Guest Article on Forex Trading

Why Do 95% of Traders Fail?

Most people who decide to embark upon the journey of becoming a professional trader in the stature of the legendary George Soros have no idea how difficult the path to consistent profitability is going to be.  New traders often think they will be able to open a trading account with as little as $10,000 and be able to live off of trading profits the rest of their lives.  But oh, how different reality tends to be.  Everyone knows the industry statistic that 95% of traders fail.  That is reality.  Most traders who open a trading account will lose most or all of the trading account within a few months.

Many people will realize the reality of life as a trader is much more difficult than what they had originally anticipated; thus, they give up on trading and move on to a new professional pursuit.  Then, there is a second group of people that blow up that first account, but they develop a love for trading and decide to refund the account, study, and continue toward the quest of consistent profitability.  Eventually as the months and years go on, more and more of this remaining group of traders fall by the wayside and give up on the dream of trading consistently.  And in the end, only about 5% of traders succeed and make a legitimate living from trading financial markets.  The question we need to answer is why?

I believe it can be argued that a large majority of the 95% of traders that fail, fail due to preventable reasons.  In other words, there are practical things traders can do to prevent failure, and unfortunately most traders do not implement these practical steps.  In this article we will address one specific step traders can take to dramatically increase the probability of trading success over the long-term.

Before we delve into the specific action step, let’s examine more closely why traders fail.  Although there are many generalities such as lack of discipline, poor money management, etc, the real reason traders fail is simple—they are losing money!  Why are they losing money?  It has to be one of two reasons.  Either they do not have a strategy that yields positive expectancy (makes money over time), or they do not execute their strategy.  Every trader who has failed and given up on trading has failed because of one of these two aspects of trading.

Strategy Development

Fundamentally, a technical trading strategy must yield positive expectancy.  Positive expectancy is a statistics term from mathematics that means when the strategy is backtested over historical data, it yields positive expectancy, or it makes money.  If a strategy cannot make money when tested over historical data, then it has negative expectancy, and cannot expect to produce profits in the future.  Thus, a trader who trades a strategy with negative expectancy has no chance of profiting in financial markets over the long-term, even on a forex demo account.

Thus, a trader must test his strategy over historical data and prove that his approach makes money.  This can be done in two ways.  The first is to have a programmer code out the strategy and then backtest the strategy and gather hard data concerning win/loss percentage, max drawdown, average winner, average loser, etc.  All of this data should be analyzed very closely in order to assess how to best trade the strategy in real-time in order to maximize profitability.  This exercise will give you a huge amount of confidence in your trading strategy, and when it is not performing at its peak, you will have the ultra-important element of confidence in order to continue trading the strategy and not give up.

The second option you have is to manually backtest the system.  This includes scrolling back through years and years of historical data with forex brokers in order to test your strategy in all market conditions.  Each time the setup occurs, take notes on whether the strategy was a winner or a loser, and why.  This style of backtesting is much more tedious and consumes much more time, but it can bring an even stronger sense of confidence to a trader.

In conclusion, there are many reasons that traders fail, but one of the primary reasons is that they have not become convinced of the merits of the strategy they are trading, and this is absolutely essential to long-term success as a trader.  Conducting personal research will help invaluably.

Bears Keep Putting the Smack Down, but Waiting for Follow-Through

The 5min Dow chart above shows that both yesterday and today the bulls came out of the gates strong, gearing up to gather momentum and surge this market to the moon with a vacuum affect first thing in the morning.  It failed miserably both times suggesting a process of reversing the bullish trend may be underway. 

Yesterday the rally was reversed sharply in an impulsive manner to a new low.  Then today the bulls rallied again right at the open, but not nearly as strong or high, and yet again the bears put the smack down and brought the market to a new low.  So the bulls are showing some exhaustion and the bears are starting to wakeup.  But now the bears need to gain control and not just play defense. 

Right now the move after the impulse decline yesterday morning is sideways and choppy, fulfilling its expectation of being a correction, which I am calling Submicro wave (2) which is shown in yesterday's post.  But the action from the high this morning is not impulsive so it suggests a new high on the day above the Dow's 10,866 will occur either today or Monday before Submicro wave (3) gets underway.  But the rally should stay below yesterday's high at 10,949.  Now this is what the market action would be if it moved in perfect Elliott Wave form.  But we know that's not always the case.  So even though the perfect scenario would mean a new high on the day while remaining below yesterday's high for Submicro wave (2) to top, we know that it can actually tank hard to the downside at any time.  So beware.

