marketsinside on major currency pairs

Hi there folks

I will post here my analyses and forecasts of some of the most traded currencies (Euro, US Dollar, British Pound, Swiss Frank, Japanese Yen, Australian Dollar.

The methodology that I use is technical analysis, Elliott wave theory and sentiment indicators.

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.

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.

The first and most important line, that I want to start with - financial markets are not rational. They are psychological. They are driven by emotions. All the formulas used to calculate human behavior in the city mall do not apply here. The basic understanding of the system "The third wave trader" is, that financial markets are driven by natural laws and phenomena such as fractal structure of natural systems, and herd instinct in the crowd. This is the main and most important condition for understanding the following methodology. If the first few sentences sound ridiculous and incredible to you, there is no point reading on. So ...

The description below is suppose to be theoretical. Markets in practice have various cases and situations. Real examples can be found in the free articles.

Just to briefly describe how and why the idea is worth paying attention. Assuming that markets move in five steps forward and three steps back, then the abstract picture looks like that:

(pic 1)

This represents an impulsive five, according to Elliott Wave principle.

Wave 1 - The beginning of the change. Or this is the moment when mob psychology has been long enough at one extreme and the time has come to change its direction along with the emotions. First waves usually form slowly because of reluctance among the participants. In other words, these are the first weeks after your relationship with a new and interesting person. Hesitation, uncertainty, interest. These are the emotions that we hold in this situation. So much fun when you realize that the market behaves in the same way during first waves.

Wave 2 - The old influence. The previous trend and previous emotions are still very strong and leads to desire for returning to the previous direction. Typically, second waves are very sharp and deep, in hope that the previous trend is not yet over. Now back to the individual. When you begin to know new person, you see his strong and weak sides, and that instinctively makes you step away. It is the desire not to change anything about yourself. Fear of new things. Whether we realize it or not, this happens to almost everyone in our everyday lives, in our social life. And the market does that.

Wave 3 - New trend. Note this is the moment when the market clearly shows that it has changed its direction. There is no doubt about it. Everything is very powerful, fast, firm and sometimes even explosive. It is hard not to recognize a third wave. They are the longest and most volatile. They are the moment when the market explodes and shows that the old trend is already forgotten. Typically, media analysts announce that we have a new trend, namely towards the end of the third wave. In everyday life, this is the period in which the new person comes into our lives and it clearly becomes part of it. He changes us, influences us, makes us to be happy, or the opposite. Here we have already lost control of our fears.

Wave 4 - Calm after storm. As I already mentioned, third waves carry huge charge and when it breaks out and develop, market participants need to rest and take some air. Here we all know in which direction is the trend, but the participants start to hesitate how long will it continue. And once we allow the a new person to enter our life and even change who we are, we need to hesitate, again. To think what is happening. Who we were and what we become. This is a step away act, again. Need air.

Wave 5 - Depletion. During fourth waves market participants have fluctuated for a long time and their behavior has been hesitative, instinctively the crowd decides to continue the current direction and to move the market to a new extreme. But this movement is the final exhaustion, before changing the direction again. In everyday life this is the moment when we've had enough of the new person, we know him well (we think) and take him for granted. He is no longer interesting for us. As cynical as it sounds, that really happens. In most cases.

These are the five phases of an impulse. The metaphors with our daily life are probably not the best, but ... for I can not think of something better. It is good to mention that financial markets have a fractal structure. It means that inside wave 1 has a structure which is composed of five waves. Just to remind you of the example with the structure of a tree - structure of one of its leaves has the same structure as the whole tree.

The third wave trader seeks to participate in the market during third waves. Here is a picture again.

http://marketsinside.com/images/stor.../thirdwave.jpg

The time for opening a position is the time when the price breaks the top of the wave 1. Appropriate place to put a stop loss is slightly below the bottom of wave 2. If your analysis and wave count are correct, then the subsequent reaction of the market will be fast and powerful movement of the above, during which you should move the stop close to the levels you open the position so that you can not lose money. From there you can take whatever the market has given you during the third wave, or if you have patience to wait for the correction in the fourth wave and after that to use the new extreme of the fifth wave. All this is strictly individual and is a matter of the greed dose in each of us. I trade with this system. I would not recommend you to use it on very low time frames such as 5 minutes or 10 minutes charts, but I say again, this is strictly individual. For me, this is the only methodology that allows me to open positions with less than 10% risk. And if someone tells you that you can trade the market with 0% risk, do not believe him, that can't be done. The abstract example given here is for an uptrend, as I think it is easier to digest. The same rules apply to a bearish trend. Perhaps this description seems too easy, especially for those who have already spent some time in trading. I wouldn't like to break your enthusiasm, but trust me, it seems easy and simple, but to hide your emotions and to participate in such a whirl, as the market is, following rules is very difficult.

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.

(pic 1)

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.

(pic 2)

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.

(pic 3)

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.

(pic 4)

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.

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.

(pic 1)

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.

(pic 2)

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.