Friday, 18 August 2017

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Riding The Elliot Wave

Trading Education

The FOREX or Foreign Exchange market is the largest financial market in the world, with a volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The foreign currency exchange is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit. One of the best known and least understood theories of technical analysis in forex trading is the Elliot Wave Theory. Developed in the 1920s by Ralph Nelson Elliot as a method of predicting trends in the stock market, the Elliot Wave theory applies fractal mathematics to movements in the market to make predictions based on crowd behaviour.

In its essence, the Elliot Wave theory states that the market — in this case, the forex market — moves in a series of 5 swings upward and 3 swings back down, repeated perpetually. But if it were that simple, everyone would be making a killing by catching the wave and riding it until just before it crashes on the shore. Obviously, there's a lot more to it.

One of the things which make riding the Elliot Wave so tricky is timing — of all the major wave theories, it's the only one that doesn't put a time limit on the reactions and rebounds of the market. In fact, the theories of fractal mathematics make it clear that there are multiple waves within waves within waves. Interpreting the data and finding the right curves and crests is a tricky process, which gives rise to the contention that you can put 20 experts on the Elliot Wave theory in one room and they will never reach an agreement as to which way a stock — or in this case, a currency — is headed.

Elliot Wave Basics
Every action is followed by a reaction.
It's a standard rule of physics that applies to the crowd behaviour on which the Elliot Wave theory is based. If prices drop, people will buy. When people buy, the demand increases and supply decreases, driving prices back up. Nearly every system that uses trend analysis to predict the movements of the currency market is based on determining when those actions will cause reactions that make a trade profitable.

There are five waves in the direction of the main trend followed by three corrective waves (a "5-3" move).

The Elliot Wave theory is that market activity can be predicted as a series of five waves that move in one direction (the trend) followed by three 'corrective' waves that move the market back toward its starting point.
A 5-3 move completes a cycle. And here's where the theory begins to get truly complex. Like the mirror reflecting a mirror that reflects a mirror that reflects a mirror, the each 5-3 wave is not only complete in itself, it is a superset of a smaller series of waves, and a subset of a larger set of 5-3 waves — the next principle.

This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.
In Elliot Wave notation, the 5 waves that fit the trend are labelled 1, 2, 3, 4 and 5 (impulses). The three correcting waves are called a, b and c (corrections). Each of these waves is made up of a 5-3 series of waves, and each of those is made up of a 5-3 series of waves. The 5-3 cycle that you're studying is an impulse and correction in the next ascending 5-3 series.
The underlying 5-3 pattern remains constant, though the time span of each may vary.

A 5-3 wave may take decades to complete — or it may be over in minutes. Traders who are successful in using the Elliot Wavy theory to trade in the currency market say that the trick is timing trades to coincide with the beginning and end of impulse 3 to minimize your risk and maximize your profit.
Because the timing of each sequence of waves varies so much, using the Elliot Wave theory is very much a matter of interpretation. Identifying the best time to enter and leave a trade is dependent on being able to see and follow the pattern of larger and smaller waves, and to know when to trade and when to get out based on the patterns you identify.

The key is in interpreting the pattern correctly — in finding the right starting point. Once you learn to see the wave patterns and identify them correctly, say those who are experts, you'll see how they apply in every facet of forex trading, and will be able to use those patterns to trigger your decisions whether you're day trading or in it for the long haul.

Reference: David Mclauchlan

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Investors sell stocks, dollar on fears Trump agenda is foundering

SINGAPORE (Reuters) - Asian stock investors joined a global retreat from riskier assets on Friday and the dollar wavered on rising doubts about U.S. President Donald Trump's ability to deliver his economic agenda.

European stock markets are also set for a negative start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 to open 0.5 percent lower, and Germany's DAX and France's CAC 40 to start the day down 0.7 percent.

Confidence was shaken further after a van mowed through crowds of tourists in Barcelona on Thursday, killing at least 13 people and injuring more than 100 in an attack that authorities were treating as Islamic terrorism.

In Cambrils, a town south of Barcelona, police said they had killed five attackers on Thursday night to thwart a linked "terrorist attack."

