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Aussie Pattern Suggests Resumption of Bull Trend

By , Head Forex Trading Instructor
16 February 2012 15:29 GMT

The AUDUSD appears to have completed a 3 wave Elliott wave counter trend drop near a confluence of support near 1.0650. This is a good risk to reward ratio opportunity to buy the bull trend.

The AUDUSD has been in an uptrend for several months. Prices have continued to create higher highs and higher lows and just reached a confluence of 2 support levels.

Aussie_Pattern_Suggests_Resumption_of_Bull_Trend_body_Picture_1.png, Aussie Pattern Suggests Resumption of Bull Trend

(Created using FXCM’s Marketscope 2.0 charts)

First, the prices show a fairly clean Elliott Wave sequence of a 5 wave advance followed by a 3 wave (A-B-C) drop. The wave movements conform nicely to the rules of Elliott Wave including Fibonacci retracement levels. Many times, this 8 wave sequence (5 waves up and 3 waves down) will retrace approximately 78.6% of the original up move. The 78.6% retracement level is my favorite because it is considered by many traders to be the fib of last resort. In this pattern, the 78.6% retracement level crossed near 1.0661.

Secondly, the lengths of waves many times are related by the Fibonacci sequence. So for example, wave ‘a’ and wave ‘c’ oftentimes are related in length by a ratio of .618, 1.000, or 1.618. In this case, the length of wave ‘c’ is 1.000 times the length of wave ‘a’ at 1.0642. This presents a fairly tight support zone which prices did bounce higher from.

If this pattern continues to hold, it could trade to new highs on the year near 1.0900 as higher yielding instruments suggest a risk ‘on’ trading environment.

Enter long near the market price with a stop just below the swing low near 1.0635.

Risk less than 5% of your account on all open trades.

Trade with less than 10 times effective leverage.

---Written by Jeremy Wagner, Lead Trading Instructor, DailyFX Education

To contact Jeremy, email jwagner@dailyfx.com. Follow me on Twitter at @JWagnerFXTrader.

To be added to Jeremy’s e-mail distribution list, send an email with the subject line “Distribution List” to jwagner@dailyfx.com.

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16 February 2012 15:29 GMT