Trading

Get Ready for a Euro Rally. Or Don't ... and I'll Get Ready for You

The US dollar has had a torrid rally. But my charts suggest a correction is due.

Maybe that is what this latest bout of currency-market volatility is telling us.

Volatility is often a precursor to a change in trend (in all time frames). We know dollar sentiment is overwhelmingly bullish – it seems a one-way bet right now. But Mr. Market is watching because he loves one-way bets. 

I'm not betting big on a correction right at the moment.  But I have told my subscribers to get ready. Today’s price action plus sentiment data suggest a speculative extreme may be near. 

Sentiment extremes suggest a turning point is imminent. Be careful, all you euro bears!

I watch open interest levels in the currency futures market. It is a good longer-term measure of sentiment. Often times, open interest reaches an extreme just ahead of a trend change. Below is a currency futures chart for the euro. The open interest level is huge and sentiment for the euro is extremely bearish: 

The red circles denote peaks in open interest that corresponded with key lows in the price of the euro. Given the extreme levels, I think euro bears should be very careful.

I am monitoring the major pairs closely.  Because if a correction lower in the dollar does materialize at these levels, it would likely be at a least multi-day, and probably a multi-week, event -- in other words, something playable. 


Analysis like this is one way I  keep my subscribers prepared. Until recently, it's been up to them to follow along and follow through.

Now, however, they don't even need to! 

They can check out for a day ... a week ... or a month at a time and not have to worry about missing profit opportunities. That's because I'm launching a new auto-trading opportunity they can use to replicate the trades I recommend and execute in my personal account ... in their own accounts!

This is open to new subscribers as well. Read more about it at this link.

Thank you. And be careful out there.


-Jack

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The $5 Trillion Answer No One Wants to Hear

Unbelievably, the average individual forex trader loses 3% per week.

I found that shocking statistic in The Wall Street Journal yesterday.

Combine that with what I told you last week:

We review...
all the fears and anxiety
...which are so
inherently symptomatic...
...of a losing team.
The mind is a strange thing, men.
We must begin by asking it...
...”What is losing?”

Losing is a disease...
...as contagious as polio.
Losing is a disease...
...as contagious as syphilis.
Losing is a disease...
...as contagious as bubonic plague...
... attacking one...
... but infecting all.
Ah, but curable.
— Two-bit carny hypnotist, The Natural

An observational study of 12 million actual forex trades made in the course of one year showed that traders’ losing trades are 80% larger than their winning trades.

The Wall Street Journal sums up the situation:

“The National Futures Association ... found that 72% of individual forex accounts were unprofitable and that the average life of an account was only four months.”

Four months?

In the words of the late Harry Carey, holy cow!

Despite the unfortunate proportion of losing traders, forex remains a $5 trillion market, all that money changing hands faster than we can imagine. So I have to ask:

Why?

The $5 trillion answer ...

No one wants to admit they lose.

“I lost $2,000 on a stupid euro trade last week because I was wrong about their inflation numbers.”

“I got killed on USD/CAD because I guessed wrong on the Canadian employment report.”

“The Bank of Japan added stimulus money to their economy and I got clobbered in JPY because I didn’t have a stop-loss in place.”

You probably don’t hear traders say things like that even though there is no shortage of losers out there.

People don’t want to talk about losing because losing carries a stigma. Losing suggests you’re wrong. And you don’t want to be wrong. In our own minds we equate being wrong with being inferior, inept or just plain dumb.

If you harbor thoughts like that, your trading account will surely be wiped out in four short weeks.

It’s why I told you yesterday to get your mind right. And last week I said you don’t have to know – or even think you know – what’s going to happen in the market in order to make money.

You must accept that losing is an integral part of trading. And managing losses is an integral part of success.

The Wall Street Journal article even acknowledged this.

I share this with you so you acknowledge it too. And so that you might do something about it.

Easier said than done. I get it.

It took me many years to develop a disciplined systematic approach that wins by keeping my personal rationalizations from sabotaging my success.

So I offer you my service, Black Swan Forex.

And I also want to offer you a way to further straighten your path to forex profits.

I’m rounding out a working relationship with a reputable firm. I’ll share the details with you later this week. But consider the arrangement a way for you to get all the success of Black Swan Forex without requiring your constant attention.

It will be like having your own personal money manager at a tiny fraction of the cost.

Until then, trade smart, learn from your losses and stay tuned.

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AUD/USD: Up then Up ... or Up then Down?

