My contrarian bet on the euro gave me a 700-pip profit

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:

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.