Monday, December 31, 2012

Learn to Label Elliott Waves More Accurately

Learn to Label Elliott Waves More Accurately  

EWI Senior Analyst Jeffrey Kennedy shows you how to use momentum patterns to confirm your count

By Elliott Wave International

Are you looking for an easy way to improve your confidence as you analyze the charts you trade? Take a quick look at this chart (adapted from Jeffrey Kennedy's December 26 Elliott Wave Junctures lesson) to see how divergence relationships help clarify your analysis.

According to Jeffrey, divergence relationships are easy to identify. Whenever prices make a new extreme, look for underlying indicators to move in the opposite direction. Specifically,
The momentum relationship most often seen in waves 3 and 5 is divergence. Bullish divergence forms when prices make a new low while an accompanying indicator does not. Conversely, bearish divergence occurs when prices register a new high while an accompanying indicator does not. Bullish and bearish divergences are common to waves A and C, just as they are waves 3 and 5.
Notice the bearish divergence between waves 3 and 5 in the daily price chart of Halliburton Company (HAL) -- Prices reach a new high, yet the MACD indicator moves in the opposite direction:



Jeffrey notes that if you label an advance as a 5th wave move, and yet you do not see momentum divergence, that tends to argue for an extended 5th wave.

Next, at waves A and C, you can see an example of bullish divergence. Wave A bottomed at $32.90 in HAL and wave C ended much lower at $29.83. The histogram readings that correspond to waves A and C are -36.26 and -26.60, respectively.

Here's another example of divergence between waves A and C in Akamai Technologies (AKAM).



Notice that wave C is lower in price than wave A. However, if you look at the MACD histogram, you'll see that it registered a higher reading in wave C than it did in wave A, thus giving us a bullish divergence.

Understanding that Elliott waves demonstrate unique momentum relationships as well as price structure allows you to label waves more accurately and with greater confidence.


Learn to Use Technical Indicators to Improve Your Trading and Analysis

This is merely one chart example of how you can use technical indicators to strengthen your analysis. You can also learn about Moving Averages, one of Jeffrey Kennedy's favorite indicators, in a 
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Friday, December 28, 2012

Happy New Year!!

 

Ring in the New Year in Pips!

 

 Happy 2013 from your friends at ForexJourney

 

 

Chart Example - How to Identify High Confidence Reversal Zones

Chart Example - How to Identify High Confidence Reversal Zones Senior Analyst Jeffrey Kennedy shows you to how to use 3 technical tools to find price reversals

By Elliott Wave International

"Price gaps, wave relationships and Fibonacci retracements act as support or resistance for countertrend price moves. When combined, these characteristics help identify high-probability reversal zones."
-Jeffrey Kennedy
Technical analysis offers several ways to spot pullbacks that indicate a reversal of the larger trend. When you use the Elliott Wave Principle, it can be very useful to "gain a consensus" from more than one indicator to spot a high-confidence trading opportunity.

The following lesson is adapted from Jeffrey Kennedy's December 11 Elliott Wave Junctures educational subscription service:

Identifying high-probability reversal zones is simple, IF you know what to look for.
  • Price gaps occur when the range of a price bar does not include the range of the previous bar. It acts as a reliable level of support and resistance for subsequent price action and should always be monitored.
  • Elliott wave relationships help identify a range that will lead to the resumption of the larger trend. The most common relationship between waves C and A of zigzags and flats is equality, the second being a 1.382 multiple.
  • Fibonacci retracements: Fourth waves tend to encounter Fibonacci support/resistance at a .382 multiple of wave three. Depending on the depth and duration of the correction, prices may also test the .500 and .618 retracements.
In the daily chart for Akami Tech Inc. (AKAM), you can identify all 3 characteristics:


  • Price gap at 34.69
  • Elliott wave relationship of 1.382 between waves C and A of a zigzag pattern at $33.79
  • Fibonacci retracement at 50% of the prior advance at $34.04.
Using this information, you can see the very tight zone in which you may locate a probable reversal in this market (within the red circle).




