I believe that one aspect of trading that cannot be ignored is the waiting: Waiting for a set up to trigger, waiting for a profit target to be reached, and waiting to see if a stop-loss will be hit. Volatility can increase the speed at which any of those three will be reached. Gauging the volatility or, put another way, the Expected Prices Range is key, in my opinion, to trade and risk management.

*Remember: In volatile market or fast-moving market conditions, stop-loss orders can become market orders and may be filled at the prevailing price, which may differ greatly from the desired price.

Currently, the one-hour chart of the EUR/JPY is trending lower in a “four to six o’clock” mark down cycle as identified by my 34EMA Wave. Prices have already broken lower through the Failing Wedge pattern support (1) and reached the Forecast target (2) as identified by the IBFX-PRS. The current entry trigger is a swing short if prices can reach the resistance between 110.34 (2) and 110.61. The 110.34 level is prior Forecast support (now resistance) while the 110.61 is the current reading of the 34 period EMA low.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results

One tool that can help define expectations of the potential swing short entry is PowerStats.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results

Because of the amount of movement I need, I would expect the correction would be up to four hours based upon the Expected Price Range chart and even that level would have me close to the bottom area of my swing short resistance. So as long as prices remain in a downtrend on the 60-minute time frame, I will continue to look for exhaustion between the 100.34 level and the 34 period EMA low.

Remember: the Wave is a dynamic tool so be sure to update the value of the 34 period EMA low if you are placing a limit order to enter short. If prices trade above the top line of the Wave in a downtrending market, the market is no longer correcting but has now reversed. If prices trade above 111.05 look for upside continuation.

*Trading in the off exchange retail foreign currency market is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions.  The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.  Read the full risk disclaimer and privacy policy on trading at www.ibfx.com.