EUR/JPY Elliot Wave Weekly Forecast and Trade(SEP 6- 10)

Weekly

* Last Candlesticks pattern: Dragonfly Doji
* Time of formation: Aug 2010
* Trend bias: Down

Daily

* Last Candlesticks pattern: Morning star
* Time of formation: 29 June 2010
* Trend bias: Up

The single currency moved pretty much in line with our expectation and despite rebounding to 109.56 on Monday morning this week (we recommended in our previous update last Friday to sell euro at 109.00 targeting for 106.30-40), price then quickly retreated sharply from there and reached our indicated target at 106.30/40 (with 260 points profit) before rebounding from 106.16. This bounce from 106.16 suggests downtrend is not ready to resume yet and further consolidation would take place, however, upside should be limited to this week’s high of 109.56. Only a daily close above the Kijun-Sen (now at 109.83) would signal a temporary low has been formed at 105.44 earlier and then correction to 110.09 (50% Fibonacci retracement of 114.74 to 105.44) and possibly 111.19 (61.8% Fibonacci retracement) would follow but reckon the Ichimoku cloud area (now at 111.40-70) would hold.

On the downside, a daily close below this week’s support at 106.16 would revive our bearishness and signal rebound from 105.44 has ended at 109.56, bring retest of this support later. Below there would extend downtrend to 105.00, however, loss of near term downward momentum would prevent sharp fall below 104.42 (50% projection of 127.95 to 107.30 measuring from 114.74) and price should stay well above 101.98 (61.8% projection) and bring rebound later.

Recommendation: Short position entered at 109.00 met target at 106.30/40 with 260 points profit

Recommended Trade for This Week: Sell @ 109.80 with SL Above 110.50 for 107.00


On the weekly chart, despite last week’s selloff to 105.44, the subsequent rebound from there left a ‘Dragonfly doji’ candlestick pattern there, suggesting consolidation above this level would take place, however, it is necessary to see a long white candlestick in order to confirm a low formation, otherwise, downside risk remains. A weekly close above the Tenkan-Sen (now at 110.08) would be the first sign that low has been made and then rebound to 111.19 (61.8% Fibonacci retracement of 114.74 to 105.44) and possibly 112.50 would follow but reckon resistance at 114.74 would cap upside.

On the downside, below this week’s low at 106.16 would revive bearishness for a retest of 105.44, however, break there is needed to confirm downtrend from 169.97 has resumed for further weakness towards 104.42 (50% projection of 127.95 to 107.30 measuring from 114.74), however, loss of near term downward momentum should prevent sharp fall below 101.98 (61.8% projection) and risk has increased for a rebound later.

GBP/JPY Weekly Techincal Forecast (July 12-16 2010)

GBP/JPY continued to stay in converging range last week. The development argues that such range trading is part of the whole corrective rise from 126.73 only and such rise is not completed yet. Initial bias remains neutral this week. Break of 135.99 will target 61.8% retracement of 145.94 to 126.73 at 138.60 and above. On the downside, break of 131.23 will revive the case that recovery from 126.73 has completed already and will flip bias back to the downside for retesting this low.

In the bigger picture, the choppy nature of the fall from 163.05 is mixing up the outlook a bit. But in any case, such decline is still in progress as long as 145.94 resistance holds and further fall should be seen to retest 118.18 low first. Break will confirm that whole down trend from 2007 high of 251.09 has resumed for 61.8% projection of 215.87 to 118.81 from 163.05 at 103.06 next, which is close to 100 psychological level. However, break of 145.94 will indicate that fall fro 163.05 is finished. Also, this will suggest that such fall is merely the second wave of the whole consolidation pattern from 118.81 and will bring another rise to 163.05 and above before resuming the longer term down trend.

In the longer term picture, fall from 251.09 is treated as resumption of multi decade down trend. Note that the fall from 215.87 is not treated as the fifth wave, but the third wave inside the third wave that started at 241.35. Another long term decline is still expected after completion of the correction from 118.81.