Aside from the lack of an impulsive decline today, we should also note that the euro rallied big today and is showing no signs of weakness, the VIX is falling, and Goldman Sachs and financials are showing relative strength to the rest of the market which all suggests the market isn't quite ready to get Submicro wave (3) underway quite yet. 

But as long as yesterday's highs remain intact, I'm firmly bearish in the short term.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

A Top Looks Good Right Here

Internals today are what would be expected with prices in the major indices closing down the way they did.  We got a nice surge in volume today, on a down day no less, which is probably just end of quarter jostling by fund managers. 

The rally this morning looked like the S&P wanted to breakout to my targeted resistance range of 1173-1181 as it surged well beyond the key 1150 level.  But the market quickly rejected this rally, sending it downward to new intraday lows in a clear impulse pattern that I'm labeling Submicro wave (1) as you can see in my below wave count on the intraday chart.

Today's reversal comes right at the end of a great September for the bulls and at the end of a great quarter for stocks.  It also comes at a time when the wave count and sentiment extremes suggest a major top should occur any moment now.  Us wavers call it Minor wave 2.  So in just looking at the charts, today may well mark a top.  But a break above today's high simply means another charge toward the 1173-1181 area before Minor wave 2 tops and reverses.

Today on the drudgereport there were two stories: one pointing out the great run stocks have had, and one pointing out the horrible decline the US dollar has had.  I believe both are the cusp of major reversals.  I consider Drudge an electronic international newspaper.  It's not a financial publication, it's just a grouping of international stories of interest going on during the day.  So it has mainstream outreach that can be useful in my hasty analysis of sentiment.  So when when stocks do so well and the US dollar does so bad that it makes Drudge headlines to get to the mainstream, it may mean things are about to reverse, at least in the short term.

On the other hand, today's rally and reversal structure was no secret in financial media as CNBC documented it and had a discussion with the FastMoney traders about the action.  So in that respect, it may be too obvious to mark a top.  But seeing as that Drudge is not financial based, and gets much more readers per day than CNBC's FastMoney to have a more "mainstream" audience to it, I'll hold my contrarian position a little more reliably with Drudge.  But we'll see.

Looking at the daily S&P wave count it sure would count well as complete here.  The struggle at the 61.8% fibonnaci level  (Elliott Wave Tutorial, 8.1) with a pop above it that's quickly reversed in an impulsive manner is certainly a good time to mark a top to Minor wave 2.  Also notice that we finally got some RSI divergence on the daily chart as you can see above.  This is typical behavior in 5th and final waves that often lead to big moves once the reversal occurs.  And when the divergence occurs on the daily charts, those reversal are often quite large.

The small intraday counts nicely well with a major top being in place today.  Subminuette wave v traced out an ending diagonal (Elliott Wave Tutorial, 3.1), which resulted in "throw-over" to complete the pattern with this morning's rally.  In Prechter and Frost's Elliott Wave Principle they state that, "Within a parallel channel or the converging lines of a diagonal, if a fifth wave approaches its upper trendline...[on heavy volume], it indicates a possible penetration of the upper line, which Elliott called 'throw-over'" (p. 73).  Today's uptick in volume into the 1.2 billion shares level certainly qualifies as heavy volume since volume of the past several weeks has held steadily below 1 billion shares most of the time.

If the count is correct, Submicro wave (1) finished early this morning, and the choppy 3 wave rise later in the day MAY have completed Submicro wave (2).  If so, tomorrow morning will lead to a sharp Submicro wave (3) down and put this current count well on track.  But if the market wants to push a little higher first, as long as it stays below today's high, this count still remains valid but we'll just have to push Submicro wave (2) up a bit higher.

The ending diagonal count certainly looks weak, as ending diagonals usually do. But this one looks horribly weak, so much so that it looks more like a 4th wave triangle followed by a sharp 5th wave thrust and reversal this morning.  There's little difference in the two in that they both mean a top is likely in and lower levels ahead.

