Tag: Wave Analysis

Categories
Forex Elliott Wave Forex Market Analysis

Silver Unveils an Incomplete Corrective Structure

Overview

Overview

Overview

Silver price advances in an incomplete corrective structure that remains in progress, after the precious metal topped at its highest level since March 2013. The market sentiment continues dominated by the bullish side. Nevertheless, the incomplete Elliott wave structure suggests that the precious metal could see a new low.

Market Sentiment Overview

The Silver price continues fading from the yearly highs that carried the price toward annual highs at $29.85 per ounce in early August. However, the precious metal eases over 19% from the yearly high, Silver advances 35.2% (YTD).

The following daily chart displays the Silver’s 52-week high and low range. The figure highlights the consolidation of Silver below $25.30 per ounce and the price action running below the 60-day weighted moving average. This market context suggests that the precious metal traders downgraded their market sentiment from extremely bullish to bullish.

On the other hand, according to the Commitment of Traders report, it is observed that the big participants’ speculative net positions remain on the bullish side. In this context, the descents developed by precious metal suggest that market participants are involved in a take-profit activity and do not represent a change in the current upward trend.

Therefore, in the long-term overview, the market sentiment remains bullish. Nevertheless, in the short-term, the declines observed represent a taking profit activity. Finally, as long as there is no confirmation of new signs of a new rally, our bias remains on the neutral side.

Elliott Wave Outlook

The next chart illustrates Silver in its log-scale 8-hour timeframe, which reveals the price action is developing the last move of a cycle, which began on March 18th when the precious metal found fresh buyers at $11.61 per ounce. The incorporation of new buyers drove the precious metal to a bullish impulsive structure development completed on August 06th when Silver reached $29.86 per ounce.

Once Silver prices found resistance at $29.86, it completed a five-wave sequence of Minute degree identified in black. Simultaneously, according to the price fractality principle, Silver finished the first wave of Minor degree labeled in green.

According to the Elliott Wave Theory, once completed the five-wave impulsive sequence, the price reacts in the opposite direction developing a three-wave movement. From the previous chart, Silver reveals that its corrective structure is incomplete.

In particular, the precious metal advances in its wave ((c)) of Minute degree identified in black. In turn, the internal structure of the wave ((c)) has pending the bearish movement of the wave (v) of the Minuette degree identified in blue. The last move will likely re-test the descending channel’s base, dropping between $21.35 and $19.44 per ounce.

Once Silver completes the bearish five-wave sequence of wave ((c)), traders may start looking for positioning alternatives on the bullish side. Finally, considering that wave 1 of Minor degree presents an extended wave’s characteristics, wave 3 of the same degree should not be the largest wave of the impulsive sequence of Minor degree.

In short, Silver’s market sentiment remains on the bullish side; however, the price moves in an incomplete corrective structure that could lead to new price lows. Once the short-term bearish sequence is completed, Silver could start producing entry signals on the bullish side, corresponding to the primary trend.

Categories
Forex Market Analysis

US Dollar Index Consolidates Expecting Further Declines

Overview

Overview

Overview

The U.S. Dollar Index (DXY) develops a mid-term sideways formation inside a long-term bearish trend that looks incomplete. During this year, the Greenback sheds -4.31% (YTD). Although the positive inflation data expanded the price in Tuesday’s trading session, it was not enough to boost the price toward fresh highs.

Market Sentiment Overview

The U.S. Dollar Index (DXY) retreats 0.23% in Wednesday’s trading session by erasing the advance that the Greenback made on Tuesday, driven by inflation data, which exceeded surveyed analysts’ expectations reaching 1.4% (YoY).

Although the data released by the U.S. Bureau of Labor Statistics this Tuesday exceeded the expectations of market participants and Federal Reserve policymakers boosting the price to climb 0.53%, the reading observed would not have a greater impact on the rate decision of the next FOMC broad meeting. Still, it would be more focused on the evolution of the labor market.

The following chart illustrates the U.S. Dollar Index in its 12-hour timeframe. The figure exposes the 90-days high and low range, reflecting that the market participants’ sentiment remains on the extreme bearish side. The price action remains below the 200-period weighted moving average, confirming the bearish sentiment.

On the other hand, the last Commitment of Traders Report unveils institutional traders’ bearish bias, confirming the bearish sentiment exhibited by the U.S. Dollar Index.

Therefore, according to the Federal Reserve policymakers’ expectations, the labor market’s evolution could be a factor contributing to the U.S. Dollar Index volatility increase. On the other hand, as long as the price remains below 94.02 pts and below the 200-period average, the Greenback bias will remain on the extreme bearish side.

Technical Analysis Outlook

The U.S. Dollar Index, in its 4-hour chart, illustrates a sideways movement from a long-term bearish sequence, which seems to be incomplete. The mid-term sideways structure is limited by September 01st low of 91.75 pts, with a top of the sideways range at the level reached on September 25th, located at 94.74 pts.

The above figure shows that the mid-term trading range moves between 91.75 pts and 94.82 pts. This market context suggests that the currencies included in the U.S. Dollar Index basket might continue developing sideways movements in the coming trading sessions.

On the other hand, the Elliott Wave perspective overview reveals that the price developed a three-wave bullish movement from the September 01st low of 91.75 pts, which ended on 94.74 pts.

Currently, the DXY index develops a pause formation in a bearish sequence that could evolve in three waves. This consolidation structure identified as wave ((b)) in black is still in progress.

Accordingly, the U.S. Dollar Index should complete the consolidation movement identified by the short-term sideways channel before continuing with its mid-term bearish trend.

Categories
Forex Market Analysis

Russell 2000 in Consolidation, Expecting for More Upsides

Overview

Overview

Overview

The Russell 2000 Index raised over 64% off its lowest level of the year, advancing from the extreme bearish to the extreme bullish sentiment zone. The incomplete complex corrective structure, still in progress, calls for more upsides in the coming trading sessions.

Market Sentiment Overview

This year, the Russell 2000 index is underperforming by 6.24% (YTD); however, it continues its recovery from the first quarter massive sell-off, when the U.S. index plummeted until its lowest level of the year at 953.77 pts, currently advancing 64.38% off its lows. 

The Russell 2000’s daily chart shows it’s moving inside the 52-week high-low range, exposing the development of a consolidation formation in the extreme bullish sentiment zone. Simultaneously, the 71-point reading observed in the fear and greed index reveals a bullish bias, helping support the upward bias that now prevails on the Russell 2000 Index. 

On the other hand, Russell 2000’s volatility index shows it’s moving in the extreme bearish sentiment zone, which increases the bullish perspective for the U.S index grouping the 2,000 small-cap U.S. companies.

Consequently, both the market structure consolidating in the extreme bullish sentiment zone and the decreasing volatility observed, lead us to expect further upsides for the following trading sessions, which could make it advance till its opening level of the year, at 1,672 pts.

Elliott Wave Outlook

The short-term overview under the Elliott wave perspective is shown in its 4-hour chart, which reveals the structure of a bullish sequence that remains intact since March 23rd when Russell 2000 found fresh buyers at 963.62 pts.

In the previous chart, we distinguish Russell 2000’s upward progression, moving in a complex corrective formation identified as a double three pattern (3-3-3) of Minute degree, marked in black, which belongs to a wave B of Minor degree labeled in green. 

The complexity level in the corrective sequence could be understood under the alternation principle context. Observing the first chart and considering the aggressive sell-off, lasting about in one month (since mid-February till mid-March), the alternation principle states that after a high-momentum level movement, a reduced-momentum move comes next, and vice versa.

Currently, Russell 2000 advances in wave (c) of Minuette degree, which began on July 10th when the U.S. index ended the wave e of the triangle pattern corresponding to wave (b) in blue. Once wave (b) was completed, the market participants pushed prices higher, carrying it till the 1,608 level on August 11th after the Russell 2000 Index found stiff resistance, which ended wave iii of Subminuette degree identified in green.

Consequently, we expect a limited sideways movement during the following trading sessions before continuing its advance toward fresh highs. Russell’s next upward movement could boost it to the 1,702.17 level, to test last February’s highs.

Categories
Elliott Wave Guide Forex Elliott Wave

Advanced Level Elliott Wave Analysis Guide

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

  • Complex Corrective Waves. This section, subdivided into two parts, describes the two basic groups of complex corrections.
    • Part 1. Explains the fundamental concept of a complex corrective structure, which splits into standard and non-standard complex correction.
    • Part 2. Describes the concept of wave x and expands its conditions with its combinations.
  • Complexity in Wave Analysis. This article discusses how complexity increases as impulsive or corrective movements end. 
  • Alternation and Extensions. The first part of this section reviews the alternation principle and its different configurations. The second part covers the extensions and their conditions.
  • Counting. This educational article subdivided into three parts expose how to count waves.
    • Part 1. The first summarizes the aspects covered, then it shows the importance of wave identification and ends expanding the concept of the degree in wave analysis.
    • Part 2. The second part covers the use of retracements to define the possible type of sequence in progress. It also describes the different sequences of the patterns defined by R.N. Elliott as the first and the recount.
    • Part 3. In this part, we apply the counting process in the NZDUSD and EURGBP crosses.
  • Additional Rules. In this supplementary article, we cover a set of rules defined by Glenn Neely, as points of tangency in guidelines and the rule of time.
  • Additional Observations. This article develops the observations described by Neely, concerning the potential next movement considering the type of Elliott wave pattern in progress.
  • Advanced Applications in Wave Analysis. In this four-part series, we expand the observations described by Neely about each wave’s characteristics according to the type of Elliott wave formation in the course.
    • Part 1. The first part covers the motive waves subdivided into trending and terminal impulsive waves.
    • Part 2. This part exposes the variations of the flat and zigzag patterns.
    • Part 3. In this part, we present the characteristics of the contracting triangle pattern, particularly in its restrictive subgroup.
    • Part 4. This educational article that ends our cycle dedicated to the Elliott wave analysis covers the characteristics of the non-restrictive contracting triangles and presents the expanding restrictive and non-restrictive triangle pattern.

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 4 of 4

Introduction

Introduction

Introduction

In the previous educational article, we presented the contracting triangles and the restricting group. In this last part of our four-part series, we’ll show the non-restrictive contracting triangles and the expanding triangles with its variations. 

Non-Restrictive Triangles

This sub-group of triangles is characterized by locates in any other part of the wave cycle, not exclusively in waves 4 or B. The knowledge of this type of triangles could be useful to the wave analyst in the study of complex corrective patterns. This type of triangles tends to be produced at the end of complex corrections. Frequently, non-restrictive triangles tend to be more simple to identify than restrictive triangles.

