Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

USDJPY: "Diving" For Opportunity

Currencies / Forex Trading Jan 29, 2016 - 06:08 AM GMT

By: EWI

Currencies

Learn how protective stops keep you on the right side the trend

On a recent vacation to the Yucatan, my friend decided to get certified in scuba diving.

I, on the other hand, prefer breathing my air above water! But I did tag along with her to one of the classes, anyway. She learned how to handle and interpret all the various diver gauges: gas pressure, submersive pressure, depth, and on.


The one feature all those indicators had in common was a bold, red line to indicate the level the diver must obey to stay out of danger.

That's when it hit me: Scuba-diving is a lot like financial markets. Investors and traders jump in -- and use an array of safety gauges to keep them on the right side of price action.

Well, at least those investors and traders who use technical market indicators. For them, those bold, red lines indicating the point of danger -- those are equivalent to the most critical component of market analysis: protective stops. The second prices cross this line, it's time to "swim back up to the surface" and safely re-adjust your position.

For any investor/trader, then, the ultimate goal is to clearly identify these life-"lines" ahead of time, before jumping in. That, dear friends, is where our newest, FREE report "How to Set and Manage Stops With the Wave Principle" comes in.

Here is an excerpt:

"Let's begin with rule No. 1: Wave two will never retrace more than 100% of wave one.

"In Figure 4-1, we have a five-wave advance followed by a three-wave decline, which we will call waves (1) and (2).

"An important thing to remember about second waves is that they usually retrace more than half of wave one, most often making a .618 Fibonacci retracement of wave one. So in anticipation of a third-wave rally -- which is where prices normally travel the farthest in the shortest amount of time -- you should look to buy at or near the .618 retracement of wave one.

"Where to place the stop: Once a long position is initiated, a protective stop can be placed one tick below the origin of wave (1). If wave two retraces more than 100% of wave one, the move can no longer be labeled wave two."

Okay. Now let's see how this strategy plays out in the recent performance of a real world market: The U.S. dollar/Japanese yen exchange rate (USDJPY). On December 16, our Currency Pro Service intraday analysis posted this update of the popular currency pair:

"The top of wave ((2)) 122.22 and the .618 Fibonacci retracement of wave i 122.27 offers a target zone where this wave ii should run into some resistance. Trading back below the wave (4) low 121.58 will signal ... a wave ii top in place [and] wave iii [is] under way."

As you can see on the chart above, our Currency Pro Service utilized the Wave Principle's rules for wave 2 price action to identify these two trade-salvaging details:

  • A high-probability top at 122.27, the .618 Fibonacci retracement of wave i
  • And, while not explicitly stated in the written analysis, the potential protective stop is shown on the chart itself at the 123.476 level, the point at which wave ii would have retraced more than 100% of wave i (red horizontal line at top of chart)

Now, the next chart shows you how the USDJPY did indeed top near the .618 Fibonacci retracement of wave i, turning down in an impulsive turn to a five-month low.

To "dive" in the world's leading financial markets, you need to know how to identify the critical life-"lines" of protective stops.


Our FREE report "How to Set and Manage Stops With the Wave Principle" makes this step easy.

Simply join our free 300,000 member-strong Club EWI community and get instant access to this powerfully instructive resource -- absolutely FREE!

Or, existing Club EWI members, click here and have the free report on your screen in seconds.

This article was syndicated by Elliott Wave International and was originally published under the headline USDJPY: "Diving" For Opportunity. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in