In my last Elliott Wave analysis of EUR/USD (EURO) published on 9th January 2012, I had suggested that traders should look to cover any shorts they may be running close to 1.2600 because there was a reasonably good chance to recover from there. I also pointed out an alterate count that could view the dip towards 1.26 as an extended fifth wave, which would mean any recovery will be sharper. When one knows the existence of two possible counts, both pointing higher, a trader will ignore the warning signals at his/her own peril.

Now that we have come up to as high as 1.3300 in the EURUSD, what should we do? As explained in my book Five Waves to Financial Freedom, we should figure out the most likely count and then take action at levels that present us the greatest rewards for the lowest risk. As all traders know, there is no reward without risk, and what Elliott Waves does is to give us a framework to control the risk. Accordingly, because I see the possibility of the EURUSD continuing towards 1.3458, I will be extra careful as we near 1.2930. Sure, the Greek situation could explode and we could collapse directly. But who knows what will happen!! On the other hand, we know our theory that says a correction can never be finished if it is made of 5 waves, and we have only seen 5 waves up from near 1.26. That means we could get another 5 wave rally in the EURO after a correction. This is our theory, and we have to trade our theory, right? But just be sensible about where you place your stops. Good luck.