Technical Analysis: Colors on the Canvas of Fundamental Analysis

Fundamental Analysis is the canvas and Technical Analysis is the colors on it. Trade with the combination and you can have the beautiful painting or shall we say a healthy bank account?:)

Market moves because of Fundamental factors, Psychological aspects and sentiments. For short term trading the later two i.e. psychology and sentiments play a big role. Short term trading is not just the fundamental analysis but the analysis of how various trading floors are thinking and behaving. Technical indicators help us analyzing the market-mood by analyzing how the market is moving. Technical indicators also become very important as the traders on the big trading floors also make their trading decisions based on the same indicators. But then when everyone is following more or less the same technical indicators for trading decisions then everyone should be making money? Well, the indicator would show a different picture if you are using a 30-minute chart or a daily chart. The skills lie in comparing different charts of different periods and then making your analysis.

Technical indicators in Technical Analysis help us in analyzing the following:

1) Trend of the market: Whether there is an uptrend or downtrend or whether the market is moving sideways or without a trend.

2) If market has a trend then whether the trend is strong and hence offer us the opportunity to enter the market in the direction of its movement? What it means is if there is a uptrend which is strong then we can still buy but if there is an uptrend but it’s getting weaker then the market direction may reverse.

3) If the market is running sideways or in range then at what point we should buy and at what point we should sell or short-sell.

Technical analysis is broken into two main categories:

a) Chart patterns/trend lines (visual)
and
b) Indicators (mathematical)

An over view of some important Technical Indicators:

SAR (Stop and Reversal):
• To determine whether a trend is ending and/or a new trend may start.

Bollinger Bands:
• To measure market’s volatility.
• To Give buying /selling signals during non-trending /sideways market.
• To Have an idea when the market may enter into a trend while running sideways.

MACD:
• To identify a new trend

Stochastic:
• To identify where a trend might be ending and/or a new trend may start (indicating over bought/oversold levels)

RSI:
• To identify whether a trend might be ending and/or a new trend may start (over bought /over sold levels).
• RSI also can be used to confirm trend formations.

Moving Average:
• To know resistance and support in sideways market
• To identify trend reversal

ADX:
• To know the strength of the trend

Fibonacci:
• To know the probable support and resistance levels.

EUR/JPY Weekly Technical Analysis and Trade (May 31 - June 4 2010)

Weekly
Last Candlesticks pattern: Evening star
Time of formation: June 2009
Trend bias: Sideways

Daily
Last Candlesticks pattern: Shooting star
Time of formation: 14 Aug 2009
Trend bias: Up

Although the single currency resumed medium term downtrend as suggested in our previous update and reached our indicated downside target at 110.49 and 109.12, as the currency pair has rebounded from this week’s low of 108.83, suggesting a minor low has possibly been formed and consolidation with mild upside bias is seen for retracement to 114.40/50, break there would bring stronger rebound towards 116.13 (38.2% Fibonacci retracement of 127.95 to 108.83) but reckon the Kijun-Sen (now at 119.15 would remain intact.

On the downside, expect pullback to be limited to 111.50 and reckon 110.00 would hold and bring such a rebound later. Only below yesterday’s low at 109.20 would risk a retest of 108.83 and break of latter level would signal medium term downtrend is still in progress, then weakness to 108.35 (100% projection of 139.26-119.66 measuring from 127.95) and possibly 107.00 would follow before prospect of another rebound.

Recommendation: Buy towards 111.00 for 115.00 with stop above 109.00.

On the weekly chart, although euro fell marginally to 108.83 this week, lack of follow through selling and the rebound from there suggest a possible ‘hammer’ candlestick pattern formation is under way and if price close around current level today, this would add credence to this reversal pattern formation. Having said that, we need to see a long white candle to be formed next week in order to provide confirmation of a temporary low and bring retracement of recent decline towards the Tenkan-Sen (now at 118.37) but reckon the Kijun-Sen (now at 121.69) would hold.

On the downside, expect 110.40/50 to contain pullback and bring such a rebound. Only breach of this week’s low at 108.83 would signal downtrend is still in progress and extend weakness to 107.00 and 106.00 but reckon downside would be limited to 105.00 and 103.48 (61.8% projection of 169.97 to 112.08 measuring from 139.26) should hold.

