The sell set up I posted on Thursday failed to trigger. After the weekend's convincing election win by Shinzo Abe, Dollar: Yen gapped higher this morning with traders anticipating a more aggressive approach to both fiscal and monetary stimulus in Japan.

The net result - a good example of why it can be better to wait for a trend peak at Fibonacci levels rather than just taking them on and selling as soon as price hits a cluster zone.

All is not lost though. This sell strategy is still potentially in play, courtesy of a 2nd Fibonacci cluster zone at around 85 yen.

As with the original strategy, a trend peak at this 2nd cluster zone sets up for a potential correction of the whole rally from "black 2". The reward: risk this time around is potentially better because the trend being corrected is now larger and the size of any correction potentially bigger.

USD: JPY CFD - Daily. Source: CMC Tracker USD: JPY CFD - Daily. Source: CMC Tracker

The cluster zone shown on the chart makes 3 projections about the length of the upswing beginning at "4":

  • It will be a 261.8% external retracement of the 3 to 4 correction
  • It will be 61.8% of the rally from "black 2" to "blue 3"
  • It will be the same size (100%) of the first swing up in this 5 swing structure ( black 2 to blue 1)

Under one of the basic Elliot wave rules for a 5 swing structure, the 3rd swing must not be the shortest of swings 1, 3 and 5. This is something to be careful of in this situation. Sometimes, if price gets as far as your Fib cluster zone, it will make swing 3 the shortest. This invalidates the analysis, meaning that the current swing is more likely to be part of a larger ongoing rally rather than the 5th and final swing higher. This does not apply here though.  The first swing was a bit shorter than the 3rd.

As with Thursday's post, this strategy only triggers if there is a trend peak at or close to the Fib. cluster and not just because price reaches that level.

If you are not familiar with the Fibonacci projection techniques discussed in this post, they are covered in 2 videos I posted last week. You can access these by clicking here