Tuesday, July 14, 2015

Price behaviour using EWT. A case study on Yen

I have still not yet found any chart theory or technical methodology that can can be used as a market predictive tool like the elliot wave theory. 

Elliot waves theory's ability to distinguish distinctly between a trend and correction is itself a tool which, if well used, builds confidence in a trader.

On 3rd June, I posted an analysis on Yen titled What the charts are saying about Yen

Using elliot wave theory, I was able to predict in advance a turning point for major Yen pairs. Check how price respond to the forecast and their position afterward.

As an elliot wave theory trader, it is important to understand that nothing is concrete until price validates it. Elliot waves theory discusses how price behaves when trending and correcting. These are also known as Patterns.

Patterns help us to understand and predict what next price could do. When these patterns are put into larger structure, there is in a trader's hands, very powerful tools.

After more price actions, I posted an update on the analysis above which I titled Yen is expected to strengthen across board . In this analysis, I singled out UsdJpy and CadJpy which I shorted. UsdJpy was shorted at 124.05 while CadJpy at 99.7. The two pairs dipped especially CadJpy.

CadJpy hit my final target while UsdJpy didn't. I watched 25% of the my UsdJpy opened position hit at break even. CadJpy ran to my target in an explosive manner.

One lesson I want us to learn from this post is how to read price behaviour using elliot wave theory. The chart below shows how UsdJpy dipped and the rally that followed.



There are two things that support that the bearish move from 125.85 was a mere correction.

1. The dip from 125.85 was a deep (double) zigzag corrective pattern. The leg 'W' was a zigzag, 'X' was a flat and 'Y' was a zigzag.

2. Price advanced from 'Y' in a typical 5-wave impulsive move. This signaled a possible first wave of the bullish resurgence.

Price is expected to dip to probably around 122, and if bounce from there should continue moving up.

I will wait and see what price is saying as I try to unlock an inherent tradable pattern.

You can also watch and what better tool to use if not elliot wave analysis?

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