  • Wave A. This segment tends to be the most volatile in terms of price at the time of the triangle. According to the alternation principle, if wave A is violent and takes a small portion of its completion, wave B will be slower and complex than wave A.
  • Wave E. In this scenario, the last segment of a non-restrictive contracting triangle, tends to develop a non-restrictive triangle. In other words, wave E could make a triangle inside a triangle of the upper degree. From the different types of non-restrictive triangles, the horizontal triangle tends to be the most common in the real market. The following list exposes the parts where the non-restrictive triangle.
    • Wave E in a horizontal triangle.
    • Last movement of a complex correction as a double or triple corrective pattern.
    • The fifth wave of an impulsive terminal structure.
    • The wave X of a complex correction.

Expanding Triangles

The expanding triangle tends to cheat the wave analyst more than the contracting triangle. This situation occurs because when the price moves in a volatile session, it tends to create a false breakout and quickly resuming its original trend.

The main characteristics of an expanding triangle are:

  • Wave A or wave B will be the shortest wave of the triangle.
  • Wave E tends to develop an explosive movement, higher in terms of price and time than the other waves.
  • In the same way that in contracting triangles, a contracting triangle can produce in wave E, in an expanding triangle, it can construct an expanding triangle.
  • The next movement of the triangle, which could correspond to wave C or 5, should not retrace the advance of wave E entirely.
  • The expanding triangle usually does not follow any Fibonacci relationship.
  • Expanding triangles normally occurs after a powerful movement such as an extended wave or an extended wave C. 

Restrictive Expanding Triangles

The restrictive expanding triangle tends to be placed in waves 4 and B. If the expanding triangle locates in wave B, the triangle belongs to a flat pattern. The rules applied to this group of expanding triangles are as follows:

  1. Waves A and E will be related through a 161.8%, being the wave E the largest segment.
  2. Wave A or B must be the shortest segment of the triangle.
  3. Only wave B or D can fail to try to surpass the previous wave.

Horizontal Expanding Triangle. The characteristics of this pattern are as follows:

  1. Wave A is the shortest segment of the triangle.
  2. Each leg after wave A will be larger than the previous segment.
  3. Wave E should be the most volatile, complex, and longer terms of time than the other waves.
  4. Wave E tends to be 161.8% of wave A.

Irregular Expanding Triangle. This variation of the expanding triangle is the most common to find in the real market. The main characteristic of this variation is that every time that wave B try to surpass to wave A fails in its advance. Wave E and A are show a 161.8% relationship, being wave E the longest segment.

Continuous Expanding Triangle. This type of restrictive expanding triangle is the second most common pattern to find in the real market. The continuous triangle characterizes by failing when this tries to surpass the end of wave C. If wave D fails, the pattern could show a slight bullish or bearish bias. Finally, waves A and E will be related in a 261.8%, being wave E the longest segment.

Non-Restrictive Expanding Triangles

The non-restrictive expanding triangle pattern follows the same conditions as restrictive expanding triangles. Its main characteristics are as follows:

  • Usually, they don’t have any Fibonacci relationship in their internal segments. The only relationship could be found on waves A and E, where wave E length could be 261.8% of wave A length.
  • The apex of the expanding triangle occurs before the triangle. If the apex occurs between 20% and the start of the expanding triangle, the formation should be non-restrictive.

Conclusions

In this educational article, corresponding to the last part of our four-part series covering the triangle pattern, we presented in the first section, the Non-Restrictive Contracting triangle. This group of contracting triangles tends to appear at the end of complex corrections, or the end of an impulsive terminal structure.

The second section corresponds to the expanding triangles, which are characterized by tricking the different market participants, who tend to think that the market has reversed and, after its last volatile movement corresponding to wave E, they discovered that the market in fact is resuming its previous trend.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 3 of 4

Introduction

Introduction

Introduction

The triangle pattern is the third basic model of the corrective structures defined by R.N. Elliott. The triangle contains five internal segments and tends to appear in waves 4 and B. 

Glenn Neely, in his work “Mastering Elliott Wave,” expands the definitions of contracting and expanding triangle introduced by Elliott proposing two subcategories identified as non-restricting and restricting. 

In this educational article, corresponding to the third of four parts, we’ll present the triangle pattern variations and its implications in the wave analysis. In particular, we’ll discuss the contracting triangle pattern and its restrictive subcategory.

Contracting Triangles

This type of triangle is the most frequently identified in the real market. In this group, there are two types of triangles, restrictive and non-restrictive contracting triangles.

Restrictive Contracting Triangle

All contracting triangles have a similar shape in its construction. The main characteristic is that wave E ends before the apex of the triangle. The apex tends to occur in a range of 20% to 40% of the total triangle time extension. 

Concerning the thrust, in restrictive contracting triangles, it is limited by the most extended segment of the triangle (25% approx.) This type of triangles corresponds to the formations described by Elliott in his Treatise. Moreover, these patterns tend to appear in waves 4 and B.

  • Horizontal Contracting Triangle. Each segment must measure at least 38.2% of the previous segment, except for wave E. Wave B can’t be more than 261.8% of A, wave C can’t extend more than 161.8% of B. Wave D must be shorter than wave C, and wave E must be shorter than wave D.
    1. Wave A. This wave will not necessarily be the largest in terms of the price of the triangle. Likewise, it will not be the shortest wave of the pattern.
    2. Wave B. In this case, if wave B is shorter than wave A, then the rest will be shorter. If the wave is longer than wave A, there are a few possibilities that wave C will be longer than wave B, and the triangle formation corresponds to a contracting triangle. If wave C is longer than wave B, then the structure corresponds to an expanding triangle. 
    3. Wave C. Under a few circumstances, wave C could get longer than wave B. If this scenario occurs, then the base-line should be traced connecting waves C and E.
    4. Wave D. This wave must be shorter than wave C, although it could last longer than wave C.
    5. Wave E. This one must be the shortest wave of the triangle pattern.
  • Irregular Contracting Triangle. This variation is characterized by wave B being the most extended of the structure.
    1. Wave A. In this case, wave A will tend to be shorter in terms of time than wave B. The extension of wave B should be longer than 161.8 of wave A. Wave A could be any corrective pattern except for a triple zigzag or an extended flat.
    2. Wave B. This wave should be the largest wave of the entire formation, extending until 161.8% of wave A, but never beyond 261.8%. Wave B tends to be a zigzag or a double zigzag.
    3. Wave C. This wave will be shorter than wave B and should retrace at least 38.2% of wave B. Wave C could be a zigzag, flat, or an extended flat.
    4. Wave D. This wave will be shorter than wave C and should retrace at least 38.3% of wave C. Wave D could be any corrective pattern that alternates with wave C.
    5. Wave E. This wave will be the shortest wave of the triangle pattern in terms of price. Generally, wave E will tend to be a triangle pattern.
  • Continuous Contracting Triangle. This pattern is detected through the advance of waves B and D. Wave B will be larger than wave A, and simultaneously, wave D will be larger than wave C. The thrust of this pattern would be at least 161.8% respect to the largest segment of the triangle.
    1. Wave A. This wave should not be lower than 38.2% of wave B. Wave A could be a flat or a zigzag, but never a triangle or a double or triple zigzag. Most of the time, wave A will be a flat pattern.
    2. Wave B. This wave must be the largest segment of the complete formation. Its formation could correspond to a zigzag, double zigzag, or rarely a triple zigzag.
    3. Wave C. This segment must be shorter than wave B, and can’t be more complex than wave B.
    4. Wave D. This segment must be larger than wave C in terms of price and could be any type of corrective pattern except a triple zigzag.
    5. Wave E. This segment must be the shortest wave of the triangle. If the continuous triangle moves in wave B, this wave will frequently end at 61.8% or 38.2% of the entire movement.

Conclusions

In this educational article, corresponding to the third part of the four-part series, we presented the contracting triangle pattern under the restrictive subcategory.

The contracting triangle tends to be the most common corrective pattern in waves 4 and B. As said by R.N. Elliott in his Treatise, the knowledge of the corrective formations and its implications provides to wave analyst an advantage of the potential next move of the market.

In the next article, we’ll end this four-part present the non-restrictive contracting triangles and the expanding triangles.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 2 of 4

Introduction

Introduction

Introduction

As we commented in previous articles that cover the corrective structures, R.N. Elliott considers its study as a key to understand the current market situation and what to expect for the next path.

In this educational article, we expand the observations of the flat and the zigzag pattern.

Corrective Patterns in Action

In the first part of this four-part series, we commented that impulsive waves create trends. Corrective waves correct or retrace the progression of the trending movement developed by the motive waves. A corrective structure will never appear in a wave 1, 3, 5, in a wave A and C of a zigzag, and wave C of a flat pattern.

The Flat Pattern

The flat pattern develops different variations depending on the strength of the trend or the level of complexity of the correction in progress. In its fundamental nature, the flat follows an internal sequence as 3-3-5.

On the other hand, variations in the flat pattern surge in the extensions of its waves B and C. In brief words, as wave B extends more than the 100% of wave A, wave C will tend to be short. And the lesser the retrace of wave A by wave B, the larger wave C will be.

  1. Failure in B. This case represents the scenario when wave B retrace between 61.8% and 81% the progress of wave A. If wave B extends beyond 81%, it means that the market is temporarily weak. Wave B will fail when the wave A be a double zigzag or a double combination. Wave C will tend to retrace the advance of wave B entirely. This variation could appear in waves 2, 4, A, B, or inside a horizontal triangle in its legs C, D, or E.
  2. Failure in C. This type of failure tends to occur when wave A experiences a complete or almost complete retracement made by wave B. When the price movement fails in wave C, the market shows a signal against the dominant trend. In this context, this pattern will appear in a terminal sequence. Wave C duration will be shorter than wave B and will show a similar duration than wave A. This variation could arise in waves 2, 4, A, B, or the wave 5 of a terminal impulsive wave.
  3. Regular. This formation is the typical flat pattern. Wave B retraces at least 81% of wave A, and wave C will advance wave B entirely. Also, this wave could extend between 10% and 20% beyond the end of wave A. In this variation, wave B will tend to be a complex structure, and its extension in time will be longer than waves A and C. The regular flat could rise in waves 2, 4, A, B, or in waves C, D, or E in a terminal impulsive wave.
  4. Double Failure. This scenario is infrequent; however, the double failure occurs when wave B to retrace beyond 81% of wave A, and wave C doesn’t extend beyond 100% of wave A. The double failure variation will look like a contracting triangle. Finally, this scenario will tend to appear in waves 2, 4, in wave A inside of a triangle or an irregular flat. When it happens in a wave B, it could belong to a zigzag, a regular on in an extended flat.
  5. Extended. This configuration occurs when wave C advance reaches between 138.2% or beyond 161.8% of wave B. Waves A and B must be similar in terms of price and time. This variation should tend to appear in waves 1, 3, or 5 as an impulsive terminal wave. In waves A, B, C, or D in a horizontal triangle, or wave E of an expanding triangle.
  6. Irregular. This is the most straightforward variation of the flat pattern. At the same time, it isn’t easy to find it in the real market. This pattern is indicative of the strength of the previous move. Wave B must be higher than wave A in price. Generally, wave C will be equal to wave A in price and time relation. This variation tends to appear in waves 2, 4, in wave B before the extended wave C of a flat, or as the wave B in a zigzag when wave C moves beyond 161.8% of wave A.
  7. Continuous. This correction is the most powerful variation of the flat pattern. This type of formation tends to imply volatile movements of the same degree. The continuous flat pattern tends to emerge in the second wave after an extended third wave. When it appears in the fourth wave, this variation could occur before a fifth extended wave. In a wave B, it surges before an extended wave C; in a triangle pattern, it could happen in the a-b-c series, or in a wave B of a zigzag that forms a triangle structure.

