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Back in September 2008 I wrote an article for the Trading Tutors Newsletter called “Keeping Your Cool”. The article was all about ignoring media hype about the “panic” and “chaos” in the markets, and listening to your chart.
I’d encourage Safety in the Market students to log on to www.safetyinthemarket.com.au and go to the Newsletter Archives and have a read of the old article. You’ll see how very little has changed since it was written.
This week’s article will be a follow up article on the US Dollar / Japanese Yen currency pair (FXUSJY in ProfitSource). I will show you how the market action from the current yearly high on April 6th has unfolded in a very similar fashion to the market action from the 2008 top. And the 2007 top. And the 2005 low for that matter.
Chart 1 below shows the US Dollar / Yen price action for 2009 so far.
Chart 1
click to enlarge
We can see that the market made its top on April 6, 2009 and has been working its way down since then.
I believe there is order in the markets (even among the chaos) so one of the first things I will do to a market is to start measuring price ranges. I will begin from the April top.
Chart 2 below shows the market made a range down of 586 points. It then rallied, before making another range down of 590 points.
Chart 2
click to enlarge
Now 586 points is not 590 points, but to me that is close enough! These two legs down have now formed one larger leg down. So next we will measure that range.
Chart 3 below shows that this leg was 763 points. The market retraced, before going on to make a 716 point range. Again, 763 is not 716, but it is definitely of comparable size.
Chart 3
click to enlarge
I am not inventing anything new here – WD Gann taught that ranges repeat in the market, and David Bowden goes into this in more detail in Section 11 of his Number One Trading Plan course.
If you go back and read the article I referenced at the beginning of this article, you will see this is the same technique that worked so well from the 2008 top. And the other turning points I mentioned.
Where to from here? We use the same technique to measure this larger range down, and we project the price forward from the next high. Chart 4 below shows this.
Chart 4
click to enlarge
By projecting the 973 point range using the ABC Pressure Point Tool (or Wave Extension Tool), we see a 100% target at 88.05, and a 150% target around 83.
To go through this article, the other article I referenced and the turning points I have referenced will take you around half an hour. There are lessons here at all levels for those willing to put aside some study time and do some serious work. Best of luck!
Be Prepared!
Mathew Barnes
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