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During his final Six-Day Trading Incubator in the year 2000, David Bowden said that if he could only trade one market, it would be a currency, because currencies tend to trend well.
A new trader following the US Dollar against the Japanese Yen only since November 2010 might raise an eyebrow at that statement, as this market has been going sideways for the past four months. This is shown in Chart 1 below. The code for this chart is FXUSJY in ProfitSource software.
Chart 1
click to enlarge
Ever since the November 1, 2010 low came in last year I have been relatively confident that it will hold and it has – but as you can see, there hasn’t been much upwards movement since then.
It is always a good idea to have as much price data as you can get your hands on for a market and in Chart 2 below, we will look at the last five years worth of market action on the US Dollar/Japanese Yen. Chart 2
click to enlarge
When we zoom out and take a look at a bigger picture perspective, we can start to see what David Bowden was referring to – this market trends most of the time.
When it does move into a sideways pattern though, we have a couple of choices. We can wait for the market to finish its consolidation and then look to trade as it breaks out – whether to the upside or the downside.
Or, we can look to trade the smaller ranges, buying near the lows and selling near the highs. While this is possible, it is also a fair amount of work for a relatively small gain.
As I showed in my last Trading Tutors Newsletter article, the major trends (weekly swing chart, 2 day swing chart and 3 day swing chart) are all pointing up, indicating that any breakout is more likely to happen in that direction.
At time of writing (Wednesday, March 9, 2011) the one day swing chart has just turned up as well, having confirmed a higher swing bottom overnight.
This is shown in Chart 3 below, where I am using the Split Screen mode in ProfitSource to display all four charts at once. Chart 3
click to enlarge
As you can see, the 1 day, 2 day, and 3 day swing charts (taught in the Number One Trading Plan manual and at Safety in the Market’s 3 Day Interactive
Trading Workshops) all show an uptrend. The weekly swing chart is also showing an uptrend. Taking a look at the 3 day swing chart (bottom left hand corner of Chart 3, above) we can see that after the November 2010 low, we are currently at our third higher bottom.
On page 45 of “How to Make Profits in Commodities,” Gann says “The third higher bottom is just as important as three bottoms at the same level because it shows the market is gaining strength and is receiving good support. After it makes a third higher bottom on a swing and goes through to a new high level, or crosses the last top resistance level, it is indication of much higher prices.”
It would appear that the US Dollar/Yen has made a third higher bottom. If it can cross the December high at 84.51, then we would have to expect, as Gann so nicely puts it, “much higher prices.”
Be Prepared!
Mathew Barnes
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