Other than the RSI, this other basic technical indicator is showing a nice bearish setup on the dialy charts too.  It's taken a long time for the divergences on the intraday charts to move their way to the larger time frames, but here we are finally.  The MACD has started to "squeeze", a behavior typical of a market reversing trend.  And on the daily charts, this probably means a big move to the downside once confirmed.  Again, this aligns with the wave count calling for Minor wave 3 down getting underway.

Nothing new on the euro or the US dollar.  Their still working their way into their reversals.  Their reversals should coincide fairly closely with the reversal in equities.

For those of you who like supplementing your wave counts and trading with basic technical indicators and patterns, don't forget to check out this free resource while it's available for free: "How To Use Bar Patterns To Spot Trade Set-ups". 


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Looking for a Top

We got a nice shot higher and reversal today which is what we'd like to see at a top.  It also fits nicely with the wave count I've been tracking the past few days and the decline from today's high looks impulsive.  I'm counting it as a Submicro wave (1) down on the Dow 5min chart above.  The count suggests perhaps a little more upside today before topping out below today's highs and rolling over sharply in Submicro wave (3) down.  If today's highs are broken it simply means it will continue trying to get into my S&P reversal range of 1173-1181.

More later...

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Market Rally Looking Real Tired; Will it Finally Give Way to the Bears? Also, a Look at Currencies.

Internals today were about as bearish as I'd expect with today's action action.  They were just mildly bearish and the price decline was the same.  The one point of interest is the slight increase in volume we're starting to see now.  Notice that we've popped above 1 billion shares again.  Still this is very low for the market in general, but relative to the past several weeks, this is a bit of an uptick.  We'll see if this uptick in volume results in what usually has happened in the past few months in that volume increases on declines, or if it's simply end of quarter josseling by fund managers.

Also of note is the relative weakness in financials compared to the S&P and Dow like I mentioned in this morning post.  The financials are showing significant and prolonged weakness compared to the overall market, and that's a huge warning sign as long as it continues in my view.  Also, the VIX climbed higher almost 3% today with just a mild decline in the indices. Again the VIX to me is also signaling a backdoor cautiousness that's working it's way slowly and stealthily into this market as apparently recently a lot of folks are doubting the latter end of this rally and buying a lot of put options for protection, or maybe even speculation.

Above is just an updated wave count on the S&P from yesterday.  It actually did exactly what I projected in giving us a little drop down to the lower end of the diagonal triangle I think might be forming.  If an ending diagonal (Elliott Wave Tutorial, 3.1) is forming then it brings about a great opportunity for the bears since they are clearly identified structures, represent extreme weakness in the uptrend, and lead to sharp reversals.  I mentioned my case for the ending diagonal in yesterday's post as well. And today I posted the RSI as well to show you that it's diverging lower compared to price, which is typical of 5th waves, especially ending diagonals. 

So the market can top and reverse at any time, and may have already done so, but if it hasn't, then I expect a slow grind higher for probably the rest of the week until the end of the quarter with perhaps a sharp rally and reversal to finish it off.  If the market breaks out higher to negate the ending diagonal structure, then my alternate count from yesterday's post is probably occurring which should the market to my reversal range of 1173-1181.

CURRENCIES

I think we're setting up here for a great opportunity to catch some really big moves in currencies.  I'm focusing on the majors, primarily the EUR/USD and the GBP/USD.  I think that both pairs are forming major tops and that the EUR/USD is headed to parity on the next dive lower.  That's a move I don't want to miss.  It may also trigger the top and reversal in equities and commodities as well.  So even if you don't trade currencies, I think it's worth paying attention to the euro and/or the US dollar.

I mentioned a week or so ago that there was a divergence in the EUR/USD and GBP/USD on the small timeframes but it didn't pan out as both shot to new highs shortly after.  But here we go again on the short term charts we see that the EUR/USD has been grinding out new highs this week while the GBP/USD so far has failed to do so.  As long as the GBP/USD does not make a new high on the week, I interpret this as immediately bearish & could be the first signs of a major top, which means a major bottom in the US dollar.

Again, the daily divergence between the two pairs still exists.  To me this is very telling and supports the thesis that the pairs' rally higher since May/June is that of a correction, and will be completely reversed to the downside in the coming months.

