Forex Strategies for the Decline Phase 05/07/09

In the last post I used British pound as an example to discuss the forex strategies for the advance phase. Yesterday (05/07/2009), pound made another textbook example for the fourth phase in a full price cycle - the decline.

In the decline phase, the market is in a downtrend, usually a short selling day in The Taylor Trading Technique, in which the price action tends to make lower lows and lower highs.

On hourly chart, a bearish engulfing pattern indicated resistance at 1.5160, and the shooting star confirmed the resistance. A 40-pip top range was built from 1.5147 to 1.5106, which is a counterpart of base building phase. Likewise, there are multiple false breakout and breakdown signals to fool reckless bulls and bears.

Pound formed a double top pattern around 1.5160, while MACD made a lower low, the bearish divergence is marked on both 15-min and hourly charts, which confirmed the trend reversal. After the shooting star, there is a quick drop caused by the 7:00 event - Bank of England's Official Bank Rate. There is no way to trade the event, which is almost 100-pip drop in just 1 minute. There is no need to chase the event either. After the event settling down, pound offered multiple great short opportunities for shrewd trader. There are three opportunities to short rally top, and at least two to add position at breakdown horizontal support level.

To summarize the forex strategies for the decline phase,

1. only short position is considered during the decline phase

2. entry A: short at rally top

3. entry B: short at breakdown horizontal support level

Just for argument's sake, the definition of phases is only for forex day trading purpose, which might be only identified on hourly or 15-min charts.

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.