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.
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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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
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I’ve got some news to relay. You remember how in a previous post I mentioned that Russ Horn is due to launch a forex trading course called Forex Master Method? Well, the launch day is upon us! In fact The Forex Master Method course is now live and available for purchase.
I checked out the sales page and the price seems pretty reasonable considering what you get. It is by no means another one of those $97 ClickBank products. It is more like $999, but price aside let’s hope the dictum “you get what you pay for” hold this time again. By the way you can also buy it for 2 payments of $650 if cashflow is a problem for you, but as you can see you end up paying more in total than if you were to buy it for the full price.
This product is sold via ClickBank so you have a full 60-day 100% money back guarantee. It works. Trust me I’ve returned tons of ClickBank products that ended up being junk and I haven’t been denied once.
As I type this post there are a total of 312 copies left.
Those of you that get a copy please feel free to share your opinions regarding this course over here at the following forum thread:
Let’s face it: Forex is a highly competitive game that takes more than the simple “buy when one indicator crosses the other” systems sold for $29.97 on the internet. Just look at the spreads- the fact that the cost of making a trade on the Euro can be as low as 0.0001 tells you right off that so many players and so much money comprise this market that any small newbie trader that enters is likely to get eaten alive unless he really knows how to really play.
If you want to achieve forex profits you need to gain an “edge” in this market. An edge is defined as an indication of a higher probability of one thing occurring over another. In trading this means either spotting a reoccurring pattern in price action or knowing information related to traders’ positioning in the market. In this article I want to focus on the latter. Think of it this way—if you were playing poker at the MGM in Vegas and somehow knew what the cards in the hands of the other players were, would that give you an advantage? Of course it would!
How to spy on the big dogs without cheating
Certainly, if you were discovered at the MGM using such a strategy you would probably find yourself face-planted into the red carpet entrance after some big guy threw you out. Fortunately, in the forex market, there’s a way for you to get a pretty good idea of the sentiment of the “big dogs” (the major banks and hedge funds who control the money flow in the forex market) without cheating or doing anything unethical. The secret is looking at price action during economic news releases.
Economic news releases occur almost every day and the high impact releases such as interest rate decisions, inflation, GDP, employment, retail sales, and manufacturing PMI cause the market to move considerably when the number comes out much better/worse than forecast. The reason is as follows: the big dogs put money into currencies whose countries’ economies are expected to do well and take money out of those whose countries’ economies are expected to do poorly. They decide which trades to make based on economists’ forecasts of high impact economic indicators such as those listed above. If these releases come out better than forecasted, the big dogs and other market players will make adjustments to their positions by buying more of the currency, causing price to go up.
Now that’s for the normal case. When price action does something strange, like decreasing on better than expected news after a long uptrend, that’s an indication that there is not enough demand at higher prices and sentiment is taking a turn for the downside. Do you see how that’s like the big market players showing their hands to you?
A step by step strategy for forex profits using price action and news
Look for a nice uptrend or downtrend to develop
Watch an economic calendar such as Forexfactory.com to see if any high impact news releases are coming out (usually in red).
If the news comes out better than expected in an uptrend but price fails to move significantly upward following the release, or vice versa for a downtrend, sentiment is likely changing direction.
If you’ve observed a turning point, look for a confirmation such as rejection of the upward trend at a key resistance level or a very bearish candle signifying the beginning of a new negative trend.
Keep losses small and hold on for as long as possible, as the moves following these turning points are often one-directional and last for a few days to weeks.