Themes

By: Nouf | Mon, Nov 15, 2010
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A lot of my work stems around trying to find a theme or correlation were we can monitor a certain FX cross or equity market for an edge to trade.

Last week I left readers with the idea of the EUR crosses heading lower, that idea was an idea I had suggesting to members for a few weeks, and whilst traders have been watching the ES in chop land. Some of us have being trading patterns and setup that were screaming out to be traded.

Once the EUR/USD pairs thrusted out of the triangle, it was just a matter of waiting for the clues to the reversal.

Whilst the world was looking for 150 on the EUR/USD, those of us that were trading patterns knew that a thrust from a triangle will get completely reversed.

Those of us that were watching the EUR weakness against many FX pairs took advantage of that idea.

It wasn't just one pair, it was at least 3 pairs, so traders had a pick, the theme was weakness in the EUR crosses and to look to sell some of the important EUR crosses that looked vulnerable.

Traders that were trading that idea rang the register to the bank last week to bank the $$$$, as the 3 pairs members were following puked substantially, and are far lower.

Last week was a terrific week for the traders that were prepared to adjust and move across and take advantage of markets that were offering far better setups to trade.

Whilst equity traders got chopped up in a land of whip, other markets offered substantial gains and much clearer ideas; the art of being successful requires you to have a high odds idea.

Why trade something that is not offering a high risk/reward?

When you can, with a little bit of effort, find a market/s that offers high reward trades.


EUR/USD

I am working a couple of ideas on this pair, and we intend to take full advantage of this pair, as I still think this has more downside setting up, although that will still have to be confirmed on any bounce from here, which is the preferred route.

One count is a simple 5 wave decline, and would require a bounce towards the 139-13950 area, where the 20DMA would meet around the 139 handle.


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There is another alternative that we were tracking last week, and a more Bearish 12, 12 wave count but the bounce on Friday and the lack of downside, is suggesting that we need to hold off here to confirm which option is the better count.

Both counts I am working are on the basis of a bounce, then push lower, as yet I don't yet see any evidence to prove otherwise, so still a seller of the EUR crosses, until the evidence proves otherwise.

Going forward it requires a corrective bounce, to around the target.

So whilst we have been using the theme of selling EUR crosses, if I see evidence to prove otherwise, then I will adjust my bias, but as I write, the idea going forward is EUR weakness and selling weak choppy bounces in the EUR crosses.

One of the reasons I tend to favour the EUR/USD pair finding a bid is the high correlation with the EUR/CAD pair, both pairs have been pushing lower as you can see, so using that as a clue, will save many traders from looking at the wrong wave count, or at least putting them on alert.


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This pair supports a 5 wave decline, so using that information, is an edge against the EUR/USD pair, but we have to take it one step at a time, and to invalidate a more aggressive wave count on the EUR/USD pair, price will need to push higher than 13822.


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US Markets

I left readers last week with the idea of the triangle thrust, and those that were aware of that pattern, like we saw on the EUR/USD pair, traders should have been looking to get out of longs and look to get short.

We had been using key support and resistance areas on the ES, all last week, and members were advised to sell rallies into 1212/15ES and to get more aggressive under 1205ES.

The market tried to break under 1205ES last week, and on the 1st 2 occasions the locals lifted the market and ran the weak shorts higher. However it still failed to get above 1212/15ES.

But as the ES was in chop land, this is where traders that were watching those EUR crosses were making substantial gains and $$$$, as those were puking far lower, and the ES was chopping up traders to pieces.

Friday however finally cracked the 1205ES area, and is now resistance on any push higher from the market, or in globex, although it back tested the double bounce area at 1202ES and failed and was a easy trade on Friday, with small risk as above 1205ES was opening up a nasty pattern and a bunch of chop.


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1205ES is now the Bull/Bear line that we are using.

By using these key support and resistance areas, and watching and following what traders were doing in the "pit", kept us on the right side of the moves.

It's not a case of slapping on some labels on a chart, its take more than that to keep on the right side of the markets.

