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The price action on the EUR / USD is showing range behavior from the second week of January 2018, the objective of this article is to share our point of view about the current situation and future projection of the EURO. Our forte is technical analysis with emphasis on Elliott Wave.
The Elliott Wave analysis is a brilliant technique to study the price cycles, and it is based on the past to predict the future, in my case I have spent more than eight years dedicated 100% to this way of analyzing the behavior of the price. I commit on average four hours a day updating the wave counts in several instruments, and it is such an exciting activity that every day I feel as if it were the first time.
Elliott Wave in EUR / USD
The price action this week has behaved bullish in general terms, the price reached resistance 1.2413 and began to lose ground down to 1.2348. From the low 1.2145 (March 1) to the high 1.2446 (March 8) the bullish cycle called wave “1” (red), this wave presents a particularity. Its internal structure corresponds to a zigzag “ABC” (orange), this situation can only happen when the price plans to perform a diagonal wave.
Elliott Wave EUR / USD 4 – Hour Chart
As in this case, we look for the end of the bullish cycle at 1.2643, and we are within a fifth wave. The Elliott Wave theory allows us to use the final diagonal wave, one of its characteristics is that in most cases it draws cycles of three, ” ABC” for each of the waves.
The wave “1” (red) ended giving way to wave “2” (red), since March 8 we have been following the trail and estimating the form it can take, the scenario with the highest probability is the one we show in this technical report. The internal waves that makeup “2” (red), correspond to a zigzag “ABC” (orange), the wave “B” ended at 1.2412, and the wave “C” is expected to visit the 1.2200 area.
The channel for wave “B” (orange) is not ideal, but it is possible to work based on the continuation principle of the bearish flag, if you enter short we recommend studying the price reaction at the trendline of the channel (highlighted in orange). If the price breaks this support keep the short until the 1.2200 zone. If the price shows rebellion, inability to overcome the support, high volatility close your position and wait.
Navigating the markets using Elliott Wave is the best thing that a technician can do, this theory is not meant to solve your life and make you rich, but with the right strategy will launch your trading to a new level. Understanding the market cycles is one of the keys to success in trading. In this article you are going to find our primary Elliott Wave count for the EUR/USD, then add your knowledge and trade the cycles with more confidence.
The wave “2” orange degree is active, the cycles that are inside this wave have taken the shape of an expanded flat. The waves ABC green degree are showing the cycles, note that the wave “B” ended above the start of wave “A” that is why is called an expanded flat. The invalidation occurs if the wave “B” travels beyond the 138.2% of wave “A.” Right now, the wave count is safe!
The wave “C” is on stage and promise to bring the price down to the Fibonacci retrace 88.6% (1.1734), this level was picked thanks to the harmonics rules. According to the Elliott Wave rules when the impulse (during waves 1,A and 5,C) shows a three wave sequence inside each leg, instead five waves, the price is likely to be building a diagonal wave. In this case inside wave “i” blue the price did only three waves, this hint that the market gave us will help to project the way the price will move.
In the next chart you will find our view, a short trade could be an excellent option to take if the price falls below 1.1840 and the target will be around 1.1743. The best trade will happen at the end of wave “2” orange, once the price reverses the target should be set at 1.2020.
Never trade without a plan, always prepare your trades and act according to your trading plan, money management is critical and never let a winner trade become a loser the success is in your hands, Merry Christmas and Happy New Year!
The original Analysis Toolbox articles discussed the various market cycles including trends and continuations. This part of the The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. (for a free 2-week trial CLICK HERE)
In the last series, called The Trader’s Pendulum, we took you through the 10 Habits, all aimed to support a successful trader. Your mission in developing these habits is to get out of the Technical Trader’s Trap and transform into an Entrepreneurial Trader so that you can start being accountable to your trading. We invited you to act and begin your journey by completing the Trader’s Scorecard (http://www.traderspendulum.com) and to get down to business by arranging a free coaching session. In this Indicator Series, we talk about the mechanics of trading.
Directional Trend Index (DTI)
The Directional Trend Index by William Blau may be used to determine if a stock is trending and also identifies overbought and oversold conditions.
The Directional Trend Index (DTI) is a good indicator for those traders who want to assess strong trends and enter when these trends are strong with increasing momentum. Just like other indicators, DMI can be applied to any market and time frame, although it was created by William Blau to address those stocks in the S&P500.
