Tag Archives: ewi

Forex: Elliott wave analysis helps me cut to the chase

Fresh insights from Elliott Wave International’s Senior Currency Strategist, Jim Martens

By Elliott Wave International

Jim Martens is one of the few forex Elliott wave instructors in the world and a long-time editor of Elliott Wave International’s forex-focused Currency Pro Service. A sought-after speaker, Jim has been applying Elliott waves since the mid-1980s, including two years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.

Below is an excerpt from his latest interview. To read the full interview — and get Jim’s latest big-picture forecast for EURUSD, tips on how to learn Elliott fast, and practical ideas on how to treat your forex trading as a business — complete your free Club EWI profile. It only takes 30 seconds.

*********

Jim, thanks for joining us today. The U.S. dollar recently hit its highest level in many weeks. Were you surprised by that?

Jim Martens: The strength in the U.S. Dollar Index came as no surprise. And that’s not just me bragging. We track its Elliott wave patterns daily, even intraday. Since the dollar’s peak back in March of this year, the decline has taken a decidedly corrective Elliott wave look: The price action has been choppy, overlapping, and generally lacking direction, as you see on the circled portion of the chart below. Any time you see that on a price chart, that’s your first clue that the market must be taking a “breather” before the larger trend resumes. In this case, the larger trend has been higher, so when the dollar popped back up recently, to us it meant that the correction must be over.

For Elliott wave fans among your readers, it looks like the correction since March took the shape of a pattern called a “double zigzag,” labeled in circled green “abc”-“abc” on this chart:

As you can see, we have labeled the entire correction as a wave 4 within a basic 5-wave Elliott wave pattern called an “impulse,” with wave 5 most likely starting now. So, the USDX has higher to go — much higher, in fact, because by the looks of the Elliott wave pattern underway, the latest dollar strength is only the start of the move. We are expecting the Dollar Index to move well above 100.

And, because the U.S. Dollar Index moves inversely to the euro-dollar, looking at a EURUSD chart, we are expecting significant weakness in this key forex pair… [EURUSD chart with a forecast follows — Ed.]

(To read the full interview, complete your free Club EWI profile. It only takes 30 seconds. You’ll learn: Jim’s latest big-picture forecast for EURUSD, tips on how to learn Elliott fast, and practical ideas on how to treat your forex trading as a business.

Already a Club EWI member, access the full report now >>


This article was syndicated by Elliott Wave International and was originally published under the headline Forex: “Elliott wave analysis helps me cut to the chase.”. 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.

Learn to Spot a Head & Shoulders Pattern in Your Charts (Video)

Learn to Spot a Head & Shoulders Pattern in Your Charts (Video)

A Trading Lesson from Elliott Wave International’s Jeffrey Kennedy

By Elliott Wave International

Senior Analyst Jeffrey Kennedy is the editor of our Elliott
Wave Junctures
trader education service and one of our
most popular instructors. Jeffrey’s primary analytical method
is the Elliott Wave Principle, but he also uses several other
technical tools to supplement his analysis.

You can apply these methods across any market
and any timeframe. Enjoy this lesson and
then find out how you can get additional trading lessons from
Elliott Wave International.


My primary tool as a technical analyst is, of course, the Wave Principle. Even so, I find great value in other forms of technical analysis, such as candlesticks and indicators. With this in mind, let’s review one of my favorite old-school chart patterns — Head-and-Shoulders.

Spotting a Head & Shoulders Pattern

This formation was popularized by Edwards and Magee in their seminal work Technical Analysis of Stock Trends. It is a reversal pattern and consists of a left shoulder, a head and a right shoulder.

A trendline drawn between the price extremes of the left shoulder and head and head and right shoulder is referred to as the neckline. The neckline is important for two reasons — the first being that a parallel of the neckline drawn against the extreme of the left shoulder can identify the extent of the formation of the right shoulder.

The second important aspect of the neckline is that it can provide a high probability target for the subsequent breakout. If prices decisively penetrate the neckline, the distance between that point and the head is often a reliable objective for the ensuing price move. Watch this 4-minute video where I explain more:



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This
article was syndicated by Elliott Wave International and
was originally published under the headline Learn to Spot a Head & Shoulders Pattern in Your Charts (Video).
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.

Announcing Trader Education Week – a Free Event to Help You Learn to Spot Trading Opportunities

Dear Trader,

You have an opportunity to spend the next week learning how you can spot high-confidence trade setups in the charts you follow every day.

Elliott Wave International (EWI) is hosting a free Trader Education Week, October 2-9. Register now and get instant access to free trading resources — plus you’ll receive more lessons as they’re unlocked each day of the event.

