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Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 2

In our previous article, we introduced the concept of “fast market.” Also, we commented about the importance of watching the big-picture to support the market’s general overview. In this educational article, we’ll review the analysis of the fast movement.

Disclosing the Speed

Once the market moved following our forecast, the price action developed its next sequence in a fast way. To aid in building our analysis in the EURGBP cross, we’ll use the RSI indicator to identify each swing.

From the EURGBP hourly chart, we observe the bullish sequence started on May 05. The RSI use, allows us to identify each swing of waves 2 and 4, and divergences the end of waves 3 and 5.

Until now, the movement developed by EURGBP corresponds to a 5-3 sequence; thus, the next path should develop in five waves. In consequence, our new hypothesis could be the next move a wave three or be the second leg of a zigzag pattern.

The second EURGBP chart exposes the progress in an ending diagonal pattern. This Elliott wave formation is a motive wave built by five internal legs that overlap each other.

On the other hand, the new big-picture structure observed on the EURGBP cross unveils a 5-3-5 sequence. Thus, according to the Elliott wave principle, this formation corresponds to a zigzag pattern.

Another observation comes from the alternation between the first and second bullish leg. Both segments moved on a different relationship price and time. In other words, while the first leg ascends in a fast step, the second one progress at a slower price/time relation.

Now, from the Elliott wave principle, the next path from the EURGBP should be a corrective move in three waves. If the price breaks below the invalidation level, the correction should be more profound.

On the following chart, we observe an incomplete corrective move developed in two internal waves labeled in black. In consequence, the next movement should be a wave ((c)) in black. The completion should complete a new wave A labeled in green.

Until this moment, the price action bounced above the invalidation level, which makes us observe two things:

  1. The EURGBP cross is running in a complex corrective structure, likely a double three pattern. This Elliott wave structure is labeled as WXY, follows a 3-3-3 sequence, and develops seven swings.
  2. Probably according to the alternation principle, the next corrective structure could be a flat pattern.

The following chart exposes the waves A and B labeled in green completion. As can be noted, wave A holds three internal legs, wave B retraces between 81% and 100% of A. Thus, the Elliott wave structure should correspond to a regular flat pattern.

Finally, the next EURGBP chart illustrates the end of the last segment of the wave C from the regular flat pattern, which is part of a complex corrective sequence, in this case, the formation corresponds to a double three structure.

As a learned lesson, the use of the RSI indicator is useful to support the wave identification process. Similarly, to apply the Elliott Wave Principle is essential to know the basic corrective patterns to follow any market. Finally, remember that the market has only two ways to move: it moves in three or five waves.

Categories
Forex Elliott Wave

How to Analyze a Fast Market Using the Elliott Wave Principle – Part 1

The speed is a characteristic of nature; in the same way, some markets tend to be faster than others. The problem arises when a market moves sharply. In this educational article, we’ll introduce how to analyze a fast market using the Elliott Wave Principle.

Price and Speed

Both price and speed are individual characteristics of each market. Depending on specific factors, one market could be faster than another.

The problem arises when, in an active market, the price moves faster than usual. R.N. Elliott, in his Treatise “The Wave Principle,” wrote:

“In fast markets, it is essential to observe the daily as well as the weekly ranges; otherwise, characteristics of importance may be hidden.”

In other words, when the market studied in a specific timeframe doesn’t allow to identify any pattern. It is useful in these cases to observe the market in a higher time frame, for example, the daily or weekly timeframes.

The Case of Study

Consider the EURGBP cross in its 4-hour chart, which shows a rally developed from early May until the middle of August 2019. The remarkable observation is that the first part of the rally was faster than the second part of the range of study.

As a first step, let us observe the big-picture; in this case, we will study the EURGBP cross in a weekly timeframe. As can be noted, the EURGBP developed an extended Wave 3.

Both the RSI and the Awesome Oscillator display a bearish divergence, that helped us to identify waves (3) and (5).

In consequence, in view that the five-wave sequence has been completed, it is time for a corrective movement in three waves.

The next chart shows the possible recount of the EURGBP cross.


In the above figure, we observe that the cross could have fully completed a cycle that, as we know, includes a motive impulse and its corrective sequence. Thus, if our market hypothesis is that the EURGBP has completed a cycle, then our forecast should consider a new five-wave rally.

The following chart unveils the upward movement developed by the EURGBP from its bottom, established in early May.


In the next educational article, we will expand the analysis on how to decipher a fast market using the Elliott Wave Principle.