Forex Strategies for the Advance Phase 04/23/09

In the last post I used British pound as an example to discuss the forex strategies for base building phase. On April, 23, pound made another textbook example for the second phase in a full price cycle - the advance.

In the advance phase, the market is in an uptrend, usually a buying day in The Taylor Trading Technique, in which the price action tends to make higher lows and higher highs. The five waves (wave 1 ~ 5) of elliott wave theory give a good description for an uptrend. Wave 1, 3, and 5 are impulsive waves, which is the main trend, while wave 2, and 4 are corrective waves, which is against the trend.

The 5-wave structure is labeled on hourly chart. The most tricky part is to identify wave 2 and 4, since both waves formed a downward channel. A normal trading strategy for the advance phase is to long dip bottom. If a long entry was made at the first dip bottom, it will be challenged during the formation of wave 2 and 4. If the stop is tight, long positions can be easily stopped out.

Best entry to follow the up momentum is to long at the breakout of the top of channel or add position at breakout of the horizontal resistance level. After the breakout, wave 5 surpassed former swing high and reached 50% Fibonacci retracement.

To summarize the forex strategies for the advance phase,

1. only long position is considered during the advance phase

2. entry A: long at end of wave 2

3. entry B: long at end of wave 4

Forex Strategies for Base Building Phase 04/22/09

There are four phases in a full price cycle: base building, the advance, top building, and the decline. Different phases in a forex cycle require different forex strategies. Recent price action of British pound is a textbook example for trading during base building phase.

Monday (4/20/09) was the third down day for British pound, also a WS7 (wide spread 7) day. For swing traders, it's the time to collect their pips. For day traders, it would be unwise to chase any breakdown signal to naively believe they are following the trend. It's equally unwise to fade the trend too soon.

On Tuesday (4/21/09), there are two big bearish candles(see hourly candlestick chart) which took Monday's low. Impatient bulls were threaten to close their long positions, either by stop hitting or out of scare the trend will continue. To add salt to the wound, both breakdowns were fake. In that case, reckless bears got burned too. It is proved that chasing a breakdown after the third down day (WS7) is not a rewarding strategy.

After the second fake breakdown, pound made a rally, the dip from the rally made a higher low, which offered a nice spot for long entry.

On Wednesday (4/22/09), in light of Annual Budget Release, pound was hammered down 262 pips in two hours, and took Tuesday's low. The same scenario happened again - bold bears and bulls got burned dearly.

To summarize the forex strategies for base building phase,

1. chasing a sudden breakdown signal is not a high probability strategy

2. bottom guessing usually got burned during base building

3. Better wait for market out of base to make any commitment

04/20/2009 Forex Market Comments

Last Wednesday pound made a double top breakout at major resistance level of 1.49 on daily point and figure charts, which was proved to be a bull trap. On hourly PnF, pound made a double bottom breakdown at 1.4933. The slide broke former swing low at 1.4580/4584, and found support at 1.46 which formed a double bottom pattern on daily PnF. As long as pound stays below 1.46, I will remain bearish. On hourly chart, pound just made a head and shoulders top reversal and reached its minimal target at 1.4582.

1st downward target: 1.4622
2nd downward target: 1.4566
3rd downward target: 1.4510



This is the fourth down day for euro. There is a critical support at 1.2944 (61.8% fib retracement on daily chart).

1st downward target: 1.2873



There is no clear signal for yen on PnF. More information is needed to make an intelligent speculation.

1st downward target: 98.22

04/14/2009 Forex Market Comments

After good Friday's narrow range bar (NR20), yen chose to heading south. On the point and figure charts, yen made a bearish triple bottom breakdown at 99.50. The nearest downward target could be the 61.8% fib retracement level 98.03. The former swing low, also the 38.2% fib ret level 99.31 becomes resistance.



