My Aussie trade is working to plan

On Monday, I went off-piste a little by looking at a great tramline trade in the Aussie dollar.

I showed you how I used my tramline method to get into what was then a promising long Aussie trade.

The great news is that now – just two days later – that promise is being fulfilled – and then some!

I want to follow up on this trade right now – it’s offering up some great lessons I can share with you to help you develop your trading.

For one thing, as you’ll see, it’s demonstrating an important aspect of trading with the Elliott wave theory, which is in fact aiding my cause.

My Aussie trade is off to a flying start

Take a look at this updated daily chart. It shows the long-term down-trend line drawn off the July 2011 high:

AUD/USD spread betting chart

(Click on image above for larger version)

On Monday, I noted that the retreat to the 5 September low took it to the Fibonacci 38% retracement of the previous rally leg – in fact, there was a slight overshoot.

That fact, combined with my tramlines on the shorter-range chart provided me with the inspiration to make a long trade. And I’m glad that I did.

My entry was in the 1.0240 area and the market is trading at 1.0470 as I write – more than 200 pips profit in just a couple of days.

The market has followed my Elliott wave roadmap

So far, so good. But on Monday, I also pencilled in a possible scenario for the following few days. Here’s the chart I showed then:

AUD/USD spread betting chart

(Click on image above for larger version)

And here is the updated chart as of this morning:

AUD/USD spread betting chart

(Click on image above for larger version)

Isn’t that great? The form of the Monday-Wednesday action is almost precisely that which I had mapped out on Monday.

But there is a slight problem. I did identify the A wave top correctly on Monday, with the subsequent shallow B wave, leading to a wave producing a new high.

Why there could be resistance ahead

The problem is that the current up-wave does not have the typical form of a C (final) wave. For one thing, the size of this wave (which apparently has not yet topped) is a little large compared with the A and B waves.

For another, momentum, as I write, is also high on the two-hourly chart (and even higher on the hourly!) So no chance of a negative momentum divergence here.

Ideally, a momentum divergence is almost a requirement for me to seek a turn.

But, of course, that is working in my favour. This is an ideal place to look to take profits.

Now, with the market approaching the major downtrend line in the 1.0560 area – it is only 80 pips away – I expect some resistance to the advance to emerge.

And tomorrow, the Fed is due to release its intentions regarding another round of QE. That should impact the stock and bond markets.

Stocks have been rallying on the hope for more QE. Will that hope be realised? If so, will it lead to further large gains for shares? Or will it be a case of ‘buy the rumour, sell the news’… and a market sell-off.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

The essentials of tramline trading

Advanced tramline trading

An introduction to Elliott wave theory

Advanced trading with Elliott waves

Trading with Fibonacci levels

Trading with ‘momentum’

Putting it all together

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