The following figure represents the seven flat pattern variations.

The Zigzag Pattern

The main difference between zigzag and flat pattern is that zigzag does not have a wide variety. The central aspect to take in consideration with the zigzag pattern is the extension of wave C compared with wave A, and the subdivisions number of wave C compared with wave A.

  1. Wave A. This wave must have an impulsive structure; this means that its internal structure must contain five segments. The A wave of a zigzag formation shouldn’t experience a retrace beyond 61.8% by wave B. If the wave B retraces beyond 61.8%, this could be indicative that the market is developing a complex correction as a double zigzag or a double combination.
  2. Wave B. This wave must show a corrective structure with three segments in its construction. As stated earlier, its progression should not go beyond 61.8% of wave A. This wave never will present a continuous correction. If this situation occurs, then the zigzag moves inside a triangle pattern. In this case, the zigzag will be the second wave of an impulsive sequence. Consequently, if this scenario occurs, then the wave B could not be a complex corrective structure as a double or triple zigzag, nor any other type of combination of corrective structures.
  3. Wave C. This part of the zigzag pattern contains five internal segments. Its extension could be from 61.8% to 161.8% of wave A.

Conclusions

In this educational article, we presented the variations of the flat pattern and the zigzag. These variations can provide a significative clue to the wave analyst respecting to the market situation and what to expect for the following sessions.

In the next educational article, corresponding to the third part of the advanced applications in wave analysis, we will present the variations in the triangle pattern.

Suggested Readings

      • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 1 of 4

Introduction

Introduction

Introduction

The Elliott wave theory applied in financial markets allows the wave analyst to support its forecasting process and make a decision in the investment stage.

This educational article corresponds to the first of four parts, which aim to help understand the current market position. In particular, we’ll present the impulsive waves and its variations.

Impulsive Waves in Action

The impulsive movements appear only in advance positions. In consequence, waves 2, 4, b, d, or x, will never be part of a motive wave. The wave analyst can find motive waves in only two market stages, in a trend structural series or when the markets develop a terminal sequence.

Trending Impulsive Waves

  1. First Extended Wave. When the market progress in a first extended wave, the second wave shouldn’t retrace beyond 38.2% of the first wave and should take more time in its formation than the fourth wave. The fifth wave will be the shortest motive wave. 
  2. First Non-Extended Wave. When the first wave is not the extended wave, the second wave can retrace it until 99%. If the first wave surges after a noticeable decline, the third wave will be the extended wave.
  3. Second Wave. If the first motive wave is (or probably will be) the extended wave, the second wave should not retrace beyond 38.2%. If the first wave is not the extended wave of the impulsive sequence, the second wave could retrace it until 99%. If in the second wave, its wave A retraces beyond 61.8%, thus the second wave should fail in its wave C.
  4. Third Extended Wave. This sequence has more chances to occur in the real market. In general, the fourth wave tends to take more time in its completion than the second wave. When the third wave is the extended move, the fifth wave tends to fail.
  5. Third Non-Extended Wave. When the third wave is not the extended wave, then the first or fifth wave will be the extended wave. However, the third wave will never be the shortest.
  6. Fourth Wave. If the fifth wave is the extended wave, then the fourth wave will be the complex correction of the complete five-wave sequence. If the first wave is the extended move, then the fourth wave will be a simple correction, and the second wave the complex correction. Generally, when the fifth wave is the extended move, the third wave will experience a retrace between 50% and 60%. If the third wave is the extended wave, the fourth wave will be the complex and retrace the third wave between 38.2% and 61.8%.
  7. Fifth Extended Wave. When the fifth wave is the extended move, its length in terms of price will be at least the length between the first and the end of the third wave. In general, this extended wave should not experience a complete retrace.
  8. Fifth Non-Extended Wave. In this case, the fifth wave should experience a retracement near to 100%. If the fifth wave belongs to the third wave of upper degree, then the fifth wave will experience a retrace until the fourth wave zone.
  9. Failure in Fifth Wave. This case is possible when the third wave is the extended wave.

Terminal Impulsive Waves.

In his work “The Wave Principle,” R.N. Elliott defined this kind of pattern as “triangle diagonal.” However, Glenn Neely to avoid confusion re-calls to this pattern as “terminal impulsive wave,” providing an intuitive and it-self definition. 

  1. First Extended Wave. In this case, the terminal impulsive wave tends to appear. The second wave shouldn’t retrace beyond 61.8% of the first wave. The third wave should extend near to 61.8% of the first wave, but it should never be less than 38.2%. The fourth wave will tend to be 61.8% of the second wave, and the guideline that connects the ends of waves 2 and 4, should be clear in its identification.
  2. First Non-Extended Wave. When this scenario occurs, the terminal structure will be the wave C of a corrective formation and not the end of an impulsive sequence.
  3. Second Wave. As we said previously, if the first wave is the extended wave, the second wave should retrace until 61.8% of the first wave. If the first wave is not an extended wave, thus the second wave could retrace until 99% the first wave.
  4. Third Extended Wave. When the third wave is the extended wave, rarely the market will develop a terminal impulsive wave. The likely context in its appearance could occur in a wave C, not in a motive wave.
  5. Third Non-Extended Wave. If this scenario occurs, the first wave will likely be the extended wave, and the fifth wave will be the terminal impulsive wave.
  6. Fourth Wave. The third wave should not experience a retrace beyond 61.8% by the fourth wave.
  7. Fifth Extended Wave. This scenario can happen if the structure advances inside of the fifth wave of upper degree or when the terminal impulsive sequence is the wave C of a corrective pattern, except in a horizontal triangle.
  8. Fifth Non-Extended Wave. In this scenario, the fifth wave shouldn’t be higher than 61.8% of the third wave, and the fifth wave shouldn’t be more complex than the other two impulsive waves. The fourth wave should take less time and price than the second wave.

Conclusions

In this educational article, we reviewed the context of each case of extended, non-extended, and corrective waves, which advances in a motive sequence.

In particular, the wave analyst must maintain in consideration that in an impulsive sequence must have only one extended wave, in this context, a complex correction should appear before or after an extended wave.

In our next article, that corresponds to the second part, we’ll present the observations in corrective waves, in particular, we’ll discuss the flat and zigzag patterns.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Additional Observations in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

R.N. Elliott, in his treatise “The Wave Principle,” emphasizes the importance of the corrective patterns knowledge. Elliott adds that its comprehension can provide to wave analyst an advantage in the forecasting process.

Glenn Neely, in his work “Mastering Elliott Wave,” not only expands this information defining a set of observations about the different corrective patterns and its potential implication for the next path. He also extends these observations to impulsive structures.

Corrective Patterns

The significative movements occur after a correction; in this sense, the knowledge of the potential extension of the next move provides a valuable edge to wave analyst.

The following list shows the corrective formations according to their strength level.

  1. Triple zigzag. This complex corrective pattern is the strongest of the corrections group. The triple zigzag rarely appears in the real market; however, its appearance is indicative of its strength (or weakness) level. When it surges, it will raise on a terminal structure, or in a triangle pattern. Once the triple zigzag ends, the next move will not experience a complete retracement.
  2. Triple Combination. This type of complex correction can be formed by a combination of flat, zigzag, and triangle. Usually, it will end with a triangle pattern. Once the triple three formation ends, the next path would tend to retrace the entire movement even in an upper degree. If this pattern surges as a terminal structure, the next move should entirely retrace the formation triple three.
  3. Triple Flat. This complex formation corresponds to the combination of three flat patterns. In this case, the next path should not retrace its advance completely, except when the Elliott wave structure surges as a terminal structural series in the fifth wave.
  4. Double Zigzag. This complex corrective pattern should not experience a complete retracement by the next movement.
  5. Double Combination. The double combination is a complex corrective pattern that generally could contain a zigzag or a flat formation with a triangle. In the same way, this structure tends to end with a failure in wave c. This pattern tends to be entirely retraced by the next path.
  6. Double Flat. This complex combination surges in rare cases. However, when it rises, generally, the next move will not retrace the complex structure fully.
  7. Extended Zigzag. This variation of the zigzag pattern generally appears in triangle formations or at the end of a terminal structure. The next path of an extended zigzag generally will never be entirely retraced.
  8. Extended Flat. This variation tends to emerge in triangle patterns. In the same way that the extended zigzag, the next move should not retrace it completely.
  9. Zigzag. This standard corrective pattern can be found in the real market. In general, the next path could retrace wholly and partially the extension of the zigzag pattern.
  10. Flat. Although this pattern and its variations are typical, the retracement of the next movement tends to be unclear.
  11. Double Three. In general, the extension of this complex corrective pattern tends to warn about the potential next movement. In short, while most extended being the double three pattern, the next move will be stronger.

Triangles

Glenn Neely, in his work, considers that triangle patterns require a different treatment. 

  1. Contracting Triangle. The thrust developed in a contracting triangle is a movement with a higher level of momentum. This move will be bigger or smaller, in terms of time, depending on its nature. If the contracting triangle is horizontal, the next path will be equal to the largest segment of the triangle. In the irregular contracting triangle case, the next movement will reach the 161.8% respecting to the largest leg of the triangle. Finally, in the continuous contracting triangle, the thrust can reach the 261.8% of the broadest segment of the triangle. 
  2. Expanding Triangle. In this kind of triangle, the thrust differs from the case of the contracting triangles. The thrust of an expanding triangle tends to be minor than the most extended segment of the triangle.

Impulses

The advantage of the next movement of an impulsive wave is the knowledge of the potential correction. In this context, it is tough to determine what kind of correction will occur before the corrective sequence begins. 