So why is this divergence important?  Has it resulted in any reversals in the past? Good questions, and I'm glad you asked.  Above I show a similar divergence that occurred while rallying into the late 2009 top in the EUR/USD.  Notice that the EUR/USD continued to make new highs after August 4th all the way up until November 24, 2009.  But the GBP/USD made it's high on August 5th, 2009, and then made one more attempt to make a new high November 15th which failed.  Then look at the result of both currency pairs after that divergence....it resulted in complete and utter destruction to the downside.

So if history is repeating itself, the GBP/USD is again signaling that a major reversal to the downside is coming.  Once I see signs that a top and reversal might have started I'll post it here.

Check out the new bar pattern trade setups article being offered, titled, "A Trader Walks Into A Bar... Pattern: HOP-portunity On Tap."  There is also an offering for a free eBooklet on trading barpatterns titled, "How To Use Bar Patterns To Spot Trade Set-ups".  Free tools are always at least worth a look since they may assist your current trading strategy in some way.

So what do you think of my post and the market action today?  I'd like to know your thoughts and comments in the Elliott Wave Forum section. 

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Morning Update - Prechter Popped up Again on CNBC

Above is a video of a Maria Bartiromo interview with Prechter on CNBC that's dated Monday, September 27th, 2010.  She holds his feet to the fire a bit by continuing to ask him about his Dow below 1,000 call.  Check out and let us know what you think about the interview, and Prechter in general, in the Elliott Wave Forum.  Thanks!

The financials are lagging this rally badly.  They failed to break above their August highs with the rest of the major indices, and they even failed miserably to break above its September 21st highs.  As long as this continues, it's a huge warning sign for this market.  The market cannot sustain a long bull run without financials.  Period.  Still watching the euro....

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

The Grind Higher Continues.....but how much Longer can the Market Hold Up?

It appears part of this rally is fueled by the Fed's announcements that they will act as a back stop for the equity markets, and as a result it's "risk on" for many traders and firms.  At least that's what the media has hyped up the past week or so.  If you haven't already, check out the free Elliott Wave, "Understanding the Fed eBook" for some perspective on the Fed and its affects on the markets and economy.

Market internals today were solidly bullish and if anything I'd expect to have seen modestly higher prices than what we closed out with such strong underpinnings here as the bulls were fully in control today.  Also notice another uptick in volume today to the 1 billion share mark again.  This is still low volume for the market overall, but relative to the past several weeks this is the upper end of the volume range we've seen.  I think this is merely fund managers josseling around positions in preparation for the end of the 3rd quarter.  So we might see some more upticks in volume the rest of the week and slightly higher levels as folks are going to try and keep the markets higher to close out a positive quarter on their books.  What happens the first and second weeks of October will be very telling then.

The Dow and S&P eeked out new highs from yesterday which negate the bearish count I posted this morning.  The alternate count for an (A)(B)(C) correction for wave ((2)) is still in play since the new highs today could just be wave (B) of a flat correction.  This would mean a sharp shot to beneath today's low probably sometime tomorrow to complete wave ((2)), then rallying ferociously higher in a wave ((3)).  But since wave (A) looks like a clear 5 wave drop, I doubt that this count will turn into a flat correction since wave A's in flat corrections are 3 wave affairs, not fives (Elliott Wave Tutorial, 4.1).  So I'm not posting the count again this afternoon.  For reference to this count, please see the prior post.

So moving onto the count I have above.  I'm thinking we might be entering an ending diagonal for several reasons:

1) momentum divergences on the 4hr and below charts are starting to really become quite elongated.
2) the Nasdaqs did not make new highs today with the Dow and S&P, and have lagged mildly the past few days suggesting a little risk is coming off the table.
3) the VIX continues to move higher with the stock market's new highs, which is not typical, and suggests some folks are not fully believing in the latter part of this rally.
4) "An ending diagonal is a special type of wave that occurs primarily in the fifth wave position at times when the preceding move has gone 'too far too fast', as Elliott put it, " (Elliott Wave Tutorial, 3.1).  So the wave count sets up nice for an ending diagonal here for a fifth and final wave after a very extended wave iii. 
5) the choppy movement with 3 up and 3 down lately also fit nicely into an ending diagonal pattern starting.

