(VIDEO) EUR/USD: A Great Real-Life Lesson in Elliott Wave Analysis

In light of the recent volatility in the EUR/USD I thought I would post an video from my friends at Elliott Wave International from earlier in the month to demonstrate how powerful the Elliott Wave Principal can be when deployed correctly....

(VIDEO) EUR/USD: A Great Real-Life Lesson in Elliott Wave Analysis
This is a story we've seen repeated in the forex markets again and again. 
July 20, 2012

By Elliott Wave International

About once a week, the editor of EWI's forex-focused Currency Specialty Service Jim Martens records a video for his subscribers.

On Thursday, July 5, with EUR/USD trading in the mid-$1.2400 range, Jim posted the video you see below. Watch as he explains how Elliott wave analysis helped him realize that EUR/USD was on its way to make a new low for 2012 -- before the new round of "bad news" from Europe was subsequently blamed for the euro weakness.

The Drop Like a Rock Scenario for U.S. Markets

The Drop Like a Rock Scenario for U.S. Markets
Third waves are "wonders to behold" 
July 27, 2012

By Elliott Wave International

Financial markets always have and always will pose two basic questions that investors seek to answer:

1. What's the direction of the main trend?
2. How far will it go?

Systematic approaches to these questions commonly belong to either fundamental or technical analysis. Let's consider each one briefly.

Fundamental analysis studies how a market behaves in response to external influences such as earnings, sales, competitive outlook, economic outlook and the like.

Technical analysis studies a market's internal behavior -- mainly price, but also internal measures like volume.

Elliott wave analysis is a branch of technical analysis, specifically pattern recognition.

In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns...Elliott isolated five such patterns, or "waves," that recur in market price data.

Elliott Wave Principle: Key to Market Behavior (p. 19)

In a five-wave progression, the third wave is the most powerful.

Third waves unfold in bull and bear markets alike. Elliott Wave Principle (p. 80) describes a third wave in a bull market:

Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable...Third waves usually generate the greatest volume and price movement and are most often the extended wave in a series. It follows, of course, that the third wave of a third wave, and so on, will be the most volatile point of strength in any wave sequence.

Third waves can be more powerful during market declines because fear is a stronger emotion than greed.

Look at the third wave on this S&P 500 chart which published in the January 2009 Elliott Wave Financial Forecast. Notice that prices dropped like a rock, plunging well over 600 points in less than a year. (The third wave starts where the chart shows (2) and ends at (3)):

You can see on the chart that the S&P 500 had rebounded after the third wave had bottomed. Even so, the chart's title states that there was "Room for a New Low." Indeed, after the rebound which was wave (4), wave (5) took prices to a March 6, 2009 intraday low of 666.79.

How about now?

That depends on who you ask.

On July 10, CNBC reported on the sentiment of a chief market strategist of a capital management firm:

Ever the optimist, he is holding to his market call this year for the S&P 500 to hit 1,500.

A principal of a financial advisory firm and guest columnist for Marketwatch wrote a July 10 article titled "Stock charts don't lie: the trend is up." The article says:

Shares continue their winning ways, technically. The averages show a stair-step series of higher highs and higher lows, the definition of an uptrend.

By contrast, the latest Financial Forecast flat out says:

The stock market is nowhere near a lasting low.

Why does the Financial Forecast differ from the two opinions above?

Because Elliott analysts know that during a market downtrend, second waves can convince investors that the rally is a new bull market.

That can be a financially dangerous mind-set.

Optimism precedes third waves lower. Then, seemingly out of nowhere, a third wave can commence with unrelenting violence and speed.

In the chart above, you saw the optimism-driven rebound just before prices plunged.

Do not expect the financial media to provide you with advance warning of a third wave. The crowd is almost always on the wrong side of the market. Third waves arrive unannounced.