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The Australian dollar is rocking and rolling. The move is very much in line with our expectations in the analysis we provided last week and the week before. And, as I see it, there are two possible scenarios once AUD/USD hits the $0.9330 level ...

To teach what we preach, the first Aussie chart shows the near-term 61.8% Fibonacci retracement target. That retracement is accompanied by a nearer-term 100% Fibonacci extension level. Basically, that confluence of Fibs is likely to pose at least some resistance:

After that level is achieved, I see two potential outcomes (based on Fibonacci levels.)

Outcome #1: UP

Lending credence to this view, the end of the Aussie's strong downside move this year represented a 61.8% extension. In other words: the Aussie may have higher to climb in order to sufficiently retrace this larger decline:

But there is potential for the Aussie's drop to continue (especially if you want to think about it in the context of our expectations for a rising US dollar too) ...

Outcome #2: DOWN

Rather than a third-wave extension of just 61.8%, the Aussie may embark on a third wave that extends at least 100% of the larger third wave down:

Granted, these are longer-term setups we're looking at here. Maybe you trade forex in these time frames; or maybe you don't.

One could use the CurrencyShares Australian dollar Trust (symbol FXA) to take these sort of positions. Or one might consider managing shorter-term trades based on the key Fibonacci levels within these larger setups.

In fact, I know that's how Jack prefers to play it.

He uses these Fibonacci levels and modified Elliott Wave in short-term time frames to make profitable decisions for his BSFX members. Wanna be one? Subscribe here ...

-JR

 

 

 

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Fibonacci: You think you know, but you have no idea ...

As I plan to share with you next week, I'm gravitating further and further away from believing fundamentals can drive prices in the near-to-intermediate term.

I'm relying more and more on my technical analysis. And it is paying off.

And that's because technical analysis is the yard stick for consensus decision-making. Price action is, simply put, a manifestation of human nature.

Basically, I've concluded that anyone who thinks they have the market figured out (simply because they have the fundamentals figured out) has no idea.

Consider an excellent book I am re-reading ...

The Wave Principle of Human Social Behavior and the New Science of Socionomics

 

The book was written by Robert Prechter and published in 1999. Allow me to paraphrase (and hopefully not botch) a few of the studies explained in the book:

Psychological study by a guy named Lefebvre at University of California asked subjects to choose between two options, of which they had no strong feelings.

Their responses could be divided into 62% and 38% Fibonacci proportions. [In other words: 62% of respondents chose one option and 38% of respondents chose the other option.]

They were also asked to sort indistinguishable objects into two piles. The piles were divided with 62% in one pile and 38% in the other.

When asked to evaluate friends on bipolar qualities, pole showed positive qualities 62% of time.

When asked what percentage of people take good moral versus bad moral actions, the study found – yep, you guessed it – a 62/38 breakdown of right versus wrong.

When non-Chinese people were asked to choose Chinese characters and then asked if those characters (which they know nothing about) were positive or negative, 62% were deemed positive and 38% negative.

This is really a good one ...

  The new science of socionomics takes hundreds of popular notions about mass psychology, culture and the stock market and stands them on their heads.    Click here to read more  about ordering the Socionomics Box Set directly from EWI

The new science of socionomics takes hundreds of popular notions about mass psychology, culture and the stock market and stands them on their heads.

Click here to read more about ordering the Socionomics Box Set directly from EWI

Subjects were asked to move an object a certain distance. After doing so they were then blindfolded and asked to move the same object half the original distance they previously moved the object.

They move it, on average, to a spot 61.5% of the original distance.

What did the study authors conclude?

“The experiment demonstrated that the phenomenon of the golden section is related not to the primary processing of visual information, but rather to the work of the central processor operating with "generalized information."”

Basically, our brains are hard-wired with the golden mean ... well, in mind.

I’m not one to disagree. These findings are consistent with all other natural growth findings in nature. And it really provides the intellectual basis for why Fibonacci levels and Elliott Wave analysis can be so effective.

It really is great stuff. If you want to track down the book, I recommend the section on “herding” – it is amazing.

It all effectively proves this game has little to do with external events (insofar as we often expect) and most to do with internal human social behavior.

Be sure to stay tuned -- I plan to share more on my evolution and belief in Elliott Wave. In fact, I plan to offer all subscribers to BSFX a special report and comprehensive PowerPoint slides that detail every bit of my personal trading framework.

If you're serious about trading FX (or any market for that matter), you don't want to miss that offer.

-Jack

P.S. We provide a free resource from Elliott Wave International. You can check out their Live Updates on our website anytime. Just click here ...

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