Easy Ways to Make Profit at Forex Trading

I want to think the best of people. I really do. But then I come across an article in the November 12 New York Times and I start to doubt myself.

The piece details an illegal network of traders at many of the world's largest investment firms, each with their own special nicknames and secret handshakes. They all plotted to rig the global currency exchange markets on behalf of their clients. And they got caught. So far, "regulators fined some of the world's biggest banks a combined $4.25 billion for conspiring to manipulate the foreign currency market." Again, that's "so far."

 

In one case, a trader at a well-known firm "sought out other traders" 33 seconds before the 1:15 pm fix for the euro/dollar exchange. They planned to trade in the same direction to build up a "large book of orders" and influence the price. This 33-second maneuver made the firm $99,000.

 

That brought to mind this quote:

 

"There are three ways to make a living in this business: be first, be smarter, or cheat."

 

This quote about what it takes to succeed in finance is from Margin Call, a 2011 Oscar-nominated film. When I first heard that line, I chuckled. But after reading this article about forex traders rigging the markets -- and dozens more examples of cheating on Wall Street -- it really does seem that "be smarter, be first, or cheat" are equal options for some people in the business.

 

May we suggest a fourth option?

 

There is a way to "cheat" the system and not break a single law; a way to prepare a large book or single order in advance of big moves. That way is easyt ways analysis.

 

Let's use the recent performance of the same market that was manipulated by the trader in the New York Times article: The euro/U.S. dollar exchange, known to forex traders as EURUSD.

 

On May 5 -- not 33 seconds before, but 3 DAYS before the euro peaked at a 2 1/2 year high --  

International's European Short Term Update showed subscribers this chart, which included two very rational reasons why the euro's upside was about to give way: 

First, an easy ways ending diagonal pattern was nearly over. For newbies, ending diagonals are a 5-wave move usually occurring in wave 5, the last wave of the trend, and right before big reversals. In all cases:

• Ending diagonals are found at the termination of larger patterns
• They indicate exhaustion of the larger movement
• They are followed by a dramatic reversal  

 

Second, the May 5 Daily Sentiment Index reading of 91% euro bulls matched levels that preceded two euro peaks over the past year.

 

The May 5 European Short Term Update wrote:

 

"The euro is pushing up against the 1.39 level that marked the April high... We continue to think that the 1.40 level will be seen before any lasting decline in the euro materializes."

 

On May 8, the euro peaked at 1.3993. The following day, the May 9 European Short Term Update confirmed the completion of the ending diagonal and prepared subs for the imminent downside drama:  

 

"Yesterday our top scenario unfolded dramatically in the euro. Prices took out the March 13 Minute wave iii, 1.3966 top. The print high was 1.3993. The euro has quickly collapsed since completing the easy ways, ending diagonal structure. Prices are back to those April 7 levels in just a few hours. Ending diagonals should see fast retracements, and so far that is exactly what is unfolding in the euro."

 

The broader implications of the ending diagonal were then addressed in our June 2014 European Financial Forecast via this chart and analysis:

 

"Last month, prices broke below the diagonal's lower boundary, confirming the end of the larger-degree rally. The decline should be the first of many down waves that carry the euro lower over the remainder of 2014."

 

 

From its May 8 peak, the EURUSD has fallen 10% to a 2-year low, a wholly testament to the power of the expected post-diagonal price reversal.