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Learn How to Spot Third Waves and More - FREE! The Elliott Wave Crash Course is a series of three FREE videos that demolishes the widely held notion that news drives the markets. Each video will provide a basis for using Elliott wave analysis in your own trading and investing decisions. You'll get the Why, What, and How of Elliott Wave Analysis: Video 1: Why Use the Wave Principle -- a comprehensive look at what the financial media say drives the markets and why their "fundamentals" are usually wrong. Video 2: What is the Wave Principle -- explains in vivid detail the recurring "motive" and "corrective" patterns R. N. Elliott discovered in the DJIA in 1938. Video 3: How to Trade the Wave Principle -- real charts and strategies for position management, such as entry, stop, target and risk/reward assessment. Access the Elliott Wave Crash Course Now >>

Basic Elliott Video Lesson -- How the Zigzag Measures Up

Basic Elliott Video Lesson -- How the Zigzag Measures Up
Quickly learn how to differentiate a zigzag from two common Elliott Wave patterns 
July 25, 2012

By Elliott Wave International

You're not supposed to compare apples to oranges, but I do compare apples to apples: I prefer the classically mellow taste of Red Delicious to the grassy and tart Granny Smith.

It can be a challenge to describe the differences between two similar objects. For example, I'd struggle to tell the difference between Pinot Grigio and Sauvignon Blanc in a taste test (and why I don't try to earn a living as a sommelier).

When it comes to Elliott Wave analysis, it can be difficult to distinguish among technical patterns on a price chart, especially when you're new to trading.

That said, now it's your turn: can you explain how a zigzag compares to other corrective patterns?

Watch this brief clip to learn what the zigzag shape looks like in contrast to the other sideways structures. (Note: If you are interested in getting a strong foundation in the Wave Principle, check out our free Elliott Wave Tutorial -- find out how below.)

To understand corrective Elliott patterns (which move against the larger market trend) is to equip yourself to find opportunities in the direction of the trend. To be a consistently successful Elliott trader, the reality is that you need to be able to identify these forms as easily as a sommelier can distinguish a Malbec from a Chianti.

How do you like them apples?

Super Mario to the Rescue

Hey Traders,


Check out this Bloomberg video chronicling the ECB's Mario Draghi's comments to save the Euro.  Funny how this came as the euro established a bottom and was followed by a nice 5 wave impulse....

http://www.bloomberg.com/video/draghi-ecb-to-do-whatever-needed-to-preserve-euro-OF8PNB8EROSj1nDX9sZquw.html http://www.bloomberg.com/video/draghi-ecb-to-do-whatever-needed-to-preserve-euro-OF8PNB8EROSj1nDX9sZquw.html

Happy Trading!!

Get 10 FREE Lessons on the Elliott Wave Principal

Greeting Traders and Investors,

"Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it."

This quote is from the opening paragraphs of the free Elliott Wave Basic Tutorial. It's critical to your understanding of how markets really work.

You might wonder what's so wrong with being part of the crowd. Unfortunately, the crowd usually shows up after a majority of the market move has occurred, when it feels 'safe' to join in the group. Then the crowd hangs on as the market turns and the losses pile up. Think back to 2008-2009. How many people do you know that rode the market right back down and got out closer to the bottom than the top?

To be a successful individual investor, you must understand what it means to take risks when the probabilities are with you and shun risk when they're not. Robert Prechter's method of analysis, the Elliott Wave Principle, can help you do just that.

I encourage you to learn more about this method in Elliott Wave International's free Basic Tutorial. It's broken up into 10 lessons across 50 pages, so it's easy to read and review at your leisure.

Get 10 lessons that will change the way you invest forever. Download the free Elliott Wave Basic Tutorial now.

Yours truly,

ForexJourney

Australian Dollar: "Still Surging" -- Why, Again?

Australian Dollar: "Still Surging" -- Why, Again?
This is a story we've seen repeated in the forex markets again and again. 
July 20, 2012

By Elliott Wave International

Picture this. It's late May. You're in Australia. You have an interest in the currency markets: Maybe you speculate in forex; maybe your business depends on the exchange rates.

Every morning, you scan the headlines. This is what you see regarding the Australian dollar during the last week of May:

• "Aussie dollar sinks to eight-month low"
• "Little long-term support for Australian dollar"
• "Poor data slams Aussie dollar"
• "Aussie dollar drops as investors seek safe-havens"
• "Australian Dollar Down After Retail Sales Slip"
• "Weak China PMI Sinks Euro, Australian Dollar"

Even after a strong rebound the AUD saw on May 28 and 29, you read that "analysts don't see [the] improvement lasting too long unless the global economic backdrop improves." You sit down to make some decisions in preparation for an even weaker Aussie, and...

...and now, six weeks later, the AUD is orbiting the moon. Yes, between June 1 and today, against the U.S. dollar the Aussie dollar shot up from near $0.96 to over $1.04, despite all the "bad fundamentals" from late May.