If we are fortunate enough to in fact get an ending diagonal formation to occur this week, it would be an outstanding opportunity for the bears.  Ending diagonals are clear signs of a weakening and ending trend that result in sharp and often deep reversals.  So let's watch for this.

This next count represents a more traditional wave structure unfolding.  If correct, the market should continue higher into the fibonacci reversal zone I've mentioned in past elliott wave blog posts at 1173-1181. 

Since I often look towards the small caps for indications of a move to the downside, it's only appropriate to recognize the bullish potential the small caps also may be signaling.  The daily Russell 2000 chart is almost the exact same as the S&P Small Cap Index as well, and it shows a daily bullish reversal formation where today's intraday low broke well below yesterday's low, then today it closed well above yesterday's intraday high.  This is a bullish development.  Now I feel this is really only significant if it occurred at the end of a downtrend, and seeing as that it occurred after a well defined uptrend, it may just be a random formation that means nothing.  But nonetheless I wanted to point it out for those who may find this structure important.

My euro elliott wave count I posted a couple days ago is still in play.  I also wanted to draw attention to the daily chart which shows the RSI is at levels that have either corresponded with , or near, major highs in the past.  It's in the fibonacci reversal zone common for reversals right now, so a top can occur any time now.  But unfortunately I see no signs of that happening at the moment so we simply have to wait.  Once I do get signs of a reversal, I'll mention it here because a euro collapsing in a wave 3 will certainly put some pressure on equities as well.

Some of you have joined in on the discussions in my new Elliott Wave Forum, and I thank you for that.  I hope you will continue to share your thoughts and anaylis with us, and I encourage you all to do the same. 

I've also been having a good discussion with Scott regarding Bob Prechter and Elliott Wave Theory as a whole over the past few days and I welcome you all to chime into the discussion through the Elliott Wave Forum where I'll post some of his comments, or through the comments section of the original post that started the discussion.
RECENT ARTICLE:

Also, check out the most recent Elliott Wave article Deflation: The Trend That's Become Too Obvious To Ignore.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Morning Update

The market is playing out as expected.  It has declined in 5 waves and rallied in 3 waves, so far.  As long as yesterday's highs remain intact, this count remains valid.  I expect a sharp move lower soon.

The alternate count is shown above.  Although over the medium term this suggest higher levels, in the short term it implies the same thing as my preferred count; a sharp move lower real soon.  Under this interpretation the market will drop sharply in a wave C while holding below yesterday's high.

I'd like to hear your feedback in the comments section or in my Elliott Wave Forum where I posted both charts.  Thanks!

Seeing as the attitude lately is "risk on" because the Fed is the backstop for the markets, and today's big rally occurred even though consumer sentiment dipped much more than expected, you can download free booklet, "Understanding the Fed" in order to get a better perspective on the affects of the Federal Reserve's actions.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Tuesday Should Not Be Another Snoozefest; Let's Look at the Potential From Here

Today's internals don't tell us much of a story here in my view.  They were slightly bearish along with price, so everything matches up well.  Volume remained light at 919 million shares, which is about 100 million shares less than Friday's big rally.  So aside from the sharp selloff looking impulsive, I doubt it means any trend change took place today.  I think that when the bulls saw they couldn't get any continuation to Friday morning's rally they just decided to take some profits.  So the market is probably just taking a breather until moving higher into the 1173 -1181 range I mentioned in Friday's "Morning Update" post. 

So in just looking at the evidence in front of us and nothing else, it seems the market will continue higher in the coming days.  But when stepping back and thinking realistically, I think we should also recognize that for those looking for the Minor wave 2 top of intermediate wave (1) (Elliott Wave Tutorial, 1.7), that it will probably occur by surprising us somehow.  So despite the market lulling us into a complacent mood where the evidence suggests higher levels, I think it's important to still be vigilant and aware that minor wave 2 can top at any time.