Rather than focus on a single indicator, Jeffrey encourages you to combine them together to better identify high-confidence reversal zones in your price charts.


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Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Now you can learn how to apply them to your trading and investing in this free 10-page eBook. Learn step-by-step how moving averages can help you find high-confidence trading opportunities.

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Two Signs That Deflation is Far From Over

Two Signs That Deflation is Far From Over
 

A key economic index turns south
By Elliott Wave International


The Producer Price Index decline is happening in tandem with a notable reversal in consumer sentiment. The Federal Reserve's machinations -- which includes the Dec. 12 announcement of $45-billion in monthly Treasury bond purchases -- will not stave off a developing deflationary trend. How much farther does the economic cycle have to go before it reaches the bottom? Read more.

Don't Expect the News to Tell You Where EUR/USD Is Going Next


Don't Expect the News to Tell You Where EUR/USD Is Going Next Retrospective explanations of market moves don't keep you ahead of the trend

By Elliott Wave International

On December 27, EUR/USD shot up as high as $1.3283. Forex news headlines were quick to comment:
"Dec 27 - The euro slightly extended gains against the dollar after strong U.S. new home sales data last month further lifted the market's appetite for riskier currencies."
But after EUR/USD hit that high, it promptly reversed and fell back down to the $1.3200 level, where it had been stuck all week.

You may ask: What happened to that "appetite for riskier currencies"?
Good question, and here's the answer: That explanation came after the EUR/USD rally, not before.

See, it's easy to fit the news to market action after the fact: Just grab the news story that best "explains" the move. But retrospective explanations don't keep you ahead of the trend. To win in forex, you need forward-looking analysis, and you need it before the market moves.

On December 26, the editor EWI's forex-focused Currency Specialty Service, Jim Martens, posted this comment on his Twitter feed:
EWI Forex Insider: @FX_ElliottWave
Now that we got the EUR rise we expected, the double zigzag rise from 1.3158 to 1.3256 leaves EUR/USD vulnerable to a decline.
Then, on the morning of December 27, Jim updated his Currency Specialty Service subscribers via this intraday forecast (excerpt):


EURUSD (Intraday) Posted On: Dec 27 2012 10:01AM ET / Dec 27 2012 3:01PM GMT Last Price: 1.3269
The overlapping rise and possible double top near 1.3309 could lead to a larger correction. A flat or triangle would lead to weakness...
And here's the decline EUR/USD saw shortly after:



Note that neither of these two forecasts mentioned the news. And for good reason: The December 27 euro-bullish news would have had you buying EUR/USD all the way into the top.
Instead of the news, we at EWI look at objective Elliott wave chart patterns. That, and not the news, is what helps us to forecast the markets before they move.

We don't always succeed. However, as you can tell from this example, our Currency Specialty Service delivers true forward-looking analysis. Get our forecast for the U.S. dollar plus 5 hidden market opportunities for 2013 in a brand-new FREE report >>


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BONUS: You also get Jim's new 5-minute video update featuring 2 major currency pairs.

All you need to access this video report is a FREE Club EWI profile.

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Club EWI is the world's largest Elliott wave community with more than 325,000 members. Membership is 100% free and includes free reports, tutorials, videos, special events, promotional offers and access to the valuable EWI Q&A Message Board.

Monday, December 17, 2012

Prechter: "This is Not a Picture of a Bull Market"  

The three-and-a-half-year rally has occurred on declining volume December 14, 2012


By Elliott Wave International

What a comeback for the Dow Industrials!

From a March 9, 2009, close of 6,547, the senior index climbed to 13,610 on Oct. 5, 2012.
Moreover, the Dow achieved this feat in the face of a weak-kneed economy, and it has grinded forward now for three and a half years.

The persistent rise has emboldened stock market prognosticators.

S&P Could Still Hit 1,600 Year-End
                            --CNBC, Oct. 23
All the while, fewer and fewer investors have been participating in the so-called recovery.
Take a look at the chart below from the just-published October 2012 special video Elliott Wave Theorist, and then read Prechter's commentary.



