Monday, May 09, 2005

Eurodollar uptrend

The daily bar chart above depicts my box theory analysis of the December '05 Eurodollar contract.

The 66 tick intermediate term boxes are delineated by the solid blue lines (dashed blue is the halfway point of a box) while the 27 tick short term boxes are delineated by the solid red lines (again, a dashed red line is the halfway point of the box).

The late March low occurred just 5 ticks below the estimated low of an intermediate term box at 95.67. The normal expectation for a rally off of the low of such a box is a move to the halfway point of the same box at 96.00 but the market blew right past that level. So we guess that it will head up to the high of the same box at 96.33. (Actually the 96.29 to 96.33 zone is our target range because the halfway point of the third short term box is at 96.29.)

The short term boxes are 27 ticks wide and the rally from the March low stopped temporarily 4 ticks above the high of the second short term box. Again the normal expectation is for a reaction to the halfway point of the box - in this case 96.02. The halfway point of the intermediate term box is 96.00. The market reacted to 96.00 and then rallied back to its 96.20 temporary top. A second reaction began and this time it didn't hold support at 96.00.

A reaction all the way down to the bottom of the second short term box at 95.89 would now be normal, but I don't want to miss the start of a move to the 96.33 target. So I will be more aggressive and look for a low at the 쩌 point of the short term box at 95.93, the 3/8 point of the intermediate term box at 95.92 and at a short term box size reaction of 27 ticks from the 96.20 temporary top to 95.93.

Good forecasting requires the right combination of an artistic conception of the market's likely trend plus educated guesses about support and resistance which I make using box theory and the other methods discussed on this blog.

But good forecasting by itself won't make you a successful speculator. This requires in addition a certain moral courage and belief in your analysis - a willingness to act opposite to the siren call of the market and the convictions of your friends.

An old speculator's granddaughter asked him, "Grandpa, what do you have to do to get rich trading?" He replied, "You have to be bold and you have to be right."

"What happens if you are bold and wrong?", she asked quizzically. He replied, "Then you just go down with the ship!"

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