ELLIOTT WAVE PRINCIPLE

The above 10min chart is one interpretation of wave subdivisions.  Since today's selloff CAN be considered a 5 wave decline, the S&P is definitely at levels where it can actually mean a top is in.  But I have low confidence that this is the case.  Regardless, it's still a possibility so we need to be aware of it and know what to look for.  So I thought I'd post the topping potential here with a wave count to support it.  It shows that minor wave 2 of intermediate wave (1) of Primary wave ((3)) has topped today and has completed Micro wave ((1)) down into the close.  This is supported by the slow choppy sideways grind from Friday into this morning which is often a characteristic of a 4th wave. As a guideline, 4th waves are usually a flat, triangle or flat combination correction (Elliott Wave Principle, p. 86), and the action you see from Friday to this morning fits into those characteristics.

Above is a 3min chart of the S&P which highlights the magnitude and structure of the late day selloff.  This is very speculative since it can easily subdivide lower from here, or it may just be an A wave of a zigzag correction, or any other number of possibilities at this point.  But as I've said many times, at this juncture we need to pay close attention and respect ANY signs of a top we find.  If the above count is correct then we should have a pretty good clue of it early tomorrow.  Any rally tomorrow should be very short lived and remain below today's high, and I would expect to see sharp selling to new lows from here quite quickly.  Anything short of this behavior would lessen the probability that any significant top was in and that this very small impulse decline above was just part of a larger corrective pattern and that the alternate count below is probably taking place.


ALTERNATE COUNT

Above is an alternate count (Elliott Wave Tutorial, 7.6) which is practically just as likely as my preferred count above.  The only reason this is an alternate is because the chances of a top occurring at any time are high, so I have to respect the bearish potential first when an impulsive wave down occurs.  This alternate count above tells us that today's late day selloff was part of a Submicro (A) wave.  It means that we should do at least one more up-down sequence to complete Micro wave ((2)) before charging higher.  So both the bullish and bearish counts have about equal weighting at this point, and hopefully tomorrow we'll get some movement in the markets to help us determine which count is more likely.

So what do you think about my charts, counts and analysis?  Which count do you think is more likely?  We'd like to know.  Visit my new Elliott Wave Forum and speak out.


PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Let's Look at the EURO

With Friday's big surge in stocks, their close on the highs, and strong uptick in volume breaking above 1 billion shares on the NYSE, it has me looking for higher levels Monday.  In addition we have end of quarter maneuvering that should occur this upcoming week that should also lift stocks at least early in the week.  The key for the bears is spotting a reversal that may signal a great opportunity to get aggressive and roar back.  But as of right now, I see no signs of a top or reversal at the moment, so I'm looking higher. 

Looking at the euro daily chart it sports a nice 5 wave decline from the November 2009 high, and so far has a 3 wave rally recently that's now bumping up against fibonacci resistance levels Elliott Wave Tutorial, 8.1 that are common reversal areas.  But according to Prechter and Frost's "Elliott Wave Principle: Key to Market Behavior", as a guideline, wave 2 usually retraces 66% to 81% of the preceding wave (p. 88).  So much like the stock market, it appears the euro might have more work to the upside to complete before taking on a reversal.

What's interesting here is the fact that the euro made a nice 5 wave decline from the November 2009 high which suggests the larger trend is still down.  That means new lows on the year will be achieved before November 2009's highs are exceeded.  This is basic EWP here, and this also my thesis for stocks in looking for a new S&P low beneath 666 whether it's a wave 3 or C.  With 5 waves down, new lows will be achieved.  So the setup for the euro is quite similar to what many of us wavers are looking for with a primary wave 3 down in stocks.  I think it's important we look at all markets at this juncture and have our "financial market superhero" senses set on hyper-sensitive since any signs of a top, no matter how small or short term we see them, might turn out to be a major primary wave 2 top and lead to an outstanding trading opportunity.

So the euro is definitely at minimum levels expected for a top.  The stochastics as shown above look overbought and ready to start a descent, and right when the currency pair is bumping up underneath a key fibonacci retracement level.  But the MACD on the other chart shows a strong uptrend and has no indications of reversing downward.  The key to the euro topping may be the key to when stocks and even commodities will top.  So we watch.......and we wait.

So what do you think about this post, the charts, or anything going on in the markets right now?  We'd like to know.  Please share you thoughts, questions, comments and analysis known in the ELLIOTT WAVE FORUM.

And for some of you who may be long term investors, I thought the Credit Crisis Survival Kit might be of some use as we are looking for a major top to form soon.  Just one of many of the free pieces of information I want to push on this site, and will continue to do so for the indefinite future.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.