Home > Currencies
Forex: Look for Chart Patterns, Not the News
Currency trading does not have to revolve around watching the headlines.
Financial markets develop as a series of patterns. If you can recognize one on a chart and identify where prices are within that pattern, you can make a realistic forecast for where prices will go next.
That's the Elliott Wave Principle for you in a nutshell. Until and unless you accept this idea, wave analysis won't make much sense. If you're like most investors and believe that markets are random -- or, at best, moved by "good" or "bad" news -- you will often find Elliott-based forecasts in conflict with your "macro" views.
The Wave Principle teaches that apart from short-term volatility, the news has no effect on the broader trend. The collective mood of market participants drives the trend, and here's what that means: If traders feel optimistic, they will find something "bullish" to focus on -- and buy. But if they feel down, they will look for bearish overtones in any "good" news story to rationalize their urge to sell. Haven't you ever seen a market rally on bad news and fall after a good report?
So, the question then becomes: If I ignore the news, how do I predict the market's mood? Enter the Elliott Wave Principle. Collective (or social) mood unfolds in predictable Elliott wave patterns... which takes us back to the summary in the first paragraph.
So instead of constantly playing catch-up with trend changes, wave analysis equips you to predict them. Here's an example. On July 21, the exchange rate between the U.S. dollar and the euro went as high as $1.4276. One explanation for the dollar weakness was the "dampening of the U.S. dollar’s safe-haven appeal" (IBTimes.com)
Sound reasonable, but collective mood patterns in the EUR/USD charts foretold this week's dollar weakness days ago. Here are two forecasts that our intensive Currency Specialty Service posted for subscribers on Saturday, July 18 and Monday, July 20.
Update For: Monday
Posted On: Sat, 18 Jul 2009 00:08:24 GMT
EURUSD Last Price: 1.4101
[Turning higher] We switched to the bullish triangle scenario earlier this week and it remains favored. A breakout above 1.4201 would signal that a thrust out of the triangle is underway. At a minimum the thrust should carry above 1.4338...
Update For: Tuesday
Posted On: Mon, 20 Jul 2009 18:01:03 GMT
EURUSD Last Price: 1.4217
[Thrusting higher] With the triangle scenario bolstered we can look for the thrust to continue to a new high for the year above 1.4338.
You're probably wondering: If the EUR/USD does indeed reach its "minimal price target of $1.4338," what happens then? The answer, once again, lies in the knowledge of Elliott wave patterns. "Keep in mind," says EWI's Currency Specialty Service editor, that, "thrusts from triangles are terminal, and this one will be in a fifth wave..."
9 Forex Pairs, 24-Hour-a-Day Forecasts. Here's how to get them now.