another 180 pips in that day. So the sum of my two trades was 430 pips, for three days. But that is not what is actually so worthy. The key sentence here that I want to underline is - serenity while you trade. This confidence and easiness is what THE THIRD WAVE TRADER gives. And right now, I turn again on EURUSD, cause the market seems to be preparing new surprises for us.

All trading methodologies need to be proven by the market. It means that you need to test the system, so the market could confirm both the good and the bad sides of the methodology. Some have more bad than good effects and by that they lead to loss of money, or other side effects like psychological stress and disorder. In other words, if your trading methodology makes you feel tight and leads you to losses then you should reconsider its value for you. On the other hand, there doesn't exist a methodology or system, which works all the time, or one which is always correct. The perfect trading system is a myth. But there are ways to analyse and trade, which reduce the risk to a possible minimum and are efficient in both market directions - upside and downside. One of those ways is the methodology that I use and name THE THIRD WAVE TRADER. To see how it works, I decided to show you a brief description of a real intraday trade, that I made two days ago.

On December 07 I saw five waves down on a 5-minute chart of S&P 500, followed by a three-waves correction. I thought that this could be a nice intraday opportunity to take some points over the night and I set my sell stop order a few points above the bottom of wave i or a. I was convinced at that time that if the market hit my sell stop order, it would confirm that wave iii or c is under development. As you know, third waves are usually the strongest, fastest and most volatile price actions, which defines the trend in the different time frames. Almost the same characteristics apply for c-waves. So all I had to do was to wait for the confirmation. See what happened.

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The market made my sell stop order a living short trade and after a shallow correction, started to go lower. My first stop loss level was at 1,233.48, but after the market started to fall fast I moved it at 1,226.65. A few hours after that I decided that wave iii or c is near its end and I closed my trade manually. Notice that the market reached exactly 261.80 of wave i or a. That was one of the signs that made me think that keeping the trade open isn't such a good idea. And so I closed my trade with about 10 points profit for a few hours. But the rules that I followed are part of the THIRD WAVE TRADER system, which gives me the comfort of trading with minimum stress and risk.

If you constantly read our articles, you may have noticed that we don't follow financial news. The only thing we use them for is to show that they are not reliable and worthy. What we do is using technical and Elliott wave analysis to forecast certain markets. A lot of people will say that it's crazy to forecast markets without following news and fundamentals. Well, I must say - it is not only far from craziness, but it works quite well for us and our subscribers. And here is just another brief example of what we do:

One month ago, on November 23 we published our Metals Bulletin, in which we announced our short term perspective on SILVER:

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SILVER - Correcting, then higher.
I suggest that we're gonna see another rally for wave c of z of B. Appropriate target at 30.8017. Critical level at 24.959.

Two weeks after our forecast was published, the market reached the 30.70-80 area and hit the target. The major message here is that you can forecast and predict markets without even paying attention to news and fundamentals.

The spirit of Santa is still here. At least in marketsinside.com. I use the opportunity to congratulate everyone with the new 2011 year. I hope that we'll be better, healthier and happier people during this year. And because everyone wants to start the new year with a smile, I decided to help with that. FREE FOREX BULLETIN Subscriptions is what we're giving to everyone who's interested. That's right - FREE ! And even better - FREE for TWO MONTHS. You can read our analysis and forecasts of EURUSD, GBPUSD, USDCHF, USDJPY and US Dollar Index, for FREE. It is your decision how you will take advantage of the Instrument that we provide.

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All you have to do is to register here, without choosing a subscription plan, and send your Username to: [email protected] This e-mail address is being protected from spambots. You need JavaScript enabled to view it . In 48 hours you will get free access to the Forex Bulletin, for two months.

This campaign ends at the end of January. So hurry up ! Don't be late.

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Cordially,
Iskren Penchev
Author of www.marketsinside.com

Some of the best trading opportunities come when a market bottom is expected. Depending on the time frame you can decide what kind of risk management you can use. Determine your target, your stop loss size, and go for some profits. That's exactly our case here. On January 10 EURUSD made an intraday bottom, followed by a pullback. After sawing the low, I tuned up myself for an upside impulsive pattern, which was suppose to get me ready for a possible intraday trading opportunity. The I saw something that looked like a leading diagonal, then a choppy correction, followed by a breakthrough of the previous high.

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That was enough for me to be confident in my puzzle analysis and also in my THIRD WAVE TRADER methodology. I went long, with a stop loss at the previous bottom. The market started to climb, with appropriate sideways corrections. I was looking for a good spot in the RSI to confirm that the intraday trend starts to exhaust.

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And there's the moment I decided to take my profit. It all happened in just one day. A few hours actually. What's more interesting is that at the moment of opening my position I risked 40 pips, but my profit was 347 pips. That's one of the rules I have in my personal trading. Never start a trade, which has bigger risk than target.