EUR/JPY Weekly Technical Analysis and Trade (May 31 - June 4 2010)

Weekly
Last Candlesticks pattern: Evening star
Time of formation: June 2009
Trend bias: Sideways

Daily
Last Candlesticks pattern: Shooting star
Time of formation: 14 Aug 2009
Trend bias: Up

Although the single currency resumed medium term downtrend as suggested in our previous update and reached our indicated downside target at 110.49 and 109.12, as the currency pair has rebounded from this week’s low of 108.83, suggesting a minor low has possibly been formed and consolidation with mild upside bias is seen for retracement to 114.40/50, break there would bring stronger rebound towards 116.13 (38.2% Fibonacci retracement of 127.95 to 108.83) but reckon the Kijun-Sen (now at 119.15 would remain intact.

On the downside, expect pullback to be limited to 111.50 and reckon 110.00 would hold and bring such a rebound later. Only below yesterday’s low at 109.20 would risk a retest of 108.83 and break of latter level would signal medium term downtrend is still in progress, then weakness to 108.35 (100% projection of 139.26-119.66 measuring from 127.95) and possibly 107.00 would follow before prospect of another rebound.

Recommendation: Buy towards 111.00 for 115.00 with stop above 109.00.

On the weekly chart, although euro fell marginally to 108.83 this week, lack of follow through selling and the rebound from there suggest a possible ‘hammer’ candlestick pattern formation is under way and if price close around current level today, this would add credence to this reversal pattern formation. Having said that, we need to see a long white candle to be formed next week in order to provide confirmation of a temporary low and bring retracement of recent decline towards the Tenkan-Sen (now at 118.37) but reckon the Kijun-Sen (now at 121.69) would hold.

On the downside, expect 110.40/50 to contain pullback and bring such a rebound. Only breach of this week’s low at 108.83 would signal downtrend is still in progress and extend weakness to 107.00 and 106.00 but reckon downside would be limited to 105.00 and 103.48 (61.8% projection of 169.97 to 112.08 measuring from 139.26) should hold.

USD/CAD Weekly Technical Analysis and Trade (May 31-June 4 2010)

Weekly
Last Candlesticks pattern: Doji
Time of formation: 19 Mar 2009
Trend bias: Down

Daily
Last Candlesticks pattern: Shooting star
Time of formation: 25 May 2010
Trend bias: Sideways

Although the greenback rallied according to our expectation, reached our indicated upside target at 1.0750, however, the currency pair ran into heavy offers just below indicated previous resistance at 1.0871 and retreated sharply from there, leaving a ‘shooting star’ candlestick pattern on the daily chart and the subsequent black candle signals a top has been formed there and a week of consolidation is in store with downside bias for retracement to the Kijun-Sen (now at 1.0407) and possibly the Ichimoku cloud top (now at 1.0344) but reckon support at 1.0246 would hold from here.

On the upside, whilst recovery to 1.0590/00 cannot be ruled out, reckon 1.0705/10 would hold and bring such a correction. A daily close above 1.0750 would revive our bullishness for another rise to 1.0854-71 resistance area but it is necessary to see a sustained breach above there to encourage for retracement of medium term downtrend to 1.1000.

Recommendation: Sell towards 1.0600 for 1.0350 with stop below 1.0720.





On the weekly chart, although the currency pair rose in line with our expectation in our previous update, as price failed to close above the Ichimoku cloud bottom and retreated sharply from 1.0854 (a shooting star was formed), suggesting the rebound from0.9931 has formed a temporary top there and consolidation would be seen with mild downside bias for weakness to the convergence of the Tenkan-Sen and Kijun-Sen (now both at 1.0392) but reckon 1.0246 minor support would limit downside and key level at 1.0110 should remain intact, bring another rally next month.

On the upside, recovery is likely to be limited to 1.0700 and bring such a retreat. Only a weekly close above the Ichimoku cloud bottom (now at 1.0782) would revive bullishness and breach of resistance area at 1.0854-71 would bring retracement of medium term downtrend from 1.3066 to 1.1129 (38.2% Fibonacci retracement).