People have started ignoring volume because bears have been talking about declining volume ever since 2010. But it is extremely important. Volume overall has been shrinking ever since the market's low of March 2009. This line that I've drawn tracks the volume on the rising portions of the rally from 2009. Every time the market gets hit very hard-such as in the collapse of 2008, the "flash crash" of May 2010 and the market plunge in August last year-volume picks up.
This is not a picture of a bull market. In a bull market, the opposite happens. Volume should be going up during the entire period, and it should be declining every time the market corrects. But we're getting exactly the opposite situation.
--The Elliott Wave Theorist, October 2012

Volume is an important momentum indicator that many overlook. It's time to start looking at your investments independently. EWI is here to help.




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Thursday, December 06, 2012

(Video) Alcoa and Aluminum: Latest Price Action Suggests 2 Major Opportunities

(Video) Alcoa and Aluminum: Latest Price Action Suggests 2 Major Opportunities
Alcoa (NYSE:AA) and aluminum futures prices have "come into critical price areas."

November 30, 2012

By Elliott Wave International

The editor of Elliott Wave International's Metals Specialty Service, Mike Drakulich, has just recorded a new, free video forecast:
"Aluminum and Alcoa: Exciting Juncture (Nov. 29, 2012.)"
Says Mike (excerpt):
"This is the first video of what is going to be a series of videos on the industrial metals markets, as they come into critical price areas that may tell us the big [moves] I've been talking about in my daily analysis are getting underway -- or, in fact, are underway."
ALUMINUM: The video starts off by showing you "the big picture from 2008-2009 bottom." Mike Drakulich walks you through the Elliott wave pattern since then and shows you how, off the recent high, the price has come down in a familiar ABC pattern. Moreover, the decline has retraced 62% of the previous rally -- a key Elliott wave signature and important Fibonacci proportion.

Here is an abridged version of the aluminum chart from the new video:



What's more, the price action in aluminum has just penetrated two key moving averages, the 50-day and the 200-day.

ALCOA (NYSE:AA): The second half of the video gives you a detailed look at Alcoa stock. Mike shows you that, going back to the same 2008-2009 period, AA has followed the price of aluminum very closely. You get a detailed view of Alcoa's recent drop below a key support price level, plus the analysis of an important trendline the stock has been "flirting" with -- which, if broken, should "open the gates" to a rare opportunity.
Mike Drakulich ends the video by saying:
"Bottom line, we have some really nice action in aluminum and Alcoa, and this is being seen across the board in many of the industrial commodities."
Visit Elliott Wave International to watch the full, FREE video forecast on these two emerging trading opportunities.

Thursday, November 29, 2012

Using Momentum Analysis

Momentum Analysis Using MACD

Learn more about using Momentum analysis to make Elliott wave trading decisions in this video by EWI European Interest Rate Analyst Bill Fox. Find more lessons on technical indicators in EWI's newest free report. See the information below.

Learn the Best Technical Indicators for Successful Trading


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Wednesday, November 28, 2012

USD/JPY: Lemons into Lemonade

USD/JPY: Lemons into Lemonade

How Elliott wave analysis helps you as a forex trader with built-in, risk-defining safeguards November 27, 2012

By Elliott Wave International

Elliott wave analysis is not a crystal ball. (No market-forecasting method is.)
But here's what is remarkable: Even when your Elliott wave forecast doesn't pan out, you have built-in safeguards to alert you -- and help you manage risk. Here's a real-life example.

Going into the November 14 low, USD/JPY charts had been showing an impulsive downward Elliott wave pattern. Impulses are 5-wave moves, but on November 13-14, the pattern looked incomplete: the fifth wave down seemed to be missing.

Here's a chart our Currency Specialty Service subscribers saw early on November 13:



So, our analysis on November 13 suggested that USD/JPY would fall further. But USD/JPY just would not fall; instead, it went sideways.