The MSCI World index slipped 0.1 percent, adding to Thursday's 0.8 percent drop and heading for a flat end to the week.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent, but still looked set to gain 1.4 percent for the week after tensions between North Korea and the United States came off the boil.

Japan's Nikkei slid 1.2 percent on global jitters and a stronger yen, and looked set to lose 1.4 percent for the week.

"The realization of the worst case scenarios (in Washington and in North Korea) would likely bring about a more significant drop in global equity markets," said Jingyi Pan, market strategist at IG in Singapore.

Until then, "sentiment may remain the driver for the fluctuations in the markets and could make for good entry opportunity for regional markets," she added.

Chinese blue chips slipped 0.2 percent, after data showed growth in new home prices slowed in July, but looked set for a 1.9 percent weekly gain as a year-long construction boom boosted shares of building materials firms.

Hong Kong's Hang Seng retreated 0.7 percent, up 1.05 percent for the week.

Overnight, Wall Street's major indexes slumped between 1.2 percent and 1.9 percent. The S&P 500 index posted its biggest drop in three months.

Concerns have grown over Trump's ability to push through his economic goals, such as tax cuts and infrastructure spending, following the exodus of executives from two prominent business councils in reaction to his response to clashes last weekend in Charlottesville, Virginia.

Trump on Thursday decried the removal of pro-slavery Civil War Confederacy monuments, which have fueled U.S. racial tensions, stoking worries that some of his key policy staffers and aides may quit.

Chief among them were rumors that Gary Cohn, director of the National Economic Council, would resign, following Trump's defense of white supremacist protesters in Charlottesville.

A statement from the White House that Cohn intends to remain in his position calmed markets only briefly before selling resumed.

"Diminishing West Wing support from both business and political allies will continue to abrade investors’ confidence in President Trump’s economic agenda," Stephen Innes, head of Asia Pacific trading at OANDA in Singapore.

"The dollar, for the most part, remains in a state of directionless confusion, supported on the one hand by resurgent U.S. economic data yet burdened by the expanding White House rat’s nest."

The dollar posted its third session of losses against the yen, falling 0.25 percent to 109.31 yen and shrinking this week's gains to 0.3 percent.

The dollar index, which tracks the greenback against a basket of six major peers, was flat at 93.597, surrendering moderate early gains.

The index rose earlier on weakness in the euro, the biggest component of the basket, after minutes of the European Central Bank's July meeting showed policymakers were worried about a possible overshoot in the common currency, whose strength is making the bloc's exports less attractive and imports cheaper.

The euro inched up 0.1 percent to $1.1736, making up some of the previous session's 0.4 percent drop.

Bitcoin, which hit an all-time high of $4,480 in the previous session before closing lower, inched up 0.2 percent to trade at $4,285, up 17.6 percent this week.

In commodities, oil prices pulled back following recent gains.

Global benchmark Brent fell 0.1 percent to $50.99 a barrel, after jumping 1.5 percent on Thursday on a drop in U.S. inventories. It is on track for a 2.15 percent decline for the week.

U.S. crude also lost 0.1 percent to $47.05 on Friday, surrendering some of Thursday's 0.7 percent gain, heading for a 3.6 percent weekly loss.

Spot gold was steady on Friday at $1,286.85 an ounce, holding most of Thursday's 0.4 percent gain. It is set to end the week down 0.1 percent.

Industrial metals, which posted multi-year highs this week, waned on Friday as investors took profits.

Three-month copper on the London Metal Exchange was down 0.3 percent to $6,468.50 a tonne, extending Thursday's 0.6 percent drop.

Benchmark zinc, which set a new decade high of $3,147 a tonne on Thursday, closed lower but was up 1.05 percent at $3,094.50 on Friday.

Reference: Nichola Saminather

Euro edges higher as dollar outlook darkens

LONDON (Reuters) - The euro on Thursday rose towards 2 1/2-year highs against the dollar seen earlier this month on bets that euro zone officials will embark on a gradual unwinding of their massive policy stimulus while U.S. policymakers looked increasingly wary.

The minutes of the Federal Reserve's July 25-26 meeting showed some members called for halting interest rate hikes until it was clear a softening inflation trend was transitory, but it also indicated the Fed was poised to begin reducing its $4.2 trillion portfolio of bonds.