This is a story we've seen repeated in the forex markets again and again: Right when everyone accepts the trend (bullish or bearish) as "the new normal," the trend reverses.

We are proud to say that we don't follow the herd off the cliff each time they head that way -- because we have the right forecasting tools. On June 1, our Senior Currency Strategist Jim Martens published this bullish AUD/USD forecast (excerpt; some Elliott wave labels have been erased for this article):

Excerpt from the June 1 forecast: "...AUD/USD is forming a corrective setback, either a flat or a triangle...to be followed by another push above [price target]"

This bullish forecast was based strictly on the Elliott wave picture in AUD/USD charts. Jim simply saw that the pair had reached the bottom trendline of the likely "triangle" Elliott wave pattern, so a strong rebound was due in the next wave of the pattern.

Today, after 6 weeks of rally, the AUD is "still surging," as it has become "an attractive investment." But you already know how rapidly this tune will change once the trend reverses.

Jim Martens has the near- and long-term AUD/USD price targets inside his Currency Specialty Service for you right now.

ALSO, don't miss our ongoing July 18-26 "Free FX Trading Event." Details below.

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FREE FX Trading Event NOW ON! How to Trade the Top 5 Forex Opportunities... Right Now Now through July 26, EWI Senior Currency Strategist Jim Martens walks you through some of his best opportunities in key forex markets and shows you how to act on them using the Elliott Wave Principle. Join in now and instantly watch online Martens' special 1-hour kick-off webinar (recorded live July 18). You'll learn: How the Wave Principle can help improve your forex success Jim's favorite trade setups and strategies, including entries, exits and stop levels Jim's outlook for the U.S. dollar and other major currencies PLUS, get 5 follow-up videos from Jim Martens featuring in-depth analysis of his top forex opportunities. This is your chance to learn from one of the world's most sought-after FX strategists. Follow the link below to join now, free. Join EWI's FX trading event now -- 100% FREE >>

(VIDEO) EUR/USD: A Great Real-Life Lesson in Elliott Wave Analysis

Trading Forex with Elliott Doesn't Have To Be Complicated

A Four-Chart Lesson in Spotting Trade Setups

Nice refresher from our friends at EWI....

A Four-Chart Lesson in Spotting Trade Setups

July 10, 2012

By Elliott Wave International

You can find low-risk, high-confidence trading opportunities by trading with the trend. The trick is to find the end of market corrections, so you can position yourself for the next move in the direction of the trend.

This excerpt from Jeffrey Kennedy's free 47-page eBook How to Spot Trading Opportunities explains where to find bullish and bearish trade setups in your charts and how to zero-in on these opportunities. If this lesson interests you, the full 47-page eBook is free through July 16.

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On the left-hand side of the illustration below, there are two bullish trade setups. As traders, we want to wait for the wave (2) correction to be complete so we can catch the move up in wave (3) -- this is the trade. What we are trying to do in this bullish trade setup is anticipate the potential for profits on the buy-side as prices move up in wave (3). Another bullish trade setup is at the end of wave (4).

As traders, we are looking to buy the pullback and position ourselves within the direction of the larger up-trend. Remember, three-wave moves are corrections, which means that they are countertrend structures. On the other hand, five-wave moves define the larger trend. As traders, we want to determine what the trend is and trade in the direction of the trend. Our buying opportunity to rejoin the trend is whenever the trend pauses and forms a correction.
Now, let's look at the right-hand side of the illustration where we see two bearish setups. When a five-wave move is complete, it is retraced in three waves as a correction. The end of the five-wave move presents the first trading opportunity that we can take advantage of the short side (or the sell side) as the wave (A) down begins.
Notice the second bearish trade setup gives us another shorting opportunity as wave (B) tops.
So, within the classic wave pattern of five waves up and three waves down, we have four high-probability trading opportunities in which we are either positioning ourselves in the direction of the trend or identifying termination points of a trend. I want to share with you some tricks I have picked up over the years about how to analyze corrective waves and their termination points. The single most important thing I've learned from analyzing corrections is that corrective or countertrend price action is usually contained by parallel lines.

As shown above, draw the parallel lines by beginning at the origin of wave A and going to the extreme of wave B. You draw a parallel of that line off the extreme of wave A. So basically you have a small, slightly angled downward price channel. This will show you the containment region for wave C. It also shows you an area toward the bottom of the lower trend line where you can expect a reversal in price.

