Additional Profit on Swaps (EWA of GBP/CHF)

Introduction

Lately I have received a lot of letters with questions relating to GBP/CHF. Current situation deserves traders' attention, in spite of the fact that I have not released GBP/CHF wave counting before.

Figure 1. Wave counting on the weekly chart.

GBP/CHF is supposed to be forming some corrective structure in the shape of upward double (triple) zigzag. If the supposition is correct, finishing of impulse C of (Y) is required for its completion. Let's consider this impulse in details.

Figure 2. Wave counting on the daily chart.

The first active waves of impulse C are almost equal in length ([iii] = ~[i]). Chances are great that the fifth wave [v] of C will form in the shape of the extension.

The second leg [ii] of impulse C has assumed the shape of a shallow extended flat (35%), having formed a new extremum (wave (b) of [ii]). According to the rules, the fourth wave iv has begun to assume the shape of a sharp and deep double (or triple) zigzag, having reached 50% mark. Its forming is supposed to be uncompleted yet, though the minimum requirements for the fourth impulse waves have been fulfilled:

MACD has broken the zero line,
the price is at the lower edge of the channel and
the price has almost reached the area of the fourth wave (iv) of [iii] of the previous wave level.

Thus, wave [iv] of C may complete soon.

Moreover, wave [iii] of C has formed with an extension in the fifth wave (v) of [iii], which reminds me of Elliott's double retracement (see pictures 2-8 in my book). The first retracement in the shape of wave [iv] is almost completed. Trend reverse upwards and upward second retracement in the shape of the finishing impulse C of wave [v] should be expected.

The lowest target of uptrend may be ~2.48, which is a bit above the high of the third wave [iii] – 2.4755 and 127% mark (2.4785) of the first leg A of zigzag (Y) (refer to Figure 1).

The high of the first wave [i] of C – 2.3771 is the critical level for the accepted scenario. This level may be broken in the short run on marginality of the FX market.

Judging by the information given above it is time to open long positions. Moreover, this cross rate has positive swaps in this direction (Figure 3 below), which produces rather significant additional profit in case of mid- and short-term long positions.

Figure 3. Estimated data on GBP/CHF.

Aggressive traders may open long positions now. Even in case of 3-4 figure drawdown, they will get an additional bonus (positive swaps).

Conservative traders should better wait for confirmation of the trend reverse upwards.

In any case this report reveals the analyst opinion of the situation at the moment of its release. That is why it should not be considered as a trading guide.

Addition (February 21, 2007)

Figure 4. Wave counting on 120 min chart.

Possible scenario of supposed wave [iv] of C forming in the shape of the triple zigzag is given in Figure 4.

Addition (February 28, 2007)

Figure 5. Wave counting on 120 min chart.

Possible scenario of supposed wave [iv] of C completion in the shape of the triple zigzag is given in Figure 5.

Addition (March 02, 2007)

Figure 6. Wave counting on 120 min chart.

Possible scenario of supposed wave [iv] of C completion in the shape of the triple zigzag is given in Figure 6. 2.3831 is the critical level for this scenario.

Addition from 22.03.07

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Unfortunately the supposed scenario wasn’t confirmed, as the critical levels were broken. The final wave of zigzag (Y) will take the form of the diagonal triangle or this zigzag is already completed.

If to refer to the daily chart…

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…we see that the downward zigzag (a)-(b)-(c) of [ii]? is supposed to develop. Its correction (b) of [ii] is completed. If the long positions were opened, it’s better to close them right mow (refer to figure 9 below).

Short positions open on this pair is justified, but the decision remains after traders.

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Final trading GBP/CHF transactions on the demo account are represented in figure 9. The first buy was done at the moment of the article writing. The next 3 buys were done quite after 2 figures within the month.

The resulting drawdown proved to be ~6 figures, but not 3-4 as it was expected, as the supposed scenario was false. However, only the first transaction was unprofitable. Additional profit on swaps on all the transactions made ~25% of the whole profit and made ~$800.

Copies of trading transactions with the chart may be downloaded below.

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Reference