Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17
These Two Articles Debunk The Biggest Financial Nonsense I See In The Media - 18th Sep 17
Bitcoin Price Crash 40% In 3 Days Underlining Gold’s Safe Haven Credentials - 18th Sep 17
The Sum of Risks – Global, Strategic, Political, and Financial - 18th Sep 17
The Netflix Of Canada’s Cannabis Boom - 18th Sep 17
Stock Market Sentiment Speaks: Either You Learn From The Events Of The Past Week, Or You Are Hopeless - 18th Sep 17
SPX 2500 … At Last! - 18th Sep 17
Inflation Lies, Lies and OMG More Lies - 18th Sep 17
How to Choose right Forex Trader? - 18th Sep 17
Who Has Shaped the World the Most? The Dozen Greatest Achievers - 17th Sep 17
Riding the ‘Slide’: Is This What the Next Stocks Bear Market Looks Like? - 17th Sep 17
Gold Up, Markets Fatigued As War Talk Boils Over - 17th Sep 17
Predicting the Future of the U.S. and the World - 16th Sep 17
Deceit in the Financial Food Chain - 16th Sep 17
Gold GLD ETF Investment Resuming - 16th Sep 17
Extreme Weather & Energy Markets: What's Next? - Video - 15th Sep 17
Trump’s Path to IP Wars - 15th Sep 17
GBP USD Approaches Fibonacci Target - 15th Sep 17
Higher US Interest Rates May Force Higher Inflation Rates - 15th Sep 17
Stock Market Investors: Taking the Road "Less Traveled" Has Its Perks - 15th Sep 17
The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis - 15th Sep 17
The US Debt Bubble Will Soon Warrant Serious Measures - 15th Sep 17
Why it is Often Difficult to Sell a House Fast - 15th Sep 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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.


© 2005-2017 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

Catching a Falling Financial Knife