Even though the euro stumbled on Wednesday after sources signalled European Central Bank chief Mario Draghi would not use his Jackson Hole appearance to signal policy change by the bank, investors remain bullish about the currency's outlook.

"Most investors are still relatively underinvested in the euro and that unwinding is still going on while structural factors such as the current account surplus for the euro zone is a strong support for the currency," said James Binny, EMEA head of currency, State Street Global Advisors based in London.

The single currency was trading slightly higher at $1.1763 in early trades, nearing a 2-1/2 year high of $1.1910 hit earlier this month.

The euro has gained 12 percent so far this year against the dollar and is the best performing currency in the G10 FX space with most of its gains coming in recent months on growing bets that the ECB will start unwinding its massive policy stimulus.

The U.S. dollar was also undermined by worries over U.S. President Donald Trump's ability to implement his economic policies after he disbanded two high-profile business advisory councils.

The dollar's index against a basket of six major currencies slipped to 93.50 from Wednesday's three-week high of 94.145.

Reference: Saikat Chatterjee

Thursday, 17 August 2017

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Dollar on defensive after Fed minutes dampen rate hike prospects

TOKYO (Reuters) - The U.S. dollar was on the defensive on Thursday after the minutes from the Federal Reserve's last policy meeting showed policymakers were increasingly wary of recent softness in inflation and could delay a rate hike.

The readout of the July 25-26 meeting showed some members called for halting interest rate hikes until it was clear the inflation trend was transitory, but it also indicated the Fed was poised to begin reducing its $4.2 trillion portfolio of bonds.

The dollar also stepped back to 109.84 yen, down 0.3 percent from late U.S. trade and down more than a full yen from Wednesday's high of 110.95.

The dollar's index against a basket of six major currencies slipped to 93.39 from Wednesday's three-week high of 94.145.

"There's no change in market expectations that the Fed will announce the start of balance sheet reduction in September. But markets think there's risk to the scenario of a rate hike in December," said Shunsuke Yamada, chief Japan FX strategist at Bank of America Merrill Lynch.

Money market futures are pricing in about a 40 percent chance the Fed will raise rates by December, compared to just under 50 percent before the Fed's minutes.

The euro gained 0.1 percent in early Asian trade to $1.1780, recovering from the previous day's low of $1.1681, its lowest level in nearly three weeks.

The common currency had dropped after Reuters reported sources saying European Central Bank President Mario Draghi will not deliver a new policy message at his planned Aug. 25 speech in the U.S. Federal Reserve's Jackson Hole conference.

The euro held firmer against sterling, fetching 91.335 pence, just under its Oct 11 high of 91.405, which is the highest level since 2009 except for a few moments during the pound's flash crash on Oct.

The euro has been strengthening against sterling since April on speculation Brexit will hurt the UK economy more than it does the euro zone.

"Buying in euro/pound was one of the easiest trades. We could see some selling at current levels but if the euro rises clearly above 91.50, we could well have talk of a rise to parity (against the pound)," said Bart Wakabayashi, Tokyo Branch Manager of State Street.

The dollar's diminishing rate hike prospects gave a big boost to other major currencies that compete with the dollar for yield attraction.

The Canadian dollar had gained more than 1 percent on Wednesday and last stood at C$1.2612 to the dollar, having hit a near two-week high of C$1.2605 earlier in the day.

The Australian dollar stood at $0.7933, maintaining Wednesday's 1.3 percent gain, its biggest daily rise in about a month.

The currency showed a subdued reaction to mixed reading on local employment data, which showed a fall in the unemployment rate led by a bounce in part-time work, but also showed a fall in full-time jobs.

The U.S. dollar was also undermined by worries over U.S. President Donald Trump's ability to implement his economic policies after he disbanded two high-profile business advisory councils.

The move came after several chief executives quit in protest over his remarks blaming weekend violence in Virginia not only on white nationalists but also on anti-racism activists who opposed them.

"I would expect more U.S. political risks in September as the debt ceiling issue will be coming up. We could see more volatilities in markets," said Merrill's Yamada.

The Congressional Budget Office has said U.S. lawmakers need to raise the debt ceiling by mid-October to avoid defaulting on debt payments.

Reference: Hideyuki Sano;