USD/CAD Weekly Technical Analysis and Trade (May 31-June 4 2010)

Weekly
Last Candlesticks pattern: Doji
Time of formation: 19 Mar 2009
Trend bias: Down

Daily
Last Candlesticks pattern: Shooting star
Time of formation: 25 May 2010
Trend bias: Sideways

Although the greenback rallied according to our expectation, reached our indicated upside target at 1.0750, however, the currency pair ran into heavy offers just below indicated previous resistance at 1.0871 and retreated sharply from there, leaving a ‘shooting star’ candlestick pattern on the daily chart and the subsequent black candle signals a top has been formed there and a week of consolidation is in store with downside bias for retracement to the Kijun-Sen (now at 1.0407) and possibly the Ichimoku cloud top (now at 1.0344) but reckon support at 1.0246 would hold from here.

On the upside, whilst recovery to 1.0590/00 cannot be ruled out, reckon 1.0705/10 would hold and bring such a correction. A daily close above 1.0750 would revive our bullishness for another rise to 1.0854-71 resistance area but it is necessary to see a sustained breach above there to encourage for retracement of medium term downtrend to 1.1000.

Recommendation: Sell towards 1.0600 for 1.0350 with stop below 1.0720.





On the weekly chart, although the currency pair rose in line with our expectation in our previous update, as price failed to close above the Ichimoku cloud bottom and retreated sharply from 1.0854 (a shooting star was formed), suggesting the rebound from0.9931 has formed a temporary top there and consolidation would be seen with mild downside bias for weakness to the convergence of the Tenkan-Sen and Kijun-Sen (now both at 1.0392) but reckon 1.0246 minor support would limit downside and key level at 1.0110 should remain intact, bring another rally next month.

On the upside, recovery is likely to be limited to 1.0700 and bring such a retreat. Only a weekly close above the Ichimoku cloud bottom (now at 1.0782) would revive bullishness and breach of resistance area at 1.0854-71 would bring retracement of medium term downtrend from 1.3066 to 1.1129 (38.2% Fibonacci retracement).

Descending Triangle Chart Pattern | Demand Index Indicator

Overview

A Descending Triangle chart pattern is a continues price formation; when combined with a Demand Index Indicator properly, over 75% of our trading positions will be profitable. By definition, the Descending Triangle chart pattern indicate a sell pressure; You can see visually that the sellers sell at lower prices as time progress (A,B and C).

Professional trader will use Demand Index indicator in several ways. I will focus on this indicator ability to predict trend strength, so, if the indicator stays near the level of zero for any length of time (see blue rectangle in chart - lower window) we can anticipate a price breakout.

Case study - NASDAQ-100 Index Tracking Stock ETF (QQQQ) Bar Chart



Indicators and Parameters:
Descending Triangle chart pattern - continues (red) - normally formed in a few week period, and consist from an upper descending resistance line (A-B-C) and support line (2).
Demand Index (red; lower window) - calculated by the change in price and volume alike.

How to use the Descending Triangle chart pattern - practical analysis:

The first step is to recognize we are dealing with Descending Triangle price formation, to do that we must identify:

1. Descending resistance line with two or more reaction points (points A-B-C).


2. Support line (2), horizontal line, with two or more reaction points.

Second, we have to define our profit target by finding the delta between line 1(green) price level and line 2(red) price level. In our case, the delta equal 1.75 points (43.05-41.30). So, line 2(red), the support line, minus the delta equal our profit target at 39.55 (blue line #3).

Point D - This is our entry point.
The short order entry price is 41.05 and our stop-loss order price is 41.55; why?

Very important: we determine our profit target and stop-loss orders with the assistance of mathematical calculations. First, we anticipate a winning ratio of 75%, i.e. we will win with this strategy 3 times out of 4, and second, we want at least 1 to 3 win/loss ratio.

So, we will divide our delta (1.75) by 7 and use the triangle support line(2) as our pivot price level (41.30). Then, we calculate our orders price, 41.30 minus 0.25 = 41.05 as our entry, and 41.30 plus 0.25 = 41.55 as our stop-loss.

Point E - We closed our short position at 39.55 - profit target.

Note: Because descending triangle is a bearish pattern which indicates distribution of money, the combination with Demand Index indicator is a very powerful one.

Descending Triangle Chart Pattern

In order to qualify as a descending pattern, at least two reaction highs are required to form the upper trend line (in our case - three). Also, at least two reaction lows required to form the support horizontal line.

