My trading system has just issued a short-term buy signal for NZDJPY. The signal is based on a unique combination of multiple-timeframe momentum indicators and Elliott Wave analysis.
Entry: 63.05
Limit: 63.52
Stop: 62.02
I am prepared to make a second entry if price reaches 62.73 and a third entry if price reaches 62.37.
Unlike most of my trades, which have a completion timeframe of 1 to 2 weeks, I expect this long trade on NZDJPY to complete within the next 2 trading days (possibly just the next 12 hours).
In Elliott terms, I expect this move to be the C wave of an irregular flat correction.
[For some reason my chart file won’t upload at the moment - will troubleshoot and add this soon.]
Following up on the above post, here is my thinking on the NZDJPY. Slightly more aggressive traders could even take the limit up a few pips to 63.57 but as I never know what time of day my trades will close, I try to keep in mind that spreads may be quite high when price is reaching my target.
Our long trade on NZDJPY proceeded rather speedily to the target zone of 63.52-63.57 today. As with most C waves within an inverted flat correction, this was a ragged, choppy advance capped off with a sharp rally.
Price is likely to continue to rally higher in the Fibonacci retracement zone, with a likely termination point in the 63.67-63.85 range. Price should then fall precipitously in Wave 3 of a larger impulse (or alternatively, Wave C of a larger correction).
Total elapsed time on this trade was roughly 11 hours, thus producing an average rate of return of around 4.5 pips/hour. We were fortunate to get in and out of this trade quickly as the general trend in this pair seems to have shifted in favor of the bears and thus today’s trade took place within in a countertrend move.
I use the MACD indicator to monitor momentum on the 15-minute, 30-minute, 1-hour, 2-hour, 4-hour, 8-hour, daily, weekly, and monthly charts. I look at each chart for [U]momentum divergences[/U] as explained at Moving Average Convergence-Divergence (MACD) - ChartSchool - StockCharts.com. Signal line and zero line crossovers don’t figure into my analysis. When I spot a strong bullish divergence on a chart, I label that chart “bullish”. When I spot a strong bearish divergence on a chart, I label it “bearish”.
Then, I look to see the order of bullish vs. bearish signals in the whole string of charts from 15-minute out to monthly (that’s what makes it “multiple timeframe”). If the momentum signals are consistently bullish all the way across from the 15 minute to at least the 4-hour chart, I consider making a trade. If the 8-hour and daily charts are also bullish, I am even more interested in the pair. The same holds true if the momentum is consistently bearish across many timeframes.
That brings us to the question, Do we enter a trade or not? And if we do, what will be our stop and limit?
If the pair I have identified has a clear Elliott Wave pattern (if it “counts cleanly”) and that EW pattern suggests an imminent trend change, then I enter a trade. I use Fibonacci ratios (which are part of EWT) to determine my limit. Usually, if the market has just advanced in five waves, I am looking for a three-wave correction of at least 38% of that advance.
If the EW count isn’t clean, I wait until it becomes clean… if it ever does. Sometimes this means waiting days, weeks, or months. At that point, if momentum is still signalling a trend change, I enter a trade.
My stop is set 1.7% distant from my entry price. The figure of 1.7% is just something that I’ve settled on through years of trial and error. Tighter stops caused me to get stopped out too much and bigger stops caused my losses (when they occurred) to be overly heavy. So 1.7% is a good medium.
