Wednesday, October 14, 2015

Reduction of Risk in the Potential Dollar Index Trade

Disclaimer: Nothing in this post is to be taken as trading or investment advice. This is an example of a trade set up using Elliott Wave theory. Futures trading may not be suitable for all, and may result in loss of some or all capital. Consult your own financial adviser regarding the suitability of any herein contained information relative to your own situation. Any trades taken are solely your responsibility.

We indicated in the post on October 11, that, if there is to be an eventual upward count in the Dollar Index, following a triple zigzag, lower, then  the best upward count is as a wave 1, followed by a-b-c as a flat wave 2. We came to this conclusion by reviewing the "December only" futures and eliminated a possible upward diagonal count because a higher high was not, in fact, made when the contract rolled over. We also indicated this would be better confirmed when the contracted crossed the 94.440 level as it would also positively rule out a "contracting diagonal"- because a wave (iv) should not be longer than wave (ii).

We said at that time, that the risk in taking an upward position would be over $2,300 per contract - which is quite substantial for smaller accounts. An updated chart of the daily Dollar Index is below. As you can see - price is now, not only below 94.440, but is also below the minute a (circle a) wave of a second wave lower. This is the 'minimum' expectation for a flat wave, but it could still go further.

As of this time, there is no indication of a turn - yet we have shaved almost $1,000 in risk off the potential trade, by doing our homework, evaluating the murky count at the time, and counting according the rules of Bill Williams' system. And all of this hasn't cost us a dime. So next, we watch the activity at the prior gap, and see if the gap fills or acts as support.

Another update will follow. Cheers! And enjoy the chart.


  1. JT, I noticed that you use the arithmetic scale for your long term charts. Is there a reason why you favor it over the log scale? A visual picture of the price/channel interconnection looks different.

  2. Hi Igor. I use both at various times. When I have shown a chart of the SP500 on a log scale, it formed a simple wedge which has broken lower. If you have followed my weekend videos, that is one fact that led me to conclude that an Ending Diagonal triangle could form from Nov 2014 to May 2015. It was either wave (5) of Primary 5 - in the log wedge count - or wave 5 of Primary 3 in the arithmetic count. Either way the diagonal formed, and more downward movement is needed to conclude whether this is P1, lower or just P4. Cheers.

  3. This blog demonstrates one of the many benefits of using and understanding EW properly. Great article Joe!