If you trade forex, you've probably noticed that some markets have behaved erratically in recent weeks. The EUR/USD, for example, the most widely-traded currency pair, would go sideways for days -- but then start swinging wildly from hour to hour. What's going on?
Jim Martens, EWI's Senior Currency Strategist, often shares his thoughts on the business of forex trading with subscribers of his intensive Currency Specialty Service. Here is an adaptation of Jim's latest comment that speaks to the question above:
May 5, 2009
Jim Martens, Editor
In the latest issue of his monthly Elliott Wave Theorist, EWI's president Bob Prechter devotes the first page to one of the most important lessons an analyst must learn. Here's the gist: "There are times to work hard at market analysis and times to let the market work for you."
This means that not every day, week and month are equally important when it comes to market forecasting and trading. In Mr. Prechter's words, there are times when Elliott "wave patterns carry important, unequivocal, and/or actionable implications," and there are times when they don't. Yes, even with wave analysis, markets can sometimes be puzzling.
It's on those "unequivocally" clear points that we should concentrate our analytical efforts. We should worry about the markets less when they are unclear and more when they are clear -- because it is clarity that brings opportunity, not the other way around.
Alas, the natural tendency is the opposite for most people. Analysts (myself included) tend to say more when they are uncertain, trying to cover every angle (but not offering a firm conclusion) and less when the market offers "important, unequivocal, and/or actionable implications."
My forex subscribers often fall into the same trap. They ask for more information when we're struggling with an unclear situation and less when Elliott wave patterns are clear. So, rather over-analyzing the markets when we ought to step aside, shouldn't we put the real energy into analysis when things are "clear"?
The result would be more confident conclusions when wave patterns are clear and fewer mistakes when the picture is muddled. In the latter case, saying "I don't know" would suffice before you step aside and wait for clarity.
Looking at the U.S. dollar today, I can say two things. The three-wave recovery from March into April leaves the dollar vulnerable. Beyond that observation, presently Elliott wave patterns in the major dollar pairs are unclear. The less I say, the better.
You can be ready when the U.S. dollar's picture clears up with EWI's Currency Specialty Service.