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David Bowden called his trading room his “War Room” and it often feels that way when we trade. There are the battles that occur within ourselves, as we struggle to overcome the emotions of fear and greed, but there are also constant battles occurring in the market between buyers and sellers.
We’ve seen one such battle on the US Dollar / Japanese Yen (FXUSJY in ProfitSource) recently.
Since January I have been following a Double Bottom setup on this market. Chart 1 below shows that the Dollar / Yen moved strongly out of these Double Bottoms, after overcoming an initially sluggish start.
Chart 1
click to enlarge
Immediately after the second bottom on January 21, we saw some choppy market action for around two weeks. During this time, the bulls and the bears were fighting it out, each looking for dominance over the other.
As we can see from the sharp move up, the bulls won this battle.
Currently, the market is sitting just under the 99.00 level.
I challenge students to find at least three good reasons why we could expect the market to meet resistance near this level.
In time, you will develop the skills to identify these levels before they occur, but for now, it is still beneficial to investigate this level now that it has provided resistance. This will help you to see them coming next time.
I expect the market to push through this level, but not before a retracement – perhaps back down to the 94 level, the old “top” between the double bottoms.
In Chart 2 below, I will show you one reason to expect resistance at this level – then it’s up to you find the other reasons.
Chart 2
click to enlarge
You can see that the Dollar / Yen has just retraced 50% of the fall from the August high last year. WD Gann said that the 50% level was always important to watch on any market, and I would encourage you to go back and look for other, recent examples of this rule in action.
The bulls are currently winning the battles, but remember that each battle is only a part of the bigger war. As Gann would say, there are “wheels within wheels.”
Chart 3 below takes a bigger picture look at the US Dollar / Japanese Yen.
Chart 3
click to enlarge
I am expecting that at some point in the second quarter, a major top will form, followed by the crash in the US Dollar that many have been expecting.
A series of time analysis techniques used by David Bowden and WD Gann come together in the second quarter of 2009, pointing towards a major top. These techniques are beyond the scope of this article, but they helped call both the 2007 and 2008 yearly tops on this market.
I will be running through these techniques and how I apply them in an online training webinar coming up in a few weeks time.
However you fared in your last “battle” in the markets, remember there is always another opportunity just around the corner!
Be Prepared!
Mathew Barnes
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