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The US Dollar has shown some strength over the past month, making strong gains against all the major currency pairs. The Dollar has gained steadily against the Japanese Yen since early March, with the current high at 110.67.
Chart 1 below shows that the Dollar/Yen is setting up as a potential Elliott Wave 5 sell. This won’t be confirmed as a Sell signal until the market closes below the green line marked “Wave 5 EBOT”. Until that happens, this is just another “potential” trade.
Chart 1
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Most traders who use the techniques of Ralph Nelson Elliott or WD Gann will stick with one methodology or the other; however there is no law against using them both in combination.
David Bowden, founder of Safety in the Market and one of the leading authorities on Gann trading, also used Elliott Wave when looking at the position of the market.
I use Gann’s techniques for forecasting and trading currencies, but when it comes to looking at the structure of the market, it pays to have a sound knowledge of the Elliott Wave principle.
We can see from Chart 1 above that the Elliott Wave pattern in ProfitSource suggests we are at or near a Wave 5 high in the market.
Next, we can use Gann Price Forecasting techniques, in order to zoom in and look for a price level or levels to watch for resistance. Knowing your potential target in advance gives you much more confidence when the time comes to place your trade.
Chart 2 below shows that the Dollar/Yen is currently sitting at the 50% retracement level of the June 2007 to March 2008 bear market range.
Chart 2
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Chart 3 shows us that the market is also at the 50% milestone of a previous range.
Chart 3
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Elliott Wave Analysis has told us that we are in position for a top, and Gann Analysis has confirmed that there is significant Price Pressure around the current levels.
The market is telling us that a potential short trade may be on offer. The next step is to wait for the chart to give us an entry signal.
Elliott Wave traders might wait for the market to close below the EBOT (Elliott Break Out Trigger), highlighted on the chart. Gann traders might look to their swing charts for an entry. The most important thing is for you to have a definite trading plan and strict money management rules.
Without either of these, you are just punting.
If you get a signal, act on it! If you don’t, leave it alone!
I would also encourage all Safety in the Market Platinum Students to approach this setup from all angles, and think outside the square!
Be Prepared!
Mathew Barnes
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