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In response to an email I received from Vito, I will revisit an article I wrote in Trading Tutors Issue 321, from 14th August, 2009. The article was called “Price Ranges” and was about a Price Forecast I had put together on the US Dollar / Japanese Yen (FXUSJY in ProfitSource.) It is worth re-reading that article before continuing on with this article.
In the article “Price Ranges” I was simply taking the ranges the market was giving me, and watching them to repeat. Vito’s question was “why did you choose those particular ranges” to use in the forecast? This is a fair question, but in each of the cases, I was using the numbers the market had given me. This is a technique covered in David Bowden’s Number One Trading Plan, in the section on Price Forecasting.
Chart 1 below shows the price forecast, which looks to have come in. The forecast, which was given 2 months in advance, was for a price of 88.05, and the actual low was 87.98 – only 7 ticks out!
Chart 1
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The 973 point range that you see was actually made up of two smaller ranges, as shown in Chart 2 below.
Chart 2
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There is harmony in the market if you look for it. In this case, the market has just kept on repeating itself, as it has done in the past – like a “broken record” as my parents always used to say!
If you want to see how this works, you need to get into ProfitSource and use the walk thru mode to get you back to the April 6, 2009 top. Then use the arrow keys at the bottom left of your screen to step through the market day by day, measuring the ranges the market gives you, just like I did in Article 321.
Of course it is always easier to forecast than it is to trade. In Chart 3 below I will show you two points that had me on guard that the move may have ended.
Chart 3
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In the first case, as marked above, the market gave triple bottoms just past the 75% milestone in mid September, the first sign of a struggle to the downside. I took profits at this point as I was just about to begin presenting at the Master Forecasting Summit and also because the market was looking a bit uncertain.
At the second point, the market looked like it might be at a bottom around September 28, where the market came close to the 88.05 target but fell just short, giving a strong signal reversal day. After this it could not give us a strong run up, indicating that perhaps the fall was not quite finished. This proved to be correct and the market fell away, just touching the 100% milestone on October 7th before moving up. This was also 180 degrees from the yearly high.
Currently, the Dollar/Yen is working its way up and the trend has turned up on the one day swing chart. Now that the market has given another repeated range, we turn to our Gann Retracement tool to watch and see how far the market pulls back.
Of course I will wait and see what the market gives me, but my money now would be on either the 50% Retracement Level or 62.5% level, as shown in Chart 4 below.
Chart 4
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Why am I watching these levels? I am watching these levels because Gann said they are important and because they have worked so often in the past on this market.
As always, the market will tell it’s story in its own time – all we can do is wait for the right setups and trade them accordingly, as and when they unfold.
Be Prepared!
Mathew Barnes
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