Jeffrey Kennedy, EWI analyst and one of the world’s foremost market technicians, has taught thousands how to improve their trading through his courses, subscription services and as an adjunct professor of technical analysis at Georgia Tech University. Now you have the opportunity to be a student in his online classroom, as he takes complex technical methods and tools and breaks them down so that you can apply them to your trading immediately.

Don’t miss this opportunity to learn how to spot trading opportunities in the markets you follow.

Register today and get your first 4 free trading resources immediately, plus we’ll alert you to valuable new resources unlocked every day beginning October 2.

Register for Trader Education Week — It’s FREE!

Regards,

Alan

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.

Part Three: The 3 Essential Parts of an Elliott Wave Trade [Book Excerpt Part 3 of 3]

Part Three: The 3 Essential Parts of an Elliott Wave Trade
Our last piece in this educational series excerpted from Visual Guide to Elliott Wave Trading

By Elliott Wave International

Would you like to improve your ability to trade — not only with a clear understanding of the Elliott Wave Principle, but also by learning how and when to act on your wave count?
According to Senior Analyst Jeffrey Kennedy, there are the three key components of a successful trade.

In this final lesson — adapted from the Visual Guide to Elliott Wave Trading, a No.1 Bestseller on Amazon — Kennedy explains his third step for a high-confidence trade setup in Caterpillar: Manage the Trade (You can read Parts 1 and 2 by clicking below):

  1. Analyze the price charts >>.
  2. Formulate a trading plan >>.
  3. Manage the trade.

————————-

The day following our analysis and entry, CAT fell sharply (see Figure 2.3). As a result, the value of the position increased substantially. In retrospect, it would have been prudent to exit the trade entirely or at least partially the day after the swift decline. However, since the original analysis called for a move below 108.39, I decided to hold the position.


During the next few days, CAT continued lower. On Friday, May 13, 2011, I exited the position for a 336.05 percent return (see Figure 2.4), selling the options that were originally purchased at 86 cents for $3.75 apiece.

The 3 Essential Parts of an Elliott Wave Trade [Book Excerpt Part 2 of 3]

Learn from trading lessons taken from the new book -Visual Guide to Elliott Wave Trading

By Elliott Wave International

Three steps may sound simple enough. Yet if you have any experience trading, you know that nothing about trading is easy. Education is imperative. So is preparation.

Senior Analyst Jeffrey Kennedy knows that it takes skill, discipline and courage to execute a successful trade. His new book, Visual Guide to Elliott Wave Trading (coauthored with Wayne Gorman), picks up where Frost and Prechter’s classic textbook Elliott Wave Principle leaves off: It gives you the perfect blend of traditional textbook analysis and real-world application.

According to Kennedy, there are three key components of a successful trade:

  • Analyze the price charts.
  • Formulate a trading plan.
  • Manage the trade.

In this excerpt (Part 2 of 3), Kennedy shows you how to make a trading plan based on an opportunity in Caterpillar (CAT). You can read part 1 Analyze the Price Charts here >>

Part Two: Formulate a Trading Plan


In Figure 2.2, I chose to trade this setup using options, specifically, by purchasing 110 puts on May 10, 2011, at 86 cents apiece. These options were scheduled to expire on May 20, 2011, so there were only eight trading days left on these puts. Considering that these options were to expire in just a matter of days, this kind of trade is extremely risky, and only the most seasoned and risk-aware trader should consider doing it.

Since the initial sell-off in CAT from 116.55 to 108.39 transpired in four days, here was my thinking at the time: If the next wave down proved to be wave (3), then I would see prices fall farther in a shorter period of time; if the upcoming decline proved to be a (C) wave, then the upcoming sell-off would most likely be shallower and take more time. Even if CAT were to unfold in wave (C) and take twice as long as the initial decline, it would still trade roughly at $104.81, the level at which waves (C) and (A) would be equal by options expiration.

Again, it is important to understand that due to waning premium, an options trade should not be taken with the idea of holding the trade over a long period of time for a sizable move down. The idea was simply to catch a short-term move below the May 2011 low of 108.39 over three to five trading days.
Be sure to come back for part 3: Manage the Trade


The Ultimate Wave Trading Crash Course

Put yourself on the fast track to applying the Elliott Wave Principle successfully with a FREE one-week primer: The Ultimate Wave Trading Crash Course. Learn the basics with 5 FREE trading lessons from EWI Trading Instructor and Senior Analyst Jeffrey Kennedy — including insightful excerpts from his Amazon No. 1 Bestseller, Visual Guide to Elliott Wave Trading.

