Above is a weekly chart of the U.S. Dollar (green bars) along with a proprietary indicator (white line) that I use which leads the US. Dollar.
As you can see the Dollar has been in a downtrend for the past two years but I think that will soon change.
First I'd like to talk about a simple trading tool that I use which is called a 1-2-3 formation. Some people call them hooks or Ross hooks or first higher low or first lower high, but I will keep it simple and call it a 1-2-3 formation.
You'll notice in the above chart there are three 1-2-3 formations which did an excellent job at identifying a major low and high. The first formation took place at the beginning of 2005 and that kicked off a major rally. The next 1-2-3 formation developed at the beginning of 2006 and that triggered a major top. Here we are at the beginning of 2008 and we see a 1-2-3 formation taking place once again at the beginning of the year. Just based on this formation alone I would be looking to become bullish on the dollar if point 2 was taken out, but I have an additional reason to be bullish on the dollar.
In white is a leading indicator that I use which has done an excellent job at leading the Dollar by about 7 months. If you think about it, that's pretty amazing. Notice how many of the turning points in the Dollar followed the white line. Keep in mind these turning points were known 7 months in advance.
As of right now you can see that this leading indicator is trending higher which indicates to me that the U.S. Dollar should begin an uptrend very soon. The way I would trade this is that I'd wait for the Dollar to take out point 2 and then I'd get long. My protective stop would be right below point 3 which is still in the process of forming.
Once again, there are no crystal balls and nobody knows what the future may hold so trade smart and use stops and most of all never argue with the market.
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