It's a combination of using patterns, price, using S/R (support & resistance), knowing who are moving the markets. I.e. Goldman is a big seller or JPM is a buyer etc.

Watching liquidity move around in other aspects of the markets, and seeing if the FX markets agree with the equity markets or vice versa, staying on top of the markets take a lot of effort, but that's what we do day in, day out.

We find themes and look for edges to get members high odds trades, with hard work comes the success, and for those that actually want to put in the work.

I am working 2 ideas on the SPX/ES and one is a 4th wave, from the early Jul 2010 lows.

The decline so far is very choppy and suggests a potential correction; it would have to take some creative counting to make that decline so far as an impulsive wave.

Labeling a chart with an Elliott wave count also requires the Elliottician to correctly take an objective view of the price structure and not force a bias just because he or she is stuck in a trade, and can't admit they were wrong.

The overall look has a corrective look and feel to it, so suggests the potential wave 4th wave idea.

Being a correction can take the form of many patterns, as there are many, and being a 4th wave allows the option of a triangle, so this could get very choppy from here into the end of the New Year.

With targets towards the 1160/80SPX as an area of interest, if this does morph into a nasty choppy pattern, then wave counting will become irrelevant, as the more important edge will be S/R, so time to draw some simple lines on a chart, and forget about trying to count a choppy correction, as this is where Elliott is not as useful as some would like you to believe.


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It's also a time to open up the chart and get away from the 5 min charts where traders see a 6 handle move and think "crash".

Members have some key areas on the upside that will key us from selling or buying this market at the wrong time.

We will use those going forward along with the other edges we have to stay on the right side on the trend, if it gets choppy, then we can move to other markets that have a clear pattern and look to trade other markets.

The world don't revolve around trading the ES, last time I checked $$$$ was the same whichever market you made a successful trade on.

I posted this chart last week to members, it was actually in the free section on the site, but it looks like the option traders gave us the heads up of an impending reversal, and with options expiry looming, it would not surprise me to get a real "shakeout", and seeing the market push towards 1180SPX.


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All we need to watch for is support found lower down and ISEE reading on around 60 as a clear indication that traders have swung too bearish too quickly.

Although sentiment can`t be used on its own, just like oscillators can stay over bought and oversold far longer than you think, it is something I have found over the years, with a completed pattern. It tends to announce an impending reversal.

As per previous articles, you will have note that we were looking to get short at the top of the triangle thrust anyhow, this just further added to the evidence.


Fractals

They say history never repeats, as Mark Twain said, "History never repeats itself, but it rhymes."

I will leave you with this chart, and as someone that follows fractals on every scale, I found it particularly interesting, of course no one can ever trade off this information, but it was something I was actually using to get a target for the rally from the late August/Sept lows.


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With the average length approximately 180 points, this gave a target window of 1220-1240SPX and we were also following the previous DNA rally from Feb/Apr 2010 which had a time window of 55 days (see last week's article).

The actual high came on the 52nd day (the SPX failed to make a new high but the ES December ES Z0 contract did).

The markets are made up of fractals and using those repeated patterns is what helps provide an edge to making successful trades. Not following crap that is spouted out by the media.

If you looking for quality analysis from someone that actually looks at multiple charts and works hard at providing members information to stay on the right side of the trends and making $$$, why not give the site a trial.

This is just a small selection of charts I posted over last weekend and throughout the week.

Rather than be stuck trading chopping markets, give yourselves a better edge of success by trading opportunities that give you the edge. By expanding your horizons and trading other markets that offer far better successful outcomes.

We don't offer any newsletter or end of day, PDF article, I find those completely worthless as the market is a living breathing machine, members get to know my ideas in "real time" and adjust accordingly.

We have a chat room where comments are also copied & pasted in a forum where members can catch up after the markets have closed or even throughout the day, if members are trading from a work PC or via a smart phone such as an I-phone etc.

Ideas have to be adjusted as the markets adjust.

Until next time.

Have a profitable week ahead.

 


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Nouf

Author: Nouf

Nouf
www.Wavepatterntraders.com

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