That suggested to our Currency Specialty Service team that the wave (4) you see in the chart above was extending. Perhaps it was developing as another Elliott wave pattern -- maybe a contracting triangle? This chart and analysis described to subscribers that scenario:



"A bearish fourth-wave triangle is another idea that's in a position to yield new lows in wave (5). Resistance rests at 79.655/765."

Note that line: "Resistance rests at 79.655/765" -- it represents the very risk-defining safeguards I mentioned earlier.

How? Well, there are things that Elliott wave patterns just are not allowed to do. In a contracting triangle (an A-B-C-D-E formation), prices must stay within converging trendlines -- and they cannot overlap the start of wave A, the origin of the pattern. Resistance at 79.655/765 was exactly that: the price point where the contracting triangle interpretation would be invalidated.
Practical application: If you were bearish on USD/JPY on November 14, you could have used the price area of 79.655/765 to manage your position risk.

As you probably know, USD/JPY did not go sideways for long. Nor did it go down. Soon after, it went higher and breached that key resistance level:




When one Elliott wave pattern ends, another one begins. As soon as that key resistance in USD/JPY was breached, a new road map for the Japanese yen became clear.


Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"
Here's some of what you'll learn:
  1. Which Elliott waves to trade
  2. Which Elliott waves set up your forex trade
  3. When your analysis is wrong
  4. Guidelines for projecting price targets
  5. How to evaluate an Elliott wave structure
  6. How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
All you need is a free Club EWI profile to download this FREE 14-page eBook now >>

Tuesday, November 27, 2012

Get a Second Opinion on Your Trades with a 5-Chart Example

Get a Second Opinion on Your Trades with a 5-Chart Example  

EWI Senior Analyst Jeffrey Kennedy shows you how to "get a consensus" before placing a trade. November 20, 2012

By Elliott Wave International

If you've ever considered a major medical procedure, you likely know the importance of a second opinion. Even if your doctor or specialist is experienced and strongly recommends a certain course of action, it's still risky to make a critical health decision based on one person's view.

Likewise in trading: One solitary piece of technical evidence rarely provides enough information to make a trading decision. According to Elliott Wave Junctures editor Jeffrey Kennedy, it is best to get a second (or third, or fourth) opinion from supporting indicators before you commit to a trade.

In Orange Juice, July 2008 was a good shorting opportunity not merely for one reason, but because four pieces of evidence showed that lower prices were ahead.
To illustrate my point, let's examine some price charts of Orange Juice and look at the reasons why the consensus of evidence in Orange Juice in July 2008 argued for lower prices (Chart 1).



The first piece of evidence is glaringly obvious in Chart 2: the weekly trend is down:



Why is this important? Because a cornerstone belief of technical analysis is that trends persist. With the weekly trend down in O.J., odds favored more of the same in the weeks to come.

Chart 3 illustrates another piece of evidence: that the May-July advance in Orange Juice (basis the September 2008 contract) consisted of three waves.



Three-wave moves are important to Elliotticians because they are corrective wave patterns (i.e., countertrend moves).

A Bearish Engulfing pattern is evident in Chart 4, which also argued for lower prices in Orange Juice. It is a Japanese Candlestick pattern in which the distance between the open and close of the current price bar encapsulates the distance between the open and close of the prior bar. More important, the close of the current bar is below the open, and the close of the prior bar is above its open:



The final piece of evidence is illustrated below in Chart 5, which displays a bearish Popgun pattern:



A Popgun is a simple two-bar pattern that I have written about before... It typically forms at turning points and is composed of an outside bar that is preceded by an inside bar, similar to the Engulfing Candlestick pattern
With a strong downward trend and three additional supporting technical indicators, Jeffrey knew that he had a good opportunity to short Orange Juice. He had not just a "second opinion," but a third and fourth argument to strongly support his trading decision.
Jeffrey often says that market analysis and trading have taught him "a lot about life, and vice versa."

Just as one doctor's opinion may not be sufficient evidence to undergo the knife, a bearish wave count alone or a simple divergence in two indicators is probably not enough to raise your confidence level sufficiently to place a trade.


