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

03/20/09 Forex Market Comments

According to The Taylor Trading Technique
, today was a buying day for yen. After cleared pivot point (94.87), yen met some sell pressure at a confluence resistance zone - 95.65 (swing low), 95.60 (38.2% fib), 95.62 (50sma on hourly chart). Then yen achieved its average daily range at 95.98 (yen's 10 day average daily range is 184pips). Statistically, the probability of yen reaching average daily range is 46%. So more than half of the time yen won't go to the full stretch of its average daily range. Recalled what happened two days ago, yen's daily range was ADR plus 3.1std, that's a 3% probability for yen.

At the beginning of London session, pound formed a quick double top. There was a strong support at 1.44. Likewise, after a double top pattern, euro found its support at yesterday's high.

On hourly point and figure charts, pound met a double top resistance at 1.4566. A clear resistance line formed. Then a double bottom pattern at 1.44 offered support. We will watch this level closely.