  1. Trend. After the motive wave completion, the impulsive movement should not experience a retracement beyond the origin of its first segment, except if the impulsive wave corresponds to a fifth wave. In general, waves A, 1, or 3, should not experience a retrace greater than 61.8% by the next move.
  2. First Extended Wave. When the extended wave is the first move, the motive wave should experience a retracement until the end of wave 4. 
  3. Third Extended Wave. In this case, once the impulsive wave is completed, the motive structure should experience a retrace between the high and low of the fourth wave.
  4. Fifth Extended Wave. The next corrective structure of a fifth extended wave should retrace more than 61.8% to the impulsive move.
  5. Terminal Structure. The movement after a terminal structure should retrace the progression of the terminal structure completely. The time elapsed in the evolution of the corrective move should be shorter than 50% of the time elapsed in the making of the terminal structure.

Conclusions

In this educational article, we discussed the observations described by Glenn Neely in his work “Mastering Elliott Wave” concerning the potential next movement, depending on the pattern in progress.

In this context, Neely, following the steps of R.N. Elliott, provides an ample proportion of time to describe what to expect after a corrective structure. This knowledge could provide the wave analyst an advantage in its comprehension about the market situation and what should be the potential next move.

In our following article, we will present the advanced applications in the wave analysis in a four-part series.

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

Categories
Forex Elliott Wave

Additional Basic Rules in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

In our previous educational article, we learned to recognize and count waves finishing the essential topics in the wave analysis process.
From now, we will start to present additional concepts and rules described by Glenn Neely in his work “Mastering Elliott Wave,” which would support the wave study.

Points of Tangency in the Guidelines

The tangency rule will help wave analysts in the process of identification between impulsive and corrective waves. This rule establishes that in a five segments pattern, only four internal movements will be touched simultaneously. This rule can be applied in impulsive and triangular formations.

The following figure illustrates a different set of Elliott wave structures where the wave analyst can apply this rule.

From the figure, the guidelines of both the first and second patterns converge each other. In the third figure, the guideline is parallel. The wave analyst must consider that the different segments that conform to the Elliott wave structure under analysis must have the same degree.

The following figure illustrates the tangency rule application in complex corrections.

From the figure, we distinguish that once touched the fourth point, corresponding to wave C completion, the price reacts against the direction of wave C. This reaction corresponds to a wave X. Its finalization will give the start of a new corrective structure from where the wave analyst could apply the tangency rule.

Rule of Time

Time is an essential element when the wave analyst makes its market study. According to the Elliott wave theory, in an impulsive structure, the two non-extended waves tend to be similar in price, time, or both. In corrective waves, a zigzag pattern its waves A and C tends to be identical in terms of time.

In short, the rule of time establishes that there can not be three adjacent waves of the same degree, which be equivalent or similar in time in a simultaneous way. 

The next picture illustrates the rule of time applied in impulsive structures.

From the figure, we observe that:

  1. If the two first segments of a pattern are equal or similar, the third segment will be different in terms of time, price, or both. The theory says that the third move will elapse the sum of the first and the second part.
  2. If the second segment lapses more than the first move, the third segment will be related in 61.8% or 161.8% of the first movement.
  3. If no one of the waves matches in terms of time, these could be adjusted in a Fibonacci ratio.

The following figure exposes the rule of time applied in corrective waves, in particular, the case of a flat pattern.

In some cases, the time elapsed by the wave C will be the sum of the time-lapsed by waves A and B. However, in the real market, the typical situation that could occur is that waves A and C will tend to match in terms of time, and wave B will be longer.

Conclusions

In this educational article, we started to present two basic rules for the wave analysis process. The first one corresponds to an extension of the canalization process, which its use allows the wave analyst to visualize with an objective method to define what kind of structure could be developing the price action.

The second one will bring the wave analyst a tool that would make a forecast of what could be the next path the market could take.

In the next educational article, we will present the advanced rules defined by Glenn Neely in his work “Mastering Elliott Wave.”

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

How to Count Using the Elliott Wave Principle Part 2 of 3 – Advanced Level

Introduction

Introduction

Introduction

In our previous educational article, we discussed the basic concepts of the Wave Principle developed by R.N. Elliott and the wave counting process.

Glenn Neely, in his work “Mastering Elliott Wave,” describes a series of rules that will allow the wave analyst to objectively identify what kind of structural sequence is developing the price action.

In this educational article, we present a summary of the basic rules described by Neely and their impact on the wave analysis and counting process.

Use of Retracements in Wave Analysis.

When the wave analyst faces his first real-time market analysis, it may seem confusing to define what kind of wave the market is developing.

To solve this problem, Neely defined a set of rules that will allow the wave analyst to determine what kind of sequence the market develops.

These rules are described as follows.

Our reader can examine with more detail these rules and the Fibonacci retracements use in wave analysis here.

Types of Structural Series

R.N. Elliott, in his work “The Wave Principle,” defined some specific patterns that tend to repeat across the time. These patterns are built by different structural series that the wave analyst should know before to start the counting process. These Elliott wave structures are formed as follows.

Impulsive waves (:5)

  • Impulse – 5-3-5-3-5
  • Leading or Ending Diagonal – 3-3-3-3-3

Corrective waves (:3)

  • Zigzag – 5-3-5
  • Flat – 3-3-5
  • Triangle: – 3-3-3-3
  • Double Three – 3-3-3
  • Triple Three – 3-3-3-3-3

Remember that double and triple three are combined patterns.

The First Count and the Recount

As the level of complexity increases, wave sequences tend to create new waves of a higher degree, which can lead to confusing the wave analyst to identify where each wave begins and ends. For this, we use the validation channels and rules we have seen in previous articles.

Usually, the first analysis tends to be the one that presents the greatest challenge, because it tends to consider the highest level, or the lowest, to start the wave count. However, not necessarily the lowest, or highest level will be the beginning of an impulsive structure. This situation occurs because most methods of analysis consider the highest and lowest level as the starting point for analysis.

In terms of wave theory, a structural sequence will not end at the highest (or lowest) point due to the loss of momentum of price action. This situation will be reflected in one of the following four ways:

  1. An impulsive sequence containing a failure in the fifth wave.
  2. A flat pattern will end with a C-wave failure.
  3. A complex formation will end with a non-restrictive contractive triangle.
  4. An impulsive structure ends with a terminal pattern.

The following figure shows each of the four scenarios where the sequence will not end at the lowest level.

When a potential impulsive pattern experiences a reversal higher than its beginning, then the recount must consider that the origin of the previous movement is not the origin of an impulsive structural series, but can be part of a complex corrective structure.

Conclusions

In this educational article, we review different criteria described by Glenn Neely in his work “Mastering Elliott Wave,” which allow the wave analyst to identify what kind of structure the market could be developing.

Later, we reviewed the different patterns that R.N. Elliott described in his work “The Wave Principle” and his internal sequences. Currently, the patterns described by Elliott in the 1930s still can be recognized in the real market.

Finally, we discussed the cases where the market does not finish or start a new impulsive or corrective sequence from the lowest or highest point but will depend on how the previous structural series ends. 

In the next educational article, corresponding to the third and last part of the wave counting process, we will see a series of examples of wave counting and identification.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Crypto Market Analysis Forex Elliott Wave Forex Signals

Bitcoin Cash Prepares for a New Rally

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

BCH/USD, in its 4-hour chart, shows the advance of a potential upward impulsive sequence that began when the price found its bottom at level 133.67 last March 13th.

From the previous chart, we observe the price action advancing in its wave ((iv)) of Minute degree labeled in black. At the same time, this ongoing structural series is forming the internal segment corresponding to wave (c) of the Minuette degree identified in blue.

The wave (c) in progress began at the top of April 30th, located at level 275.95, when Bitcoin Cash completed its wave (b).

The internal structure of the wave (c) shows the intraday downward trendline joining the sequence of lower highs, which leads us to conclude that the short-term sentiment maintains on the bearish side.

On the other hand, according to the Elliott wave theory, for the long-term structural series to be a valid impulsive sequence, the wave ((iv)) must not penetrate the area of wave ((i)).

In this context, the corrective downward movement currently being developed by BCH/USD should not fall below the 200 level, which corresponds to the top of the wave ((i)).

On the other hand, one of the aspects that consider both the alternation principle and the construction of the extended wave indicates that an extended wave will be preceded or followed by a complex corrective structure.

Considering this Elliott wave concept, from the 4-hour chart, we observe that the current corrective sequence shows a level of complexity higher than the complexity level developed by wave ((ii)). Consequently, once the structural series of wave ((iv)) will complete, BCH/USD should perform a new upward impulsive movement that should present the characteristic of an extended wave, which could surpass the level 352.

In conclusion, as long as the wave ((iv)) of Minute degree does not finish, our preferred positioning will remain neutral, waiting for confirmation to enter on the bullish side that allows incorporation to the wave ((v)).

Categories
Forex Elliott Wave Forex Signals

EOS Consolidates on the Leading Diagonal Pattern

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The price action developed by EOS and reflected in its 4-hour chart, shows the cryptocurrency testing the baseline of the leading diagonal pattern, which links the end of the waves ((ii)) and ((iv)) of Minute degree labeled in black.

According to the textbook, a leading diagonal pattern is an impulsive structure having five internal segments, which are subdivided into an internal sequence 3-3-3-3-3. This pattern tends to appear on the first wave of an impulsive series.

So far, EOS completed a five-wave bullish sequence of Minute degree. This impulsive wave began in the March low at 1.4200. At the same time, this structural series gave rise to a higher-grade impulsive wave corresponding to the wave 1 of Minor degree labeled in green.

Following the wave theory described by R.N. Elliott, since EOS completed an impulsive movement, the market must perform a corrective sequence of the same degree and in the opposite direction to the previous move.

From the previous chart, we observe the price action developing a corrective downward movement. Within its internal structure, we recognize that the sequence in progress could correspond to a wave ((b)) of Minute degree identified in black.

This movement, which is composed of a three-wave internal structure, is moving on the baseline of the leading diagonal pattern. A bearish breakdown would activate the wave ((c)) in black.

Once EOS completes this three-wave sequence, it will end the wave 2 of Minor degree, and consequently, the price action will give way to a third upward wave.

According to the alternation principle between the impulsive waves, considering that the first wave has a lower momentum, the third wave could have a higher momentum than the first one.

In conclusion, in the short term, our preferred positioning remains on the bullish side, which will be confirmed once the Minor degree wave-2 is finished.

Categories
Forex Signals

Litecoin Shows Two Potential Scenarios

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

The cryptocurrency Litecoin against the US Dollar (LTC/USD), in its 8-hour chart, shows the plummet that led it to lose more than 70% of its value since February 13th when the price topped at level 84.193. 

Once Litecoin hit the top at 84.193, the price made a three-wave bearish sequence, which ended on March 13th when the price found fresh buyers at level 24.850. In the previous chart, we distinguish this structural series identified in the waves ((a)-((b))-((c)) of Minute degree in black.