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Which Works Best -- GPS or Road Map? (Part 3)

Which Works Best -- GPS or Road Map? (Part 3) Trading with Elliott wave analysis November 21, 2012

By Elliott Wave International

(Here are Part 1 and Part 2 of this article.)

Think of Investing as a Trip 

Here's my advice: View the Elliott wave Principle as your road map to the market and your investment idea as a trip.

You start the trip with a specific plan in mind, but conditions along the way may force you to alter course. Alternate counts are simply side roads that sometimes end up being the best path.
Elliott's highly specific rules keep the number of valid interpretations to a minimum. The analyst usually considers the "preferred count" to be the one that satisfies the largest number of guidelines. The top "alternate" is the one that satisfies the next largest number of guidelines, and so on.

There are only three hard-and-fast rules with the Wave Principle:
  1. Wave two cannot retrace more than 100% of wave one.
  2. Typically wave four does not end within the price territory of wave one but may do so from time to time in highly leveraged markets.
  3. Wave three is never the shortest wave of an impulse.
Elliott's rules give specific "make-or-break" levels for a given interpretation. In Figure 2, for example, if the move labeled (2) continues below the level of the beginning of wave (1), then the originally preferred interpretation would be instantly invalidated.



By eliminating subjectivity, the rules help you firm up your investment strategy -- and reduce your risk.

"Are We There Yet?"

You've heard that irritating question, "Are we there yet?," from the back seat just about a million times. Every map has a scale, and it's the scale that helps me determine how many miles I have to travel before I reach my destination. When using the Wave Principle, Fibonacci relationships are the scale.

Many investors today know that Fibonacci ratios are used for market forecasting. But few realize that Fibonacci analysis of the markets was pioneered by R.N. Elliott. The use of Fibonacci ratios requires a valid Elliott wave interpretation as a starting point. Unfortunately, many non-Elliott analysts try to find Fibonacci proportions between market moves that are not related to each other in any way. This has made the approach appear to be far less valuable than it is.

Elliott wave analysis has two chief insights concerning Fibonacci relationships within waves. First, corrective waves tend to retrace prior impulse waves of the same degree in Fibonacci proportion. For example, wave (2) in Figure 2 retraces 38% of wave (1). That's a common relationship. Other frequent wave relationships are 50% and 62%. Second, impulse waves of the same degree within a larger impulse sequence tend to be related to one another in Fibonacci proportion. For example, common relationships include wave three traveling 1.62 times the distance traveled by wave one of the same degree. When that occurs, wave five often tends toward equality with wave one of the same degree.

Planning the Trip

Just as I sit down and plan my trips before shoving off, I rely on wave interpretations and Fibonacci relationships to help establish investment strategies and reduce risk exposure when I analyze the markets for our clients. Investors use these same wave analysis methods to help decide where to get into a market, where to get out and at what point to give up on a strategy. 

The Wave Principle lets you identify the highest probability direction for the market, as you also adopt an optimum position to take advantage of it -- all while protecting yourself against lower probability outcomes. You couldn't ask more from your own GPS.

By the way, we did make it to Cades Cove on our way back across Smoky Mountain National Park. I turned off my GPS and consulted my map. The old tried and true worked like a charm.


Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's
Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.


Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"
Here's some of what you'll learn:
  1. Which Elliott waves to trade
  2. Which Elliott waves set up your forex trade
  3. When your analysis is wrong
  4. Guidelines for projecting price targets
  5. How to evaluate an Elliott wave structure
  6. How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
All you need is a free Club EWI profile to download this FREE 14-page eBook now >>

Monday, November 26, 2012

Which Works Best -- GPS or Road Map? (Part 2)

Which Works Best -- GPS or Road Map? (Part 2)

Trading with Elliott wave analysis November 16, 2012

By Elliott Wave International

(Part 1 of this article is posted here.)

A Quick Road Map of Wave Analysis

For this overview of wave analysis, I have borrowed from the "Cliffs Notes" version that we provide for free to anyone interested in learning about wave analysis. It's called Discovering How To Use the Elliott Wave Principle.

