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EUR/USD: What's In a Chart? A LOT
A real-world example of the advantage Elliott wave forex traders can have
By Vadim Pokhlebkin
Fri, 23 Mar 2012 17:15:00 ET
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Many forex traders use technical chart analysis -- most commonly, momentum indicators like the RSI and MACD. But in conventional finance, rarely do you ever hear anyone mention Elliott wave analysis among their trading tools.

To which we can say: their loss. Those who trade currencies with Elliott often have a leg up on competition. Let me show you an example.
 
This chart of EUR/USD, the euro-dollar exchange rate, shows you the rally into March 8. What would someone not familiar with Elliot wave analysis gain by studying it?
 
 
Well, some forex traders would probably say that EUR/USD had been rallying, and we all know that "the trend is your friend" -- so pile on!
 
Now please take a look at the same chart labeled with Elliott wave symbols. This is the exact chart that our forex-focused Currency Specialty Service posted for intraday analysis subscribers on March 8: 
 
 
Here's what Elliott wave analysis will tell you about this chart:
 
  1. EUR/USD is showing a completed 5-wave rally pattern. That alone suggests a correction. Euro bulls be warned.
  2. The Elliott wave pattern at one larger degree (marked a, b, c) suggests that the rally had been an even larger-degree wave two (marked with Roman numerals in red). Second waves are corrective, and corrective waves always get completely retraced. Euro bulls be warned.
  3. The blue wave v took shape of an Elliott wave ending diagonal triangle. Those, as we know from Elliott's theory, are ending patterns that also get fully retraced -- and fast. Euro bulls be warned.
  4. Look at the RSI, the blue line at the bottom of the chart. By itself, an RSI divergence from the price may or may not mean anything. But combined with Elliott wave analysis, it tells you plenty. See how the RSI was rising in the 3rd wave, but went flat in the 5th? That's the key signature of the RSI behavior when combined with Elliott: divergence in the 5th wave. Euro bulls be warned. 
So, on March 8, you had 4 indicators -- from a single chart -- give you one message: bearish trend reversal ahead!
 
Forex trend-followers who on March 8 were buying the euros got disappointed: On March 9, EURUSD fell about 170 pips, indeed retracing the entire rally. 

If you want to see more examples, our forex-focused Currency Specialty Service shows you the latest Elliott wave labels for 12 forex pairs right now. More details below.


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Tags: Elliott wave, Elliott Wave trading, euro, forex, forex trading, Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), technical analysis, technical indicators, trading lessons, U.S. dollar
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