After LTC/USD completed the wave ((c)), the price action began to advance in a complex structural series with its internal movements composed of three waves. This sideways movement with a slightly upward bias leads us to foresee two potential scenarios for currency crypto.

Scenario 1 – Triangle Pattern in Progress

The first scenario considers the possibility that Litecoin advances in a triangular formation belonging to a wave B of Minor degree labeled in green.

According to the Elliott wave theory, a triangle pattern is composed of a series of five internal segments, which is subdivided into three waves following the 3-3-3-3 structure. Likewise, within a price cycle, this pattern tends to appear in waves 4 and B.

Scenario 2 – Developing a Leading Diagonal

The second scenario presents the option that the price action develops an ending diagonal pattern.

This type of pattern is composed of five internal waves overlapped one each other and follows a 3-3-3-3-3 sequence.

If the price action develops this scenario, the next movement should correspond to a wave 2 of Minor degree, and it should be composed of a three-wave structural series.

The main consequence of this scenario would be that, once the wave 2 completion, Litecoin should perform a bullish wave 3.

At the same time, considering the alternation principle of the wave theory, this third wave should have greater upward momentum than that momentum observed in the current wave in progress.

In conclusion, our short term preferred positioning is on the neutral side until the completion of the current formation.

Categories
Forex Elliott Wave

How to Count Using the Elliott Wave Principle Part 1 of 3 – Advanced Level

Introduction

Introduction

Introduction

Wave counting is a systematic process by which the wave analyst identifies in a logical and standardized order the movement developed by the action of the market.

R.N. Elliott, in his work “The Wave Principle,” comments out that counting is not the most relevant part of the study of wave theory; however, this process empathizes that it is useful when studying the market progress across time.

Elliott, the Wave Principle, and Financial Markets

The Wave Principle, defined by R.N. Elliott, is part of the law of nature, which, when known, can make predictions without knowing the underlying causes that originated this phenomenon.

In this context, financial markets are the result of a socio-economic interaction, which reflects the psychological feeling of the participants interacting in the negotiation process.

Despite the interests of each market participant, the outcome of the trading process is reflected in a price chart.

Elliott, in his work “The Wave Principle,” detected that price tends to make repeated movements over time. 

On the one hand, there are movements that, over time, create trends. Elliott defined these movements as impulsive and are characterized by being composed of five segments.

On the other hand, Elliott described movements that oppose to impulsive moves as corrections and are composed of three internal segments.

Once the price action completes an impulsive sequence and a corrective movement, the market completes a cycle and starts a new one of similar dimension or degree. 

The following figure shows the complete structure of a cycle.

What We Have Studied So Far

Until now, our study of wave analysis has included the following aspects:

  • Identification of directional and non-directional movement.
  • Impulsive and corrective structure.
  • Types of corrective waves.
  • Extensions.
  • Canalization.
  • The alternation principle.
  • Validation of impulsive and corrective waves.
  • Complex corrective structures.
  • Identification and wave degrees.

The process of analyzing and identifying waves will be an integration of all these concepts, which will allow the wave analyst to make a high probability forecast for the next market movement.

The Degrees Importance

R.N. Elliott defined a set of degrees that do not obey a specific timeframe, for example, hourly chart, or 2-day temporality. But allow the wave analyst to evaluate a structural sequence that maintains a proportionality in terms of price and similar time.

Also, the use of the degrees allows us to identify, and in turn, to predict what will be the next movement that should act for the price in a given time horizon.

The following table shows the different degrees described by Elliott and the contributions incorporated by Prechter & Frost in his work “Elliott Wave Principle.”

In general, our analyses will start from the Subminuette degree.

Conclusions

In this first section, we have seen the basis of the Wave Principle developed by R.N. Elliott. Likewise, we review the structure that makes up a complete cycle and concludes with the description of the different degrees that Elliott defined to maintain a systematic order in the process of analysis.

In the next educational article, we will review the different regression rules that will allow us to systematize the counting process in the first wave count.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
  • Prechter, R., Frost.A.J.; Elliott Wave Principle: Key to Market Behavior; New Classic Library; 10th Edition (2005).
Categories
Forex Elliott Wave

Alternation and Extensions in the Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

In previous articles, we discussed the concepts of alternation and extensions and their importance in wave analysis.

R.N. Elliott, in his work “The Wave Principle,” described alternation as a principle of nature. Likewise, since financial markets are the result of human activity, and consequently part of nature, they are governed by the “law of nature.”

Elliott also identified the existence of extensions as part of impulsive movements. In particular, in his Treatise, Elliott points out that extensions should appear only on one of the three motive waves and never on more than one.

In this educational article, we will review and expand on the concepts of Alternation and Extensions applied in wave analysis.

Alternation

As we have seen in previous articles, alternation can be recognized in different forms, which are detailed as follows:

  1. Price, which corresponds to vertical advance, either increasing or decreasing.
  2. Time, which corresponds to the time taken by the construction of each wave.
  3. Severity, which is the ratio of the wave to the impulsive pattern, this aspect applies only to corrective waves 2 and 4.
  4. Complexity, which refers to the number of subdivisions that the Elliott pattern has in development.
  5. Construction, an Elliott wave pattern, can be a flat, zigzag, triangle, etc.

So far, we have studied the characteristics of alternation in the first three aspects. 

In impulsive structures, they can alternate in terms of time and price. However, in corrective structures, alternation in terms of price is usually not relevant. 

However, on alternation in time, in particular, one must verify the time taken by each phase of the corrective pattern, which in general will be very different from each other. Likewise, in terms of severity, if a corrective wave produces a deep retrace to the previous impulsive wave, likely, the next corrective wave will not show a deep retrace and vice versa.

The next aspect that corresponds to the alternation principle is complexity or intricacy, which refers to the number of internal subdivisions that have an Elliott wave pattern, compared to the number of subdivisions that have the adjacent structure.

In practical terms, it will be useful for the analysis of poly-waves and multi-waves. In this way, it will be helpful for one wave to be subdivided and the other not. 

The following figure shows cases for impulsive and corrective structures.

The alternation in terms of construction corresponds to the patterns that compose an impulsive or corrective structure. 

For example, in a corrective sequence in which the first movement is composed of a zigzag pattern, the next corrective move can be any structure, minus a zigzag. 

In this context, in the real market, a typical sequence is first the appearance of a zigzag and then a movement corresponding to a flat pattern, as shown in the following figure. Likewise, if the price action develops an impulsive structure, the next movement will correspond to a corrective structure of the same degree.

 

Extensions

Usually, in wave analysis, the extension and subdivision concepts tend to be used interchangeably. However, Glenn Neely, in his work “Mastering Elliott Wave,” shows that both terms are independent.

On the one hand, the extension corresponds to the wave with the longest movement in favor of the trend. As we have seen in previous articles, the extended wave appears in a single wave, and this may be in the first, third, or fifth wave, but it will never be present in more than one simultaneously.

On the other hand, the term subdivision applies to the number of segments constituting a wave, which can be impulsive or corrective.

Thus, the extended wave will not necessarily be the one with the most subdivisions. Likewise, as the complexity of the wave under study increases, the level of subdivisions that constitute it will also increase.

Finally, as indicated by R.N. Elliott in his Treatise, the extended wave is a relevant factor in terms of the behavior of an impulsive wave, either by what the most complex corrective wave will be. It can also lead the wave analyst to avoid losses and obtain gains from its knowledge.

When the first wave is extended, the structural sequence has a wedge shape. In this series of waves, the ends of waves 1 and 3 and waves 2 and 4 are joined. Usually, the fifth wave will end up under the higher guideline. The structure shall be complete when the price action violates the lower guideline joining waves 2 and 4.

When the third wave is the extended one, the fourth wave should not retrace beyond 38.2% of the third wave advance. If the retrace extends beyond 38.2%, this would be indicative of a weakness in impulsive movement, and consequently, the fifth wave should not reach a new high.

Finally, when the fifth wave is the most widespread, waves 1 and 3 may be similar, the third wave being slightly longer than the first and the fourth wave the most complex corrective wave compared to the second wave. The fifth wave will have the appearance of a false rupture of the directive that joins waves 1 and 3.

Conclusions

In this educational article, we have seen the importance of the principle of alternation in wave analysis, which can provide valuable information in the study of price action.

Also, knowledge of the alternation principle can help the wave analyst to identify which wave will be extended. In particular, when the analysts look to incorporate to the trend when it is in progress.

In the next educational article, we will study the process of wave counting and counting.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Understanding the Complexity in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

Financial markets are the result of human interactions where one party buys and the other sells. The results of these actions are reflected in a price chart. 

R.N. Elliott studied the interactions between these two forces that move the market. In his study, Elliott detected that specific patterns repeat themselves over time. He also identified that the price tended to move in impulsive and corrective movements.

Elliott recognized that as time progresses, the price develops movements that, in its basic unit, correspond to segments, those that have a low level of complexity. 

The complexity increases at an additional level as these segments complete a series of three or five movements, giving origin to the wave. 

Later, as a wave is completed, another movement emerges, giving course to a new wave. As this ordered sequence advances in time, the price forms structures that we could call as “poli-waves,” which Elliott defined in the form of patterns corresponding to a structure or wave of higher degree.

The interaction between different sequences of “poli-waves” or basic wave patterns, give origin to a more complex structure, which we can define as “multi-wave.” In turn, when a succession of 3 or 5 multi-waves completes, the price action creates a structure of a higher degree whose complexity level is higher. We can call this complex structure as “macro-wave.”

Multi-wave Construction

Multi-waves are complex structural series that is characterized by having at least one poly-wave in their internal structure. The type of waves can be impulsive or corrective.

Impulsive Multi-waves. They are structures in which one or several of their impulsive waves are poly-waves. Its training requirements are as follows:

  1. Of the three impulsive forward waves, only one must be a poly-wave; the other two can be simple movements.
  2. At least one of the two corrective waves can be a poly-wave, the other can be a poly-wave or a simple wave.
  3. The longer-lasting corrective wave 2 or 4 will occur just before or after the extended wave.

The following figure shows the different patterns of multi-waves of impulsive nature, being the second case, which corresponds to the third extended wave the most common.

Corrective Multi-wave. In the same way as multi-impulsive waves, the corrective multi-waves must contain specific requirements, which are described below.

  1. One or two of the waves that are divided into five waves in the longer pattern should be able to be subdivided as a poly-wave. If it has only one structure subdivided into five, it will be a Flat, while if it has two structures divided into five, it will be a zigzag pattern.
  2. The multi-wave B wave is likely a corrective poly-wave.

The following figure shows two types of corrective multi-waves.

 

Complex Multi-waves Construction

The complex multi-wave analysis does not differ from complex wave analysis composed of poly-waves. The difference is that complex multi-waves are composed of multi-wave groups and not poly-waves.