Elliott's road map, or basic wave pattern, consists of "impulsive waves" and "corrective waves." An impulsive wave is composed of five subwaves and moves in the same direction as the larger trend -- or the wave's next larger size. A corrective wave is divided into three subwaves, and it moves against the trend of the next larger degree. As you can see in Figure 1, there are plenty of right and left turns -- or up and down moves on a price chart.



Figure 1 reveals the general roadmap that markets follow during bull markets. Notice the building-block process. The completion of an initial impulsive wave (waves 1-5, up-down-up-down-up) sets the stage for a corrective phase (waves A-B-C, down-up-down). Combined, those waves represent the first two legs of a larger "degree" advance. In this illustration, waves 1, 2, 3, 4 and 5 together complete a larger impulsive wave, labeled as wave (1).

A five-wave rally from a significant low tells us that the movement at the next larger degree of trend is also upward. It also warns us to expect a three-wave correction -- in this case, a downtrend. That correction, wave (2), is followed by waves (3), (4) and (5) to complete an impulsive sequence of the next larger degree. At that point, again, a three-wave correction of the same degree occurs.

Note that, regardless of the size of the wave, each impulsive wave peak leads to the same result -- a correction.

If we isolate the corrective waves, the subwaves A and C move in the direction of the larger trend and usually unfold in an impulsive manner. Referring to Figure 1, the (A)-(B)-(C) decline that follows the (1)-to-(5) sequence illustrates this structure. Waves labeled with a B, however, are corrective waves; they move opposite to the trend of the next larger degree. In this case, they move upward against the downtrend. Notice that these corrective waves are themselves made up of three subwaves.

Reading the Wave Analysis Map

So now that you have a wave road map in hand, let's talk about how to apply it to the actual terrain of financial markets. When I look at a price chart for the first time, my first task is to identify any completed five-wave and three-wave structures. Once I do that, then I can interpret where the market is along the pre-defined path and, from there, where it's likely to go.




Say we're studying a market that has reached the point shown in Figure 2. So far we've seen a five-wave move up, followed by a three-wave move down.

But this is not the only possible interpretation. It's sort of like having a GPS that tells you that you've arrived, when you've actually got miles to go. In this example, it is also possible that wave (2) hasn't ended yet; it could develop into a more complex three-wave structure before wave (3) gets under way. Another possibility is that the waves labeled (1) and (2) are actually waves (A) and (B) of a developing three-wave upward correction within a larger impulsive downtrend, as shown in the "Alternate" interpretation at the bottom of the chart. According to each of these interpretations, though, the next imminent movement is likely to be upward. That tells you more than most technical analysis systems do.

Alternate counts are an essential part of using the Wave Principle. They are neither "bad" nor "rejected" wave interpretations. Rather, they are valid interpretations that are given a lower probability while the count works itself out. If the market doesn't follow the original preferred scenario, the top alternate usually becomes the preferred count.

I consider alternate counts to be similar to detours -- just a different way for the market to get to where it's going. How many times do you actually go from point A to point B non-stop in your travels? Admit it, you have to stop to grab a bite to eat or ask for directions once you realize you're lost. After consulting the map, you get back on track toward your intended destination. The new path represents an alternate count.

This seeming ambiguity about a wave structure illustrates an important point about the Wave Principle that, in my opinion, is often misunderstood. The Wave Principle does not provide certainty about any one market outcome. Instead, it gives you an objective means of determining the probability of a future direction for the market. At any time, two or more valid wave interpretations usually exist. Unlike actual physical roads that exist, price movements in financial markets are always changing, and the best you can do is be somewhat confident of whether they are moving up or down. That's the kind of confidence that the Wave Principle provides.

(Come back soon for part 3 of this series.)


Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's
Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.


Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"
Here's some of what you'll learn:
  1. Which Elliott waves to trade
  2. Which Elliott waves set up your forex trade
  3. When your analysis is wrong
  4. Guidelines for projecting price targets
  5. How to evaluate an Elliott wave structure
  6. How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
All you need is a free Club EWI profile to download this FREE 14-page eBook now >>

Which Works Best -- GPS or Road Map? (Part 1)

Which Works Best -- GPS or Road Map? (Part 1)  

Trading with Elliott wave analysis November 13, 2012

By Elliott Wave International

Some of the best stories about global positioning systems (GPS's) are the weird detours they sometimes recommend to drivers. Just like some of the weird detours that financial markets can make you take when you think they would be better off going in a straight line either up or down, depending on how you've positioned your trades.

Not long ago, while taking a trip with my family through Great Smoky Mountains National Park on the way to Gatlinburg, Tenn., I decided to use my GPS to drive around the park's western boundary. We wanted to visit Fontana Dam and Cades Cove to see the wildlife. We'd do the go-carts, miniature golf and rides the following day.

From Fontana Dam, my old-fashioned map made it look like it would take the better part of the day to drive around the park to Gatlinburg and then head into Cades Cove from the north. But my new GPS unit suggested that Cades Cove was less than 20 miles away. I could have kissed it -- my GPS was going to save me hours of travel time! Or so I thought. Little did I know until I got there that the road my GPS suggested for the final few miles was only the remnant of an old wagon trail -- and it was a one-way wagon trail, going the wrong way. I had to backtrack and take the much longer path my paper map suggested.

What's the moral of the story? Sometimes the new-fangled gadget is not much of an improvement over what it's designed to replace. Although my GPS unit is great when it comes to identifying the quickest and most efficient route from point A to point B, it sometimes fails to take into account some of those necessary nuances, such as whether a street is one way or whether it might be impassable at times. Every so often, the old-fashioned way of doing things is still the best way.

I believe that's true when it comes to analyzing markets, too. The method I employ every day has been around since the 1930s, and it works as well as, if not better than, any new-fangled technical analysis method for which you must buy some expensive computer software. My method is a form of technical analysis based on the Elliott Wave Principle, which Ralph N. Elliott worked out via hundreds of hand-drawn charts, well before the dawn of charting software. 

If you like those GPS units that talk you through every turn, you can almost imagine Ralph's voice explaining where to turn as you follow a market. Those directions -- the road map he drew for tradable markets -- have withstood the test of time.

As I found during my trip, detours are a fact of life. They are also a part of market trends. For instance, a bull market shows periods of "punctuated growth" -- that is, periods of alternating growth and non-growth, or even decline. The patterns then build on themselves to form similar designs at a larger size, and then again at an even larger size.

You've probably heard of this idea of repeating patterns on increasing and decreasing levels of scale. This emerging science, which is called "fractal geometry," is a branch of chaos theory. And it is precisely the model identified by R. N. Elliott more than 60 years ago.

(Stay tuned for parts 2 and 3.)


Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's
Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.


Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.

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Here's some of what you'll learn:
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  2. Which Elliott waves set up your forex trade
  3. When your analysis is wrong
  4. Guidelines for projecting price targets
  5. How to evaluate an Elliott wave structure
  6. How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
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Tuesday, November 13, 2012

(VIDEO) GBP/USD: How Elliott Wave Patterns Predicted Recent Drop Under 1.60

A great 6-minute video lesson in Elliott wave analysis of forex markets 

November 08, 2012 

By Elliott Wave International 

Every Friday, the editor of EWI's forex-focused Currency Specialty Service, Jim Martens, records a video update for his subscribers. Each video delivers a real-life lesson on Elliott wave application to forex markets. 

Watch this 6-minute video Jim recorded on October 12. Jim called for cable (GBP/USD) to drop below 1.60 in wave 5 of the developing Elliott wave sequence. 

Ten days later, on October 23, GBP/USD fell as low as 1.5925.

Moving Averages and the Wave Principle

Moving Averages and the Wave Principle
 

Improve your Elliott wave pattern identification skills with this lesson from Jeffrey Kennedy
November 02, 2012

By Elliott Wave International

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Among Elliott wave traders, you will likely find an especially high percentage of investors and traders who incorporate moving averages into their Wave analysis.

Here's why: you can use moving averages to identify Elliott waves.