Learn more and start your crash course now >>

This article was syndicated by Elliott Wave International and was originally published under the headline The 3 Essential Parts of an Elliott Wave Trade [Book Excerpt Part 2 of 3]. 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.

The 3 Essential Parts of an Elliott Wave Trade [Book Excerpt Part 1 of 3]

The 3 Essential Parts of an Elliott Wave Trade
A NEW series of educational trading lessons from “Visual Guide to Elliott Wave Trading” — Part 1 of 3

By Elliott Wave International

When it comes to improving your wave-based analysis and technical
trades, three steps may sound simple enough. Yet if you have
any experience trading, you know that nothing about trading
is easy
.

Senior Analyst Jeffrey Kennedy knows that it takes skill,
discipline and courage to execute a successful trade. In the
new book he has coauthored with EWI’s Wayne Gorman (now a
No.1 Amazon Bestseller), Visual Guide to Elliott
Wave Trading
, he picks up where Frost and Prechter’s
classic textbook Elliott Wave Principle leaves off
to give you the perfect blend of traditional textbook analysis
and real-world application.

According to Kennedy, there are three key components of a successful trade:

  • Analyze the price charts.
  • Formulate a trading plan.
  • Manage the trade.

In this excerpt (Part 1 of 3), Kennedy examines a high-confidence trade setup in Caterpillar (CAT).

Part One: Analyze the Price Charts


When it comes to trade setups, it doesn’t get much easier than the price chart of CAT from April and May 2011. As you can see in Figure 2.1, prices fell in five waves from 116.55 to 108.39. This wave pattern was significant because impulse waves identify the direction of the larger trend. Thus, this five-wave decline in CAT implied further selling to come that would take prices below 108.39 in either wave (C) or wave (3).

The subsequent rally in CAT that developed in three waves supported this analysis. Countertrend price action typically consists of three waves, so I knew to expect another move down in CAT. Moreover, the three-wave advance in CAT traveled to 112.47 to retrace 50 percent of the previous sell-off. That 50 percent is a common retracement for corrective waves. Also nearby was 112.84, the price level at which wave C equaled a .618 multiple of wave A, which is a common Fibonacci relationship between waves C and A of corrective wave patterns.

The only question at this point was whether the move up from 108.39 should be labeled as wave (B) or wave (2). From a short-term trading perspective, this question was academic because, either way, the trade objective was a price move just under 108.39. A final observation about the corrective rally: The slope of wave C in this case was shallower than the slope of wave A. A shallow wave C slope, which demonstrates a decrease in momentum, is a harbinger that the larger trend is resuming. These shallower slopes within zigzags are so common that they are almost a qualifying characteristic of the pattern.

By applying the most basic Elliott wave analysis to the price chart of CAT, I could see five waves down and three waves up into Fibonacci and structural resistance at 112.47-112.84. That meant that odds strongly favored a sell-off below 108.39 from near current levels. So, the question at that point was how best to capitalize on this information.

Stay tuned for parts 2 and 3 of this lesson.


The Ultimate Wave Trading Crash Course

Put yourself on the fast track to applying the Elliott
Wave Principle successfully with a FREE one-week primer:
The Ultimate Wave Trading Crash Course.
Learn the basics with 5 FREE trading lessons from EWI
Trading Instructor and Senior Analyst Jeffrey Kennedy
— including insightful excerpts from his Amazon No.
1 Bestseller, Visual Guide to Elliott Wave Trading.

Learn more and start your crash course now >>

This article was syndicated by Elliott Wave International and was originally published under the headline The 3 Essential Parts of an Elliott Wave Trade . 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.

The 2 Most Important Keys to Successful Trading

Examples from Whole Foods Market and Reynolds American, Inc show you what to do (or not) to trade successfully with Elliott Wave

By Elliott Wave International

After 20 years of experience applying the Elliott Wave Principle, Senior Analyst Jeffrey Kennedy says that it remains the one tool that will tell him — down to the tick, to the pip, even to the penny – when his forecast is no longer viable.

That, according to Kennedy, is one of the two most important keys to successful trading:

“Know where you are wrong.”

In his May 8 Elliott Wave Junctures educational video, Kennedy shows subscribers how to acquire that knowledge when revisiting an earlier forecast that didn’t work out. This lesson was adapted from our EWJ service, and also explores the second of Kennedy’s Keys to Successful Trading:

“Don’t pick tops and bottoms.”

See the logic behind Kennedy’s wisdom by reviewing his analysis of Whole Foods Market, Inc. (WFM) and Reynolds American, Inc. (RAI).