Macro-waves Construction

As the market develops, the structural series can be grouped as multi-waves and thus form a macro-wave. 

Impulsive Macro-waves. This type of structure is composed of a multi-wave in one of its three impulsive waves, while the other two will be a poly-wave. 

Corrective Macro-waves. Must contain at least one multi-wave, and another wave must be a poly-wave. If the structural series has two multi-wave, the complex structure will be a zigzag, and its formation has only one multi-wave, the corrective structure will be a flat pattern.

Conclusions

In this educational article, we have seen how, as time advances, the complexity of the waves also increases. 

However, the wave analysis whose level of complexity is higher, being it a multi-wave or macro-wave, must be realized in the same way to that studied in the wave analysis section corresponding to the intermediate level wave analysis. 

This situation leads us to conclude that the market behaves in a fractal way over time, and wave analysis does not change regardless of the proportion of time studied.

In the next educational article, we will expand on the concepts of alternation and extensions.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Complex Corrective Waves Analysis – Advanced Level – Part 2 of 2

Introduction

Introduction

Introduction

In the first part of the complex corrective wave analysis article, we presented two conditions that suggest the development of a wave x. 

The first condition considers whether the second compacted corrective wave retraces less than 61.8% from the first correction. The second condition occurs if the second corrective structure retraces more than 161.8% from the first correction.

Glenn Neely, in his work “Mastering Elliott Wave,” indicates that if the first condition occurs, then the market performs a complex correction with a small wave x. While for the second case, the price action develops a complex correction with a large wave X.

Condition 1 – Complex Correction with Small Wave x.

When the wave analyst identifies a non-standard wave, there is a high probability that the wave x is smaller than 61.8% of the previous corrective phase. This type of wave tends to take the form of an impulsive sequence. However, its internal details rule out this possibility.

The non-standard structural sequence or series may have various combinations, which are detailed below:

  1. Double zigzag (5-3-5-wave x-5-3-5)
  2. Double three (5-3-5-wave x-3-3-3-3-3)
  3. Double three (5-3-5-wave x-3-3-5)
  4. Double flat (3-3-5-wave x-3-3-5)
  5. Double three (3-3-5-wave x-3-3-3-3-3)
  6. Triple zigzag (5-3-5-wave x-5-3-5-wave x-5-3-5)
  7. Triple three (5-3-5-wave x-5-3-5-wave x-3-3-3-3-3)
  8. Triple three (5-3-5-wave x-3-3-5-wave x-3-3-3-3-3)

From the above list, the triangular formation likely corresponds to a contractive triangle. On the other hand, waves x can be other corrective waves without altering the entire structure. 

The wave analyst must take into account the application of the alternation principle. In particular, the x-wave will alternate with its preceding wave. For example, if the first compact wave corresponds to a zigzag, the x-wave will be a plane or a triangle.

The following figure shows two examples of complex corrective waves that accomplish thew first condition. In particular, the case corresponds to a double zigzag, and a double three consisting of a zigzag pattern and a triangle structure.

Condition 2 – Complex Correction with Large Wave X 

When the wave analyst detects a complex correction in which the wave X is larger than the previous correction in terms of price, the entire formation will be classified as double or triple three patterns.

This structural series can have various combinations, which are detailed below:

  1. Double three (3-3-5-wave X-3-3-3-3-3)
  2. Double three (3-3-5-wave X-3-3-5)
  3. Triple three (3-3-5-wave X-3-3-5-wave X-3-3-3-3-3)
  4. Triple three (3-3-5-wave X-3-3-5-wave X-3-3-5) 

In summary, the structural series of both conditions have been listed in the most likely order of occurrence.

As in the first condition, the following figure shows two cases of double three patterns.

Conclusions

So far, we have seen the different construction characteristics of complex corrective waves and how to differentiate each type of complex wave.

In particular, we saw the two main conditions that characterize complex corrective waves.

In the following educational article, we will present the conditions associated with each particular formation.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Complex Corrective Waves Analysis – Advanced Level – Part 1 of 2

Introduction

Introduction

Introduction

Complex corrective waves are groups of waves that do not have an internal structure subdivided into three or five waves. In general, complex corrections tend to appear in waves fourth or B. Moreover, these formations are divided into two categories standard and non-standard.

Standard Type

An impulsive or corrective Standard wave formation does not imply that it is formed by a series of three or five adjacent segments. Usually, one of its corrective waves will possess a greater number of internal subdivisions creating a more extensive structure in terms of time. This condition will create a context in which can verify the alternation principle.

If the standard complex wave is in an impulsive sequence, it may be in wave 2 or 4. Otherwise, if this complex wave appears in a corrective phase, it will be between waves A and B.

The following figure shows a simplification of standard complex waves in an impulsive sequence and a corrective structure.

Non-Standard Type

Complex corrections only occur if there are at least two corrective sequences compacted in their three-wave structure and separated by a corrective formation that acts as a connector between the two corrective patterns. This type of waves must be given under certain conditions; likewise, they must meet specific rules that occur only once the waves have been compacted.

Retracement Rules

If the wave analyst found a compact corrective pattern that confirms a retrace less than 61.8%, or greater than 161.8% by the next corrective wave, and then produces another corrective wave, then the wave analyst should analyze the corrective structure as says the specifications section.

If the grouping conditions commented previously don’t meet, then the corrective structure shall be standard. In this case, the wave analyst should work the corrective sequence in the same way as discussed in the section “Corrective wave analysis – Intermediate level.”

On the other hand, the extension or duration in the time of the corrective wave doesn’t affect its analysis. A complex corrective structure can last for days and even years without this changing its structure. In this context, the wave analyst must maintain order in the use of the labels of each formation.

Non-standard Complex Wave Specifications

The first principle of a complex corrective wave implies the existence of a wave X, which acts as a connector for two standard Elliott corrective wave formations. The wave analyst should keep in mind that this point is the key to understanding non-standard patterns.

There exist two conditions to recognize the behavior of waves x.

  1. The first condition indicating the development of a wave x occurs when two compact corrective waves of a higher degree are separated by an intermediate corrective wave, which may be standard or non-standard. The first corrective wave must experience a retrace of less than 61.8% from the intermediate wave. In general, the wave x (or intermediate wave) will have a lower level of complexity than the other two corrective structures.
  2. If the price action reveals three corrective waves compacted consecutively, so that the second correction is at least 161.8% higher than the first, then it is highly likely that the second corrective structure will be a wave x. In general, the three complex waves will have the same complexity level.

If the market develops one of the two conditions commented previously, the market has likely developed a non-standard corrective formation.

Conclusions

In this educational article, we discussed the fundamental principles of a complex corrective structure and the importance of wave compaction in identifying and analyzing wave structures. 

In previous chapters, we have seen how to recognize the principle of alternation in the analysis of both impulsive and corrective waves. In this sense, the wave analyst must take into account this concept, which will allow him to identify what will be the next most likely movement.

In particular, R.N. Elliott, in his work “The Wave Principle,” defines the alternation of corrective waves and their complexity as follows “if a corrective wave is simple, the following will be complex, and vice versa.” Within a complex corrective structure, the compacted corrective patterns that compose it will also alternate with each other.

In the next article, we will look at the construction of complex corrective waves according to each condition. 

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Elliott Wave Guide Forex Elliott Wave

Intermediate Level Elliott Wave Analysis Guide

We have finished the section that covers the Intermediate Level of the Elliott Wave Analysis based on the work of Glenn Neely. These concepts are described and include the following aspects.

We have finished the section that covers the Intermediate Level of the Elliott Wave Analysis based on the work of Glenn Neely. These concepts are described and include the following aspects.

We have finished the section that covers the Intermediate Level of the Elliott Wave Analysis based on the work of Glenn Neely. These concepts are described and include the following aspects.

1.- Introduction to Intermediate Wave Analysis. In this section, we present the concept of grouping waves and how to apply them in the real market.
2.- Motive Waves Analysis. This section, divided into three parts covers the following aspects:
– The first part presents the extension concept and its application in the real market.
– The second part extends the concepts of Alternation, Equality, and Superposition, and we identified how the price action follows these rules.
– The third part presents the canalization process.
3.- Corrective Waves Analysis. This part unfolded in five parts, includes the following concepts:
– The first part reviews the rules of construction of corrective formations and the flat pattern, including its variations.
– The second part presents how to analyze the zigzag pattern and its variations.
– The third part exposes the characteristics and rules of the triangle pattern.
– The fourth part discusses the contracting triangle, including its variations, rules, and target zones.
– The fifth part dedicated to expanding triangles presents its variations and rules.
4.- Validation Rules. This two-part section exposes the next principles:
– In the first part, we learn how to validate impulsive waves.
– The second part shows how to validate corrective waves.
5.- Simplification of Wave Analysis. This last section illustrates how the compaction process can help the wave analyst to ease its analysis.

Categories
Forex Elliott Wave

How to Simplify Wave Analysis – Intermediate Level

Introduction

Introduction

Introduction

How to simplify wave analysis can seem a confusing task. However, if we consider the concepts we have previously studied, the process may be more straightforward. 

Until now, we have studied concepts and principles such as types of waves, internal characteristics of each kind of pattern, wave channeling rules, price and time alternation, and wave validation criteria, among other aspects.

In this section, we will see procedures in which we will transform the complexity into a basic market structure.

Waves Compaction

Compaction is the analysis process in which a sequence of adjacent segments that make up an impulse or correction structure (5 or 3) is grouped. Given the dynamic nature of price action, any Elliott wave pattern, once completed, can be labeled as impulsive or corrective. Therefore, this technique cannot be applied, while Elliott’s formation is in progress.

Once an Elliott wave pattern has been completed, the structure of the series can be compacted, which will make as a basic structure. Then, the formation we will use as a base in the following process for the analysis and compaction can be repeated.

Regrouping

Regrouping is the process you perform after compacting waves. At this stage, the wave analyst will use the compacted wave as the base structure of the following wave group and thus construct a series of larger waves, which may be standard or non-standard.

Integration

Integration is the process in which the wave analyst uses short-term compacted waves to form larger wave structures to be included in long-term charts. For example, once a short-term wave pattern is completed, this structure can be transferred with its labels to the long-term (or higher degree) chart. 

This process can be useful for information references when comparing short-term and long-term graphs to obtain a more logical and accurate idea of the next market movement.

The Principle of Complexity

This principle is useful for the classification of subdivisions of an Elliott pattern. Its usefulness lies in the possibility of combining large scale patterns and determining the relative name of the degree of each segment.

In other words, when a wave advances in the short term, it is straightforward to identify each segment and thus identify and label wave pattern. As time progresses, this wave increases its complexity, and the process of compacting waves is required. Once the wave is compacted, another wave is completed on a higher degree. 