Basically, the trader must see a visual Triangle chart pattern emerging from his price chart.

De Mark Trend Lines.

When searching for Forex information on the internet you are likely to find articles relating to trendlines and trendline analysis.

Tom DeMark is a specialist in the field of technical market analysis and his best-selling book "The New Science of Technical Analysis" released in 1994 spells out some innovative techniques when it comes to the use of trendlines.

Much Forex information on the internet is of a general nature, and many articles are written about Forex by individuals who are not traders themselves. Tom DeMark on the other hand has had a long career with institutions trading stocks, futures, currencies and options.

His guidelines on the use of trendlines are very specific and they can be helpful to the newer trader who is searching for reliable Forex information on how to use standard indicators.

Here is a brief step-by-step description of how to draw DeMark trendlines:

Note: The term swing high and swing low (also called cycle high and cycle low) refers to the following:

In An Uptrend: A swing high is the wick of a candle that is higher than the wick of the candle to the left and right.

In A Downtrend: A swing low is the wick of a candle that is lower than the wick of the candle to the left and right.

Obviously the more candles to the left and right that are higher in a swing low or lower in a swing high makes the swing or cycle more significant.

An uptrend is where price is making higher highs and higher lows. A downtrend is where price is making lower highs and lower lows.

Drawing DeMark Trendlines

Drawing Trendlines In An Uptrend

1. Examine the bottoms of the candles on your chart and identify the most recent candle wick that is lower than the candle wicks to the immediate right and left of it.


2. Look left on the chart, and identify the previous low candle that has candle wicks higher to the immediate right and left of it which is lower than the current low candle.


3. Now draw a line from the current lowest candle to the previous lowest candle (drawing from right to left).


4. Now take the end of the newly drawn line which stops at the current low candle and extend it forward some distance (drawing from the present position to the right).

Drawing Trendlines In A Downtrend

1. Examine the tops of the candles on your chart and identify the most recent candle wick that is higher than the candle wicks to the immediate right and left of it.


2. Look left on the chart, and identify the previous high candle that has candle wicks lower to the immediate right and left of it which is higher than the current high candle.


3. Now draw a line from the current highest candle to the previous highest candle (drawing from right to left).


4. Now take the end of the newly drawn line which stops at the current high candle and extend it forward some distance (drawing from the present position to the right).

You have now drawn a Tom DeMark trendline.

This can now be a reference point for future price action. It will often be observed that price will come and check this level. If it breaks through, it can mean a change in direction, the significance of which will depend on the time frame being used.

Trendlines drawn on 5 minute or 15 minute charts have much lesser significance than trendlines drawn on higher time frames such as the 1 hour, 4 hour, or daily.

Caution Required

Much Forex information extols the virtues of trendlines as an indicator of possible future price action.

Mr. DeMark certainly has made this a science and his detailed approach to drawing trendlines is certainly more accurate than just drawing general trendlines along the bottoms and tops of trends according to the way the eye sees.

However, trendlines in themselves do not indicate where high probability trades can be taken.

It is important to use a variety of indicators before pulling the trigger. Examining previous levels of support and resistance is probably far more significant in determining where price is likely to hesitate that watching trendlines.

However, they can be useful. If you find a key support or resistance level also coincides with a Fibonacci retracement or extension level which is also at an intersection with a trendline, then you have built a reasonably solid case for a trade.


Using Trendline Analysis As Part Of Your Forex Strategy

Often, not always, price will break a trendline and move away 10 or 20 pips. Then, it comes back to test the backside of that trendline. That’s where you enter the trade.

If the trendline break coincides with your other favorite indicators such as:

• Pivot Points


• Fibonacci Calculations


• Previous Support Or Resistance

then set an entry order for price to take you in when it comes back to test that level.

That way you enter the trade at an optimum level and squeeze even more pips out of the move.

Note the examples below:







USD/CHF
1 Hour Chart

See how price broke the trendline, then came back to test the backside.

If you look carefully at the chart and run your eyes left, you will see that the trendline bounce also coincides with a previous support/resistance level.

If you did some Fibonacci calculations you would also find that same point matches with 50 and 62% retracement levels.

With that convergence of factors, the trendline backside test makes a good entry point!