Here is another example. Again, you draw the parallel lines off the origin of wave A, the extreme of wave A and the extreme of wave B.
Toward the upper end of the upper trend line, you will usually see a reversal in price.

This example shows how countertrend price action is contained by parallel lines in the British pound, 60-minute, all sessions. Why is it important to know parallel lines contain the corrective or countertrend price action? Number one, it will increase your confidence that you are indeed labeling a countertrend move properly. Number two, it identifies areas where you will likely see prices reverse. For example, we see this reversal up near the top.

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What to Learn More? Get the FREE 47-Page eBook This brief trading lesson is just a small example of the opportunities you can find once you learn to identify key market patterns. Learn more in your free 47-page eBook, How to Spot Trading Opportunities. This valuable eBook is regularly $79, but you can get it free through July 16. Download your free copy of How to Spot Trading Opportunities today

Witness the Epic Battle Between Investor Hope and Investor Fear

Witness the Epic Battle Between Investor Hope and Investor Fear
Collective investor psychology: an insight from the long forgotten Mr. Gates 
July 16, 2012

By Elliott Wave International

Can an investor ever know enough about financial markets to make a truly informed decision?

Even professionals must cope with imperfect knowledge, and the constant uncertainty that comes with it. That's why every investor looks to others for signals about what to do.

Have you ever watched a dog interact with its owner? The dog repeatedly looks at the owner, taking cues constantly. The owner is the leader, and the dog is a pack animal alert for every cue of what the owner wants it to do.
Participants in the stock market are doing something similar. They constantly watch their fellows, alert for every clue of what they will do next. The difference is that there is no leader. The crowd is the perceived leader, but it comprises nothing but followers. When there is no leader to set the course, the herd cues only off itself, making the mood of the herd the only factor directing its actions.

The Elliott Wave Theorist, May 2009

Around the turn of the last century, Elmer Gates also observed how people take cues from others. He once ran the largest private non-commercial laboratory in the United States and obtained more invention patents than Thomas Edison. Remarkably, he worked on his inventions only during his spare time. His regular working hours were devoted to the study of the mind. Gates noted:

A companion, helper, associate, co-worker, influences one's mental functioning by every gesture, tone, look, suggestion, opinion, approval or disapproval, argument, and mood. Minds interact consciously and subconsciously especially during quiescence, dirigation, introspection, and awareness; by their congeniality, presence and other ways.

Elmer Gates and the Art of Mind-Using (p. 246)

Investors take their cues from others then rationally justify their buy or sell decisions

Most market observers believe that investors respond logically to the latest news and buy or sell based on objective valuations.

Nothing could be further from the truth.

If investor behavior was rational, price charts would be linear and without sharp rises or declines. But that is not the case. The market's price charts do show sharp price rises and steep declines, often when the market's fundamentals offer no explanation to justify such a move. In a word, those near-vertical price moves are irrational. They're not driven by logic, but by hope or fear.

People have no idea where prices are going, so to satisfy the reasoning portions of their brains, they make up reasons to justify their buying and selling actions....Investors are not reasoning but unconsciously herding, and unconscious processes aren't random; they proceed according to mental constructs. That's why financial markets display patterns such as persistent trends, head and shoulders formations, trend channels, Elliott waves, and so on. [emphasis added]

The Elliott Wave Theorist, January 2008

These price patterns occur at all degrees of trend. That means collective investor psychology is evident in 5-minute, hourly, daily, weekly, monthly, quarterly and yearly charts.

Investor hope is even on display during major market downtrends

Notice how the Dow Industrials rebounded after the 1929 crash but before the worst part of the price decline of 1930-32 (see wave b in the chart below).

In the chart, you'll notice that bursts of "hope" even occurred several times during the worst part of the decline itself. Memories of the Roaring 'Twenties bull market still lingered.

More recently, investor hope lasted over three years after U.S. markets bottomed in March 2009.

Today's market is a full degree of trend larger than even 1929-1932

After the market declined in May and the start of June, yet another burst of hope started on June 4. But brace yourself.

Get ready for a psychological change that will be reflected in the price patterns of U.S. markets

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Learn to Think Independently You'll get some of the most groundbreaking and eye-opening reports ever published in Elliott Wave International's 30-year history; you'll also get new analysis, forecasts and commentary to help you think independently in today's tumultuous market. Download Your Free 50-Page Independent Investor eBook Now