Consequently, the complexity tends to grow as the waves increase, and they combine to give way to new waves.

The principle of complexity may not be relevant in the short-term analysis. However, as the horizon of analysis increases, the usefulness of this principle becomes essential. In this respect, the Elliott guidelines identified at the same consecutive level, have the same degree.

The Concept of Degree

Until now, we have used the term Degree superficially referring to an ambiguous time horizon as short, mid, or long term. 

In Elliott wave theory, the degree is not related to a specific timeframe, for example, 15 minutes, an hour, 5-day, etc. It is related to the order in which the different wave patterns are completed. 

R.N. Elliott, in his Treatise “The Wave Principle,” states that both labeling and degrees are not the ultimate purpose of wave analysis, but are an instrument that allows keeping an order to be maintained within the analysis process.

A wave degree is determined by the wave compacting process from the short to the long-term. Once the short term wave has been completed, it will be a segment in a higher time range or greater degree.

R.N. Elliott defined the following degrees to classify the order of market movements.

  • Subminuette
  • Minuette
  • Minute
  • Minor
  • Intermediate
  • Primary
  • Cycle
  • Supercycle
  • Grand Supercycle

The different degrees are represented in increasing order in terms of temporal magnitude. 

On the other hand, Prechter & Frost, in their work “Elliott Wave Principle,” incorporated six additional degrees, as shown in the following table.

In practical terms, to have a reference to the temporality to be used in the analysis process, when Elliott developed wave theory, the smallest data time range available corresponded to the hourly graph. Consequently, the wave analyst can begin by assigning the Subminuette degree to the wave structures that are completed in this temporality and thus advance successively from there.

Conclusions

In this article, we have seen how a systematic process can simplify the process of wave analysis.

The wave analyst can simplify the market analysis helped by the use of the compaction process, which should be realized once completed a wave pattern. Later, by using grades and labels, the wave analyst will be able to maintain a simplified order in the study and, in turn, make a forecast of the next most likely market movement.

In the following article, we’ll start the advanced level of the wave analysis with the study of complex corrective waves.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
  • Prechter, R., Frost.A.J.; Elliott Wave Principle: Key to Market Behavior; New Classic Library; 10th Edition (2005).

 

Categories
Forex Elliott Wave

Validation Rules of Corrective Waves – Intermediate Level

Introduction

Introduction

Introduction

Contrary to the case of impulsive waves, corrections do not require a sequence of retracements. The confirmation of the corrective patterns depends on the lengths of waves A and B within the correction. 

The validation of a corrective structure is defined in two stages. If both stages are verified, then the wave analyst will be sure that the corrective formation is correct. It should be noted that there is the possibility that only one of the two stages is validated; this does not limit that the pattern being valid.

Flats and Zigzag Patterns

Case 1 – Wave A is Larger than Wave B

In this case, the wave analyst must draw a trendline linking the origin of waves A and the end of B.

The first stage will verify the authenticity of the corrective formation if the price action violates the trendline O-B within a period equal to or less than the interval of wave C formation.

In case the time-lapse is longer, then the price action could be developing a terminal structure, or wave 4 of wave C could be incomplete, or the corrective pattern analyzed is not correct.

If the analyzed pattern is correct, then the second stage must be revised. In this stage, the wave analyst must study time lapsed in the complete retracement of wave C, which must be in a time equal to or less than the time spent in the formation of the wave C.

Case 2 – Wave B is Larger than Wave A

In this case, the first stage would fulfill if the wave C undergoes a complete reversal in the same or shorter time when the time lapsed in the wave C construction. 

The second stage will fulfill if the price action exceeds the trendline O-B in a period less than or equal to the time that took the wave C formation.

Triangles

As we have seen in previous articles, there are two types of triangles, contracting and expanding. Unlike flat and zigzag patterns, where the first stage of validation consists of the violation of the trendline O-B, in the case of triangles, the trendline B-D violation is the one considered.

Contracting triangles are the easiest to validate after the violation of the trendline B-D. However, this does not happen in the same way in expanding triangles. 

In expanding triangles, validation comes determined through the “no confirmation.” That is, once the wave E finishes, the price action should not reverse the advance of wave E completely. 

Therefore, this retracement would discard out any possible violation of the guideline B-D, or it would take longer to reverse the advance of the wave E than the duration of the wave E.

Validation of a Contracting Triangle

As mentioned above, in the case of triangles, the guideline B-D is used instead of the line O-B. The first stage of validation of the contracting triangle pattern will occur if the price exceeds the line B-D for a period less than or equal to the time it took to construct the wave E.

The second stage is defined by the thrust that occurs after the wave E in a triangle, which should exceed the highest (or lowest) price achieved by the triangle. In turn, the thrust should finish within a time range that not exceeding 50% of the duration of the triangle.

Conclusions

In this educational article, we have seen that the criteria for validation of corrective waves differ from impulsive waves in terms of the conditions to consider for a valid pattern. 

Also, we reviewed the importance of validating each structure under analysis. That will help the wave analyst to verify if the pattern identified is correct or not. 

This knowledge will allow the analyst to facilitate the realization of forecasts on the potential next movement of the market.

In the next educational article, we will review some key concepts for the process of analyzing waves such as wave compaction, degrees, and introduce the concept of complexity in the wave analysis.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Validation Rules on Impulsive Waves – Intermediate Level

Introduction

Introduction

Introduction

In our previous articles, we have seen that impulsive waves have construction rules. However, some rules, or principles, allow the wave analyst to validate or confirm each guideline. These rules are divided into two groups, which we will detail in this educational article. 

First Rule – Validation of the Trend Line 2-4

This rule will apply once the impulsive pattern ends. The wave analyst must trace the trendline joining the end of waves 2 and 4. Then, the impulsive wave will be confirmed if the price action pierces the trendline 2-4 in the same or less proportion of time it took to form wave 5.

In case the fifth wave takes longer, the price develops a terminal structure or wave 4 that has not still ended, another possibility is the wave analyzed does not correspond to an impulsive formation, but to a corrective wave.

Second Rule – Retracement from the fifth wave

Within an impulsive wave, the wave analyst must recognize which the extended segment is. Depending on this factor, it will be possible to determine the level at which the price could fall, determined by the wave 2 and 4 price range within the momentum structure.

First Wave Extension

In this case, the retracement should go to the end of wave 4. However, if the price extends its retracement beyond the end of wave 4, then the impulsive wave will end up with a larger correction in terms of price and time.

Third Wave Extension

The price has to return to the fourth wave area of ​​the impulsive pattern and will generally finish near the end of that wave. If the retracement comprises more than 61.8% of the complete motive sequence, then the third wave would involve a higher degree impulse wave completion.

Fifth Wave Extension

When the extension appears in the fifth wave, the price should reverse at least 61.8% of that wave, although it might not retrace the complete wave. If the price retraces the complete progression of the fifth wave, then the retracement would complete a higher degree pattern.

In this case, the following could happen:

  1. The fifth wave extension pattern is part of a higher degree impulse, which is also a fifth wave extension, or
  2. The extension of the fifth wave is a wave C of a flat pattern or a zigzag.

Fifth Wave Failure

A fifth wave failure occurs when wave 5 of an impulsive sequence is shorter than wave 4 high. It generally occurs when the opposing trend is stronger than the initial impulsive movement trend. Consequently, if the wave analyst detects this type of failure, it should notice that the movement following the fifth wave is highly likely to reverse the forward movement of the impulsive movement completely.

On the other hand, if the motive movement was bullish, there should not be further highs until the price has fully retraced the impulsive bullish sequence. This affirmation is analogous if the impulse is bearish.

Conclusions

In this educational article, we have seen how to validate an impulsive sequence in terms of its correction. Also, we commented on the potential of the next path, respecting the fifth wave retracement and what is the extended wave in the impulsive sequence.

Likewise, we have seen the case of the failure in a fifth impulsive wave and what will be the impact in the next movement.

In the next educational article, we will see the process of validation of corrective structures.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level Part 3

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

Non-Limiting Triangle

Non-limiting triangles do not differ much from limiting triangles. Both types of triangles must meet the minimum construction requirements. However, they will have the following characteristics:

– Channeling. In the case of the non-limiting triangle, the trend lines are not convergent but divergent.

1. Congestion occurs just at or near the apex of the convergence lines.

The wave analyst should note that the term “just or near the apex” refers to the end of wave E being close to the intersection of both trend lines and the extent of wave E to be measured in terms of the time spent in the triangle formation.

b. The triangle pattern is considered Non-Limiting if the measurement of time elapsed from its beginning until the end of wave E, and the apex occurs after 40% of the interval has passed.

c. There must be a post-thrust correction that must return to the apex area.

If the triangle met any of these three conditions, then the triangle will be said to be of the non-limiting type.

Post-Triangular Thrust

The distance of the thrust outside the limits of the non-limiting triangle does not have a specific restriction. However, it can reach the length equivalent to the longest segment of the triangle. 

Likewise, once reached this extension, there is a possibility that the price will continue in the original direction of the thrust.

Expanding Triangles

Expanding triangles are very frequent in complex corrections. It is characterized because as it progresses in its formation, each segment, or the majority, is larger than the previous one.

The rules that characterize the expanding triangles are described below:

  1. Wave A or Wave B will always be the smallest wave in the triangle.
  2. In most cases, the E wave will be the longest.
  3. Expanding triangles cannot be part of wave B of a zigzag pattern. Nor can they be part of an intermediate wave, that is, waves B, C, or D of a triangle of higher degree.
  4. In most cases, the E wave will be the longest and most complex segment of the triangle. This wave can be formed by a zigzag or by a complex correction.
  5. Generally, wave E will pierce the trend line joining the ends of waves A and C.
  6. Line B-D should act similarly to contracting triangles.
  7. The extension of the thrust of the expanding triangle must be less than the longest wavelength of the triangle.
  8. When comparing the length from wave E to wave A, it must be verified that each previous wave must be greater than or equal to 50% of the next wave.

The following figure shows the three most common types of expanding triangles, of which the irregular is the most likely to appear in the real market.

 

In expanding triangles also exists limiting and non-limiting triangles. However, in this type of formations, there is no post-triangular variation between one and the other. The difference lies in the wave position that the triangle holds, which can be “standard” or be part of a complex correction.

Limiting Expanding Triangle

The term “limiting” refers to whether the triangle is a fourth wave or a B wave. Its main characteristics are described below.

1. An expansive limiting triangle usually appears in wave B, particularly in irregular failures or in flat wave formations with failure in wave C.

2. The thrust outside the triangle is a minimum of approximately 61.8% of the structure, measured from its highest to the lowest level.

Horizontal Expanding Triangle

This variation rarely appears in the real market. However, this does not mean that there is no possibility of it showing up in real markets.