My outlook for Whole Foods Market was right and my outlook for Reynolds American was wrong. While price evidence was compelling for both issues, the forecast in WFM was in the direction of the trend and RAI’s incorporated top picking. Here’s what happened:

On May 1, price evidence called for new highs in Whole Foods Market. We had a clearly defined uptrend, a three wave move in the direction opposite the primary trend, and the move to the downside was contained within parallel lines:

Additionally, we had a double closed-key reversal when the low was made, as well as some bullish divergence on the smaller timeframes. Price evidence was very strong that this market would continue to new all-time highs, so my outlook was bullish.

The bullish outlook in WFM required the April low of $81.39 to hold. The trend was clearly up from 2009 into 2013. From an Elliott Wave perspective we knew that this was a countertrend move with an A-B-C structure (a corrective wave pattern within a larger trending market). We had the wind at our back and were not “picking a top.” We simply looked at the price evidence in support of a further rally.

Conversely, the following example in Reynolds America, Inc. did not work out.

On March 22, I anticipated a move to the downside in Reynolds American, Inc. as we had a five-wave decline and a subsequent advance that was a three-wave move. I was looking for a tradable selloff to the downside in wave (C) or wave (3):

Unlike the successful WFA example, I was not trading with the trend. Instead, I was looking for a “top.”

Yet I was able to prevent a losing trade from becoming a devastating trade because I could use the Elliott Wave Principle to “know where I was wrong.”

This bearish wave pattern was viable only as long as prices held below the February high of $45.17.

Once prices exceeded this critical resistance, I knew not to look to the downside – that my outlook was no longer viable:


Learn to Find Opportunities in the Markets You Follow with Jeffrey Kennedy’s 47-page eBook: How to Spot Trading Opportunities

Now’s your chance to discover a whole new way to analyze charts and spot high-confidence trade setups using technical analysis. For a limited time, you can download EWI’s 47-page How to Spot Trading Opportunities eBook for FREE! ($79 value).

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This article was syndicated by Elliott Wave International and was originally published under the headline The 2 Most Important Keys to Successful Trading. 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.

(Video) Top 3 Technical Tools Part 3: MACD

(Video) Top 3 Technical Tools Part 3: MACD
Enhance your trading confidence with a 2-minute lesson on how to combine Moving Average Convergence Divergence with other technical tools.

By Elliott Wave International

“Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.”

-Jeffrey Kennedy

Jeffrey Kennedy is an accomplished teacher and a Senior Analyst here at EWI. Yet he often says that the Wave Principle alone is not a trading methodology. It does not tell you how much trading capital you can afford to risk, or specific guidance about which entry or exit levels are best suited for your trading style or where to set your protective stop.

Kennedy also says that along with risk management and emotional discipline, the right technical tools are a vitally important part of supporting your wave count.

To enhance trading confidence, Jeffrey’s 3 favorite technical
tools are Japanese candlesticks, RSI, and MACD. (read Part
1 on Japanese Candlesticks
and Part 2 on RSI ). Today’s lesson shows you how MACD can help identify trading opportunities with an example from USDCAD.

This 2-minute video and overview of MACD are adapted from Jeffrey’s Elliott Wave Junctures educational service (which empowers subscribers with information on nearly every aspect of trading. Try it risk-free for 30-days >> ).


Moving average convergence divergence (MACD) is a momentum indicator developed by Gerald Appel. It consists of two exponential moving averages, the MACD line and Signal line. The difference between these two lines yields an additional indicator, MACD Histogram.

Since these studies evaluate momentum, they work optimally in trending markets. When combined with reversal candlestick patterns, MACD and MACD Histogram can increase confidence in these patterns as well as continuation of the larger trend.

MACD divergence occurs when prices move one way and MACD moves the other. Bearish divergence forms when prices make new highs and MACD does not. Conversely, new price lows without lower MACD readings is bullish divergence. These conditions aid traders in identifying potential changes in momentum and trend.

MACD is constructed using two lines referred to as the MACD line and the Signal line.

When the MACD line appears to penetrate the Signal line, but fails to do so, a hook forms. The significance of a hook is that it coincides with countertrend price moves.

MACD is excellent technical tool provided you know how to use it and what to look for.


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You’ll learn which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, and which are best for spotting high-confidence trade setups. You’ll also learn how technical indicators can be used to complement Elliott wave and other technical methods.

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This article was syndicated by Elliott Wave International and was originally published under the headline (Video) Top 3 Technical Tools Part 3: MACD. 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.