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Preview
The release of EWA forecasts is going to be renewed this weekend.
Possible scenarios for USD/JPY
One of the possible scenarios of the Japanese yen is a horizontal triangle IV, for the first time released by me at the beginning of the year 2004 (picture 1, below).
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Figure 1. Wave counting on the monthly chart for USD/JPY.
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If the supposition is true, the ending wave of triangle [E] of IV may be assuming the shape of ordinary zigzag (A)-(B)-(C), wave (B) of which preferred the shape of expanded flat (picture 2, below).
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Figure 2. Wave counting on the weekly chart for USD/JPY.
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Judging by mutual correlation of waves inside the supposed expanding flat (B) of [E], its shape is close to ideal, as both price breaches out of the first wave A of (B) are practically equal to each other.
Besides the price reached 78% of the retracement depth for wave (B) of supposed zigzag [E] of IV, which is a limiting value for an ideal zigzag, while wave structure of the ending wave C of flat (B) of [E] appears to be fully completed (picture 3, below).
Here possible targets in the context of the accepted scenario are plotted as well — 113, 119 and 126, which were calculated proceeding from the size of the first leg (A) of zigzag [E] of IV and the depth of retracement (B) of [E]. Supposedly the price may reach the second target (119) by the end of July — beginning of August 2008.
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Figure 3. Wave counting on the daily chart for USD/JPY.
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Indeed, the supposed diagonal triangle C of (B) is almost completed. Moreover, as its third wave is shorter than the first one, it isn’t difficult to calculate the maximum possible size for its fifth wave and maximum distant point of its ending— 103.91. This level is critical for the accepted scenario.
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Figure 4. Wave counting on 120 min chart for USD/JPY.
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We can’t be yet sure for 100% that zigzag (a)-(b)-(c) of [v] of C of (B) is already completed, as there is as always the alternative scenario of the ending impulse (c) of [v] development.
But everything that was said above doesn’t exclude that the downward price movement will end in the near-term and a new upward trend will begin. The availability of the exact critical level, possible targets and positive swaps for long positions in the pair USD/JPY, lets to calculate the possible profit and estimate fully the risks.
Let’s suppose we decided to open a long position immediately (USD/JPY=106.20;though optimal value for opening such a position — not worse than 105.95) and hold it at least up to reaching the second target (119). It is logically to place the initial protective stop below the critical level (103.91).
In this case the maximum risk per 1 lot and constitutes ~ $2250 ($9.37 * 240). I.e. the trader’s deposit must be ready for a possible drawdown.
At the same time the expected profit on the exchange rates differentials may constitute ~$11300 ($8.91 * 1270), and by means of swaps it can give in half a year an additional profit in the amount of ~$1700 ($9.09 * 185). Total income — ~$13000. Profit/risk ratio = ~ 5.78. Not bad at all.
Notes. 1. Basic data for calculations were taken from the trader’s calculator, but the price of one point for calculating profit ($8.91) was calculated as average value for the trade’s extreme points. All calculations were made for 1 lot without considering possible positions build-up.
2. After the price confirms the completion of impulse (c) of [v] of C of (B), it will be possible to move the initial protective stop to the break-even area.
3. In case impulse (c) of [v] of C of (B) develops according to the alternative scenario (it is plotted in the lower part of the picture 4), the position averaging is possible in the area of 104.50.
4. Who is not ready to place orders in advance, may place a buy-stop order at the level ~ 107.20. In this case it is logically to put the initial protective stop below the ending of wave (c) of [v] of C of (B).
5. I haven’t consider here the case when interest rates will change in the course of half year, changing the size of swaps. Supposedly the size of swaps in the pair USD/JPY for long positions within the coming half year will only increase.
Addition of February 15, 2008
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Figure 5. Wave counting on 480 min chart . Variant 1.
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For the last month a practically horizontal but ambiguous knot has formed allowing different interpretations.
If price fixes above the confirmatory level it will be a confirmation of this level. But a stockade of wave that formed within a month a practically horizontal knot allows its alternate interpretation (refer to the Figures below).
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Figure 6. Wave counting on 480 min chart. Variant 1a.
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It isn’t ruled out that the ending wave [v] of diagonal triangle hasn’t completed yet. Such a variant doesn’t contradict the expectations set out in the article Possible trade with an excellent profit/risk correlation .
But in this case traders who opened positions on the basis of the above mentioned article should be ready for price decline to the ~ 104 mark.
In this case each trader in accordance with the parameters of his account and accepted trading strategy should choose on his own what to do: wait out a possible price decline (it is good that swaps are positive), close positions now with considerable profit (refer to the Figure below) and reopen positions when price rises again or simply trail protective stop to the breakeven area.
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Figure 7. The current value for long positions.
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Long positions were open a month ago after the article Possible trade with an excellent profit/risk correlation was released and in accordance with the recommendations given in it.
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Figure 8. Wave counting on the daily chart. Variant 1.
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Possible scenario of diagonal triangle C of (B) forming is given in the Figure above.
Reference:
Dmitry Voznuy
forDmitry@yahoo.com
January 16, 2008
When using any part of the article for publication or analytical materials reference to the author and Alpari is obligatory.
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