In your trading experience, is it enough to know what the trend is, or even how far it should go before reversing?
Chances are, you – just like every one of us – have at least once felt excited on realizing a major breakout or trending market was underway as expected. You jump in short on a big down move and price goes in your favor by 50, 100, 200 pips or more. Then the next time you look at your dealing window – poof – it’s all gone and a stop has been triggered.
Why does this happen?
Well, at the risk of a bad cliche, price is like a sailboat – tacking and gibing in the wind, never reaching its ultimate destination in an uninterrupted, straight-line path. Along the way, near term overbought or oversold conditions need to be alleviated before the market can continue. This is what corrective sequences are all about.
It was precisely one of those moments we forecasted for GBP/USD in our weekly Forex Profits with COT review posted for subscribers on Saturday, October 3rd. In our Weekly Flash summary report, we had this to say (quote): The many subdivisions we see in the wave count portend a long-term downtrend continuation. However, in the near term, we have a
traditional 123 bottom (Elliott .iii of (iii)) which may resolve to some type of corrective process prior to the next big leg down. Allow for a short-lived upside target to 6096-6277.
While this past week was a difficult one for forecasting in many markets, Cable did validate our call by creating an apparent 3-wave correction to a previously documented resistance zone, and to well within the target range we specified. All of which was helpful in understanding whether this week was a good one to go short the position trade or not.
If you’d like to learn more about the analytical process we used to make this call, please watch this video.