Senior Analyst Jeffrey Kennedy knows how to take complex trading methods and teach them in a way you can immediately understand and apply -- his step-by-step tutorials are beneficial to traders at any level of experience. Jeffrey is also well-known for combining ancillary technical tools to strengthen his Elliott wave analysis.

The following lesson provides a powerful example of how moving averages can strengthen your ability to identify Elliott Patterns. It is excerpted from Jeffrey's free 10-page eBook, How You Can Find High-Probability Trading Opportunities Using Moving Averages. (Click here to get your copy of this free eBook now.)


If you're new to the Wave Principle, I recommend using a moving average to get you started, and the reason why is that a moving average overlaid on a price chart will help train your eye to see developing Elliott wave patterns.
For an example of a schematic Elliott wave, look at the figure below:


If you've read The Elliott Wave Principle by Robert Prechter and A.J. Frost, you know that wave patterns are illustrated as line diagrams.
When you look at a real price chart rather than a schematic, the basic chart is typically an open-high-low-close price chart. Each price bar represents a single period and is illustrated by a vertical line with a small mark to the left and a small mark to the right as seen in the next figure:



The little lower line on the left-hand side of the vertical bar is the open; the little upper line on the right-hand side of the vertical line is the close; the top of the line is the day's high or that trading period's extreme; and the bottom of the line is that trading period's low.

Here's the thing: Whenever you're making the transition from looking at a textbook diagram to actually counting Elliott waves on a real price chart, it can be confusing to the eye. If you use a moving average, it will help you to see the wave pattern more easily.

Let me prove my case more thoroughly with this chart of Corn:



The blue line is an 8-period simple moving average of the close, which clearly shows that a five-wave decline has unfolded from the upper left-hand side of this price chart. With the aid of a moving average, the subdivisions within this selloff are more easily discernible than with the untrained naked eye.


Also, notice that the slope of the move up in wave 4 is shallow. This detail is important because one of the key characteristics of countertrend price action is that it moves slowly, thus its slope will be inherently more shallow than what one can expect to encounter when a motive wave is in force.


Learn How to Trade the Highest Probability Opportunities: Moving Averages
No matter what your level of experience in the markets, you'll be amazed at how quickly you can benefit when you include moving averages in your Elliott wave analysis. Now you can learn how to apply them to your trading and investing in this free 10-page eBook. Learn step-by-step how moving averages can help you find high-probability trading opportunities.

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Wednesday, October 17, 2012

An Elliott Wave Pattern that Signals the Start of Opportunity

An Elliott Wave Pattern that Signals the Start of Opportunity
The size of the wave will surprise most everyone

October 15, 2012

By Elliott Wave International

On Monday Oct. 8 I sat down with Elliott Wave International's senior analyst Jeffrey Kennedy to discuss his favorite wave pattern of all: the Elliott wave diagonal.

Nico Isaac: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be the Elliott wave diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike motive waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1.



Nico: So, what makes this pattern so darn special?

Jeffrey: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast.

Put simply: If you see a diagonal, you know it's soon time to "look up above" or "out below!"


Nico: Could you give us a real-world example?

Jeffrey: Sure. Let's go back to the May 2011 Monthly Futures Junctures. In the "Featured Market" segment of that publication, I presented the following chart of cocoa that showed a complete multi-year ending diagonal wave pattern and wrote:
"Another piece of evidence that forewarns of an acceleration in recent selling is the larger operative diagonal pattern... This suggests that cocoa prices will continue this year's sell off for many more months."



Nico: And then what happened?

Jeffrey: Take a look at this AFTER chart: Cocoa prices sold off to a 3-year low as they were nearly cut in half -- the sharp manner characteristic of post-diagonal moves:



Nico: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal.


Learn the Benefits of Elliott Waves, One Pattern at a Time
Elliott Wave Patterns -- a new FREE educational feature from Elliott Wave International -- gives you basic lessons and videos clips which explain individual patterns, their rules and guidelines. Real-life examples show you how each pattern fits into the overall wave structure.
New patterns will be added periodically, so check back often.
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