This morning, GBP/USD has jumped by over two cents on the back of the results of the UK general election.
But today, I want to cover EUR/USD to show how to extract a huge win in swing trading this market.
Totally against received wisdom, the euro has gained ground against the dollar. In my May 1 post "Forget the gloom and doom, the euro's on the up", I showed in the hourly chart that the market then was very likely in a third wave up:
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Remember, I was long from mid-April in the 1.06 region, so I was in the happy position of waiting for a signal to take profits. And because I was expecting a five-wave pattern, my ideal scenario called for a dip in wave 4 and then a move into a new high in the final wave 5.
Of course, I did not have a clue how the critical Greek situation was going to play out but I did have a clue how the market would perform no matter what political developments took place!
That is one of the benefits of using basic Elliott wave theory (EWT) it gives you a likely roadmap. In recent posts, I have been extolling the virtues of using the simple concept of five waves in a major move to a likely scenario.
If you can capture a big chunk of those moves on a consistent basis, you will be a very successful trader. And when swing trading, I find that using these elementary ideas derived from EWT to be critical to extracting a very large bite out of significant moves, as I will show here.
What was the bigger euro picture on May 1?
At the beginning of the month,the market was approaching my upper tramline. I believed that with the approaching overhead resistance looming, I would find the ideal place to take profits soon. Not only was the market nearing the tramline, but it was also getting close to the Fibonacci 23% level another resistance level.
Let's see how my campaign worked out.
Right on cue, the market dipped off the wave 3 high and then roared up above the wave 3 high into wave 5 yesterday morning. That gave me the warning to start looking for a top.
As the market rallied towards the 1.14 level in its fifth wave, I traced out the 'V' pattern at the top. That allowed me to set a sell stop just below the apex of the 'V' this is the mini wave 4 low because a break of that low would give me the correct signal to exit.
Lo and behold, my sell stop was triggered that morning and took me out for a very tasty profit of around 700 pips.
So what does my basic EWT tell me about what to expect now? Of course, following a complete five wave rally, I expect a corrective pattern hopefully in a textbook A-B-C.
If I can identify that C wave low, that will be my next trade! And if that C wave low lies on a Fibonacci level, so much the better.
For now, though, I can rest easy with profits in the bank having completed a very successful campaign in the euro.
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John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.
He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.
As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.
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