DTI has the same characteristics of an oscillator in terms of looking for overbought and oversold conditions. Adjustable guides on the indicator are given to fine tune the signals. The user may change the method (EMA), period lengths and guide values. The standard settings use 5, 10 and 14 EMAs in the calculations.
By adjusting the top and bottom guides, you can control the quantity and quality of the trading signals. DTI values above 25 are considered to be overbought and therefore offer an opportunity to sell. DTI values below -25 are considered oversold and present an opportunity to buy. If the DTI peaks above the top guide a sell signal will be generated. Conversely, if the DTI troughs below the bottom guide, a buy signal will be given. The zero line divides the bulls (above) from the bears (below).
USING THE TOOL
The DTI is a trading indicator that calculates the increasing momentum of the highs in an uptrend and the decreasing momentum of the lows in a downtrend. The slope tells you how strong or weak the trend is. For example, if the slope is steep above the zero line, it means that price is continuing to make new highs at an increased pace. Buying the market at that point is a prudent choice. Once the slope of the DTI flattens out, it means that momentum is waning and price is running out of steam. You may even see divergence at that point, which means that either a sideways correction or a steeper correction is due.
When the arrow appears on the indicator in an uptrend, it signifies an overbought situation and potential sell. When the arrow appears on the indicator below the zero line, it signifies an oversold situation for a potential buy.
The DTI is similar to Welles Wilder’s Directional Movement System but William Blau added a zeroline to it, where the indicator is either in positive or negative territory. A stable or strong uptrend is a period of time when the DTI is positive and rising above the zero line. A downtrend is when the DTI is below the zero line and falling.
In the 4-hour S&P chart below, I lined up the buy and sell signal arrows with the Elliott Wave counts. Starting from the left, the first sell signal lines up with the top of wave 1. Moving to the next red vertical line, the buy signal lined up with the end of wave 2. Line 3 coincides with a wave 3 of a larger wave 3 (so selling here doesn’t produce any profits as the correction was sideways.). Red line 4 coincides with a wave 4 correction to buy. Black lines 5 and 6 line up with the tops of wave 3 within the larger wave 3, so selling it here produces losses.
Some observations: When looking at lines 5 and 6, notice that the slope of the DTI is steep so a rule of thumb is not to pick a market top when the slope is so steep because that indicates strong momentum. Instead, look to buy on dips. Also, in a very bullish market like the S&P, you might look to buy once the DTI crosses the zero-line moving from red to blue territory. Finally, trade both buy and sell signals in a market which is sideways but avoid selling in a strong uptrend.
Learn how the Directional Trend Index helps keep traders in the trend as it is progressing. Start incorporating the DTI indicator into your chart set-up. Finally, use the DTI indicator in developing trading strategies with other indicators.
See you next week with another “D” indicator!
If your mission is to become a trader or investor who stays out of the Technical Trader’s Trap, then take the leap to grow into an entrepreneurial trader.
I created the FX Trader’s EDGE Coaching Program modelled after the “10 Habits of Successful Traders”, which is the title of my newly published book by Wiley.
The Trader’s Pendulum: The 10 Habits of Highly Successful Traders. Copyright (c) 2015 by Jody Samuels. This book is available at all bookstores, online booksellers, and from the Wiley web site.
The Elliott Wave analysis is powerful when combined with a proper end of cycle validation technique, in this report, you will find our updated wave count with precise trading ideas. On the four-hour chart, we are looking to see the end of the wave “2” red. The price retraces close to the Fibonacci support 38.2%(1.1799) of wave one, most of the times the wave two is likely to retrace 50% or more, but in this case, seems that the second wave ended and is time to start looking for a bullish trade.
The cycle up that happen today during the NY session is the first piece of the reversal. This is the wave “1” orange, and it ended after hitting the resistance 1.1875. The wave “2” orange is active, inside we can appreciate a zigzag “ABC” green (check the 5-minute chart), using harmonic rules is possible to estimate the precise level where the wave “2” orange will end, that is the 78.6% (1.1820).The price is testing this level right now, and the first entry will be once we have a candlestick reversal pattern.
A second entry buy stop order for conservative traders will be at the end of wave “B” green 1.1849 and the last level to trigger the trade will be at 1.1875 the end of wave one. Pick your favorite and start making money with on the EURO. Target for the bullish trade is at 1.2090
If the price fails to reach these levels and continues its path down breaking the support 1.1805, the wave two red will be active again, and the plan will be to wait for another reversal attempt. Happy weekend and see you soon.