Yesterday British pound made a triple top breakout at 1.4766, a very bullish sign and beautiful up trending day for pound. The up thrust is not ready to challenge the former swing high 1.4956 yet. Pound formed a double top pattern.



Euro cooled off today, and remained below pivot point 1.3294 and 10-day ema 1.3300. There is no signal from point and figure charts. It's still an opportunity - an opportunity no to trade as stated in one of my day trading rules.

Narrow Range Day for British Pound

British pound formed a narrow range bar (NR20/ID) yesterday. On hourly point and figure charts, pound is in a 100 plus pips trading range from 1.4766 to 1.4633. Pound had a fake breakout at early London session. If pound take a breakdown, the 1st downward target would be 4570. Possible support may come from 50% and 61.8% Fibonacci retracement - 1.4532 & 1.4432. To trade narrow range bar, it's not necessary to predict the direction of the breakout, the only thing need to do is to follow the market's leading.

04/07/09 London Session Forex Market Comments

All three major currency pairs reversed on hourly point and figure charts and took a breakdown of yesterday's low.

British pound also reversed on daily PnF at 1.46. The 1st downward target for pound is 1.4552, confluenced with 10-day ema 1.4553.

If euro touch 1.32, it will make a 3-box reversal on daily PnF too. The 1st downward target for euro is 1.3213. The 2nd target is 1.3117.

Japanese yen will make a reversal on daily PnF at 98. As long as yen stays above 100, forex trader shouldn't worry too much of current slide. The 1st downward target for yen is 99.44.

Japanese Yen Broke out 100 Key Level

Finally, Japanese yen broke out 100. Weak hands were shaken out by the temporary plunge initiated at the NFP, which stopped just 2pips shy to make a 3-box reversal on hourly point and figure charts. Japanese yen managed to crawl back and remain above 100 during the rest of day. On daily PnF, yen just made a double top breakout at 99. Surprisingly, Yen formed a narrow range bar (NR7) on the key 100 level breakout.




British pound made a double top breakout at the former double top resistance level 1.4766 on hourly PnF. On daily PnF, it's a double top breakout at 1.47. The key resistance level is 1.49 (former swing high 1.4978/1.4982). British pound made a new high in 20 trading days (H20).




Euro made a bear trap at the NFP event, then closed right above the pre-event level.

High Probability Forex Day Trading: Narrow Range Breakout

As a forex trader, the key of successful currency trading is to have a set of high probability low risk forex trading strategies. Trend following of a narrow range breakout is a reliable and frequent trading strategy in forex market.

Cable made a pin bar on 03/30/09, followed by a narrow range bar (NR20) on 03/31/09. The breakout of narrow range happened on 04/01/09. Yesterday was a nice follow through of this breakout, which recovered most of the down swing. On hourly point and figure chart, cable made a double top breakout at 1.4633 confluenced with a resistance trend line breakout.



Euro formed a narrow range bar (NR7) on 04/01/09 with a series of higher lows, which indicated the interest of support. The breakout happened two hours before the start of US session. The up swing took euro standing above 61.8% Fibonacci retracement level. On hourly point and figure chart, with an obvious support trend line formed at the bottom, euro made a double top breakout at 1.3333.



On hourly point and figure chart, yen made a double top breakout at 99.25. The up thrust took former swing high of 99.66, then met resistance, and remained below 100 key level during the whole US session with a raised bottom indicating support. In Asia session, yen touched 100 but without following through momentum.

04/01/09 Cable Made a Tricky Narrow Range Breakout

The narrow range breakout for cable happened at 4:am during London session. At the beginning of US session, cable made a 100-pip quick slide, shaken out most weak hands, and rallied up the rest of the day. Remember 03/31/09 was a NR20 (narrow range 20 day). Once cable crawled back above 1.4372, the daily directional bias should still be upside. Now it's already Thursday morning 6:50am, the real jump happened at 1:00am and followed through during London session. It's a up trending day for cable.


It was a NR7 for both euro and yen.