The main characteristics of a horizontal triangle are:

1. Wave A must be the smallest of the formation.

2. Waves B, C, D, and E y must each exceed the final point of the previous wave.

3. There is a possibility that wave E will exceed the guideline of waves A-C.

Irregular Expanding Triangle

This variation is more common, and its characteristics are as follows:

1. Wave B is smaller than Wave A, while the rest of the waves maintain their increasing characteristics.

2. The longer the duration of the pattern, the higher the chance that the guideline will tilt up or down.

Continuous Expanding Triangle

This expanding triangle has a bias due, on the one hand, because wave B is longer than wave A, and on the other hand, because wave C is the shortest. The E wave, meanwhile, can be more volatile or “violent” than the rest of the waves.

Non-Limiting Expanding Triangle

These types of triangles tend to appear in complex corrective formations, for example, in the first or last stage of a complex sequence. In this sense, in a complex corrective structure, the thrust will generate a wave X.

Finally, concerning the apex, it is located before wave A and must be produced before it reaches 20% of the construction time of wave A.

Conclusions

With this article, we have ended the standard corrective patterns defined by the Elliott wave theory. As we have seen in previous examples, expansive triangles also usually appear on waves 4 and B. However, this does not mean that they cannot appear on wave 2.

In the next educational article, we will see the process of validating impulsive structures.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

 

 

 

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level Part 2

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

Contractive Triangle

Within the group of triangles, this formation is the most common of all. The minimum requirements of this structure are:

1. Once the contractive triangle is completed, the price must make a “thrust” that should be greater than or equal to 75% of the largest internal segment. On the other hand, this movement should not exceed 125% of the most extended triangle segment.

The following figure shows two cases. In the first, we see that wave A is the most extended segment of the contracting triangle after wave E is completed. The thrust can reach between 75% and 125% of wave A.

In the second case, we observe that wave B is the most extensive of the contracting triangle. Analogously to the previous case, we distinguish that the thrust made by the price should not be less than 75% nor greater than 125 of wave B.

2. In this type of triangle, the thrust must further exceed the highest (or lowest) end it reached during structure formation.

In other words, when the contracting triangle is about to be completed, two parallel lines should be drawn over the most extended segment, depending on which side the thrust is on, the price should touch the top or bottom line.

3. The E wave must be the smallest of all the segments of the triangle in terms of price.

As we observe in the following figure, the internal segment corresponding to wave E must be the smallest of all in terms of price, but not the time it takes for this movement to complete.

Limiting triangle

R.N. Elliott defined the limiting triangle as a formation that occurs in the waves fourth and B. Its name is because its completion must occur under specific conditions,

The completion of the limiting triangle in wave E must happen in the range of 20% to 40% before the apex point of the triangle.

Horizontal Limiting Triangle

1. The trendlines of the triangle must move in opposite directions.

In other words, when drawing the ends of the triangle corresponding to the end of waves A-C and B-D, the trendlines must correspond to a contracting triangle respecting the basic structure defined by Elliott.

2. The apex of the triangle must be within a range whose amplitude is 61.8% of the most extended segment of the triangle and whose center is the midpoint of that segment.

In the case of the previous figure, the most extended wave is wave B. However, this is analogous for the situation in which wave A or wave C is the longest in the triangle.

3. Wave D must be smaller than the internal leg corresponding to wave C. Likewise, the segment corresponding to wave E must be shorter than wave D.

 

Irregular Limiting Triangle

This type of triangle must perform a higher thrust and with greater speed than in the case of the horizontal triangle. The distinctive element of this formation is wave B, which must be longer than wave A. In general, its main characteristics are as follows.

  1. Wave B should not be higher than 261.8% of Wave A. Under normal conditions, it should be less than 161.8% of Wave A.
  2. Waves C, D, and E must be smaller than the previous wave.
  3. The trend lines of the triangle must have opposite directions.

Running Limiting Triangle

This type of wave can be confused with the Double Three corrective structure. Its main characteristics are:

  1. Wave B is longer than Wave A. It is also the largest segment of the triangle.
  2. Wave C is smaller than Wave B.
  3. Wave D is shorter than Wave C.
  4. Wave E is shorter than Wave D and is the smallest of the triangle.
  5. The thrust after the completion of wave E can become more extensive than wave B and even reach 261.8% of wave B.

Conclusions

In this educational article, we have examined the different variations of triangles and expanded their contracting variants. We must emphasize that its importance lies in the fact that this type of formations, in particular, the contracting triangle, is the most common of all triangular patterns. The knowledge of how triangles behave can provide the wave analyst with an advantage that would allow him to more accurately predict what the next market move would likely be.

In the next article, we will see the last part of the corrective formations. In particular, we will review the non-limiting triangles and their main characteristics.

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level – Part 1

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

Triangles and their Characteristics

Within the set of corrective structures defined by R.N. Elliott, triangle formations are more complex to analyze compared to flat and zigzag patterns. This complexity occurs because there is no specific time span that marks the end of this structure.

Despite the complexity of the triangles, it is the most common Elliott pattern to find in the real market. The knowledge of this formation will help wave analysts to understand the price position within the market.

Construction Rules

The construction rules defined for the triangle pattern are detailed as follow:

– Triangles have five internal waves, regardless of the complexity of the inner segments.
– A complete three-wave corrective structure builds each part that makes up the triangle.
– The triangle can have a bullish or bearish inclination. However, its internal structure should not change.
– The triangle has six reference points of the same degree, the origin of wave A, and the end of waves A, B, C, D, and E. From these six extremes, the wave analyst should only channel four points through the contraction lines. The points to consider are the end of wave A with the end of wave C and the end of wave B with the end of wave D.
– The base-line of the triangle is the line that joins the end of waves B and D, and its function is similar to the guideline that joins waves 2 and 4 in an impulsive wave.

The following figure represents the construction model of the triangle pattern.

As can be noted, the triangle pattern tends to appear in a fourth wave or a wave B, in some exceptional cases, this pattern could appear in a second wave.

GBPUSD Consolidates in a Triangle Sequence

The next figure illustrates the GBPUSD pair in its 4-hour timeframe. In the chart, we observe that the Cable rallied since September 03rd when the price found its bottom at level 1.19589.

Once the GBPUSD pair moved in three waves identified in green, the fourth wave consolidated sideways, developing an expanding triangle.

The triangle pattern reveals the alternation principle in terms of time and price.

The GBPUSD pair alternated in terms of time being the triangle pattern more extended in comparison with the second wave. In the same way, the retracement developed by the second wave is sharp compared with the narrow correction realized by the fourth wave.

JP Morgan Consolidated in a Triangle Pattern

The chart below shows JP Morgan Chase & Co (JPM) in its log-scale 2-day timeframe. The ticker JPM developed a bullish impulsive sequence subdivided in five waves from early 2016 when the price found buyers at $52.50 per share.

In the same way, the third wave that was formed corresponds to an extended wave, which makes us conclude that the first and fifth waves will not be extended, and they will be similar in terms of price, time, or both. In this case, both waves are identical in terms of time.

On the other hand, we observe that JPM consolidated developing an expanding triangle pattern with a slight bearish bias. Besides this structural bias, the internal sequence is respected by the price action.

Also, we distinguish the wide extension of the triangular sequence, which moved from late February 2018 until mid-August 2019, when JPM ended its internal wave E labeled in green.

Once JPM completed its fifth internal segment, the price action continued its previous bullish trend and soared to record highs at $141.10 per share.

Conclusions

From the cases analyzed, we can verify the Genn Neely’s affirmation that suggests that “the triangle pattern is a common formation that appears in the market.”

Also, we verified how the alternation principle works in the real market, while a corrective wave is simple, the other will be complex.

Finally, according to the examples reviewed, the triangle pattern could appear independently of the market analyzed,  as on currencies, stocks, indices, etc.

In the next article, we will review the different variations of the triangle pattern.

Suggested Reading

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

How to Analyze the Zigzag Pattern – Intermediate Level

The zigzag pattern is a three-wave structure that has a limited number of variations. In this educational post, we’ll present how to analyze the zigzag pattern under an intermediate level perspective,

The zigzag pattern is a three-wave structure that has a limited number of variations. In this educational post, we’ll present how to analyze the zigzag pattern under an intermediate level perspective,

The zigzag pattern is a three-wave structure that has a limited number of variations. In this educational post, we’ll present how to analyze the zigzag pattern under an intermediate level perspective,

The Elliott’s Zigzag Pattern

R.N. Elliott, in his work The Wave Principle, described the zigzag as a corrective formation that follows an internal sequence defined by 5-3-5.

The wave analysis analyst should consider that corrective patterns are not easy to recognize while the structure is not complete; however, it results revealing and useful to make forecasts once the formation is complete.

Zigzag Construction

Glenn Neely, in his work Mastering Elliott Wave, describes the zigzag construction as follows:

  1. Wave A shouldn’t retrace beyond 61.8% of the impulsive wave.
  2. Wave B should retrace at least 1% of wave A, but shouldn’t exceed 61.8% of wave A.
  3. Wave C must finish at least slightly beyond the end of wave A.
  4. If wave B retraces more than 61.8% of wave A, thus the movement developed doesn’t correspond to the end of wave B. In this case, the move realized correspond to a segment of a complex wave B.

The following figure illustrates the steps of the zigzag pattern construction previously described.

Types of Zigzag

According to the extension of wave C, the zigzag pattern would be classified as normal, extended, or truncated.

Normal zigzag: In this case, wave C can reach between 61.8% to 161.8% extension of wave A. Concerning wave B, this segment doesn’t retrace more than 61.8% of wave A, and wave C shouldn’t extend beyond 161.8% of wave A.

Truncated zigzag: This formation is less frequent than the other two zigzag pattern variations. Further, wave C shouldn’t be lower than 38.2% of wave A, but not greater than 61.8% of wave A. 

Once wave C ends, the next path should retrace at least 81% of the entire zigzag formation. According to Neely, this pattern it is likely that appears in a triangle structure.

Extended zigzag: This variation is characterized by having a more prolonged wave C than the other two models, which surpasses the 161.8% of wave A, being similar to an impulsive sequence. 

Once completed the wave C, the next path tends to retrace at least 61.8% of wave C.

Canalization Process

To canalize a zigzag formation, the wave analyst should pay attention to wave A and the end of wave B. 

The canalization process begins with the trace of a base-line linking the origin of wave A with the end of wave B, then using this line, a parallel line is projected at the end of wave A.

If the wave analyst encounters a zigzag pattern, then the corrective formation could move inside the channel, violate it, but never move in a tangent way to the channel. If it occurs, then the corrective sequence may correspond to a complex correction.

Finally, once the price violates the base-line O-B, we can conclude that the zigzag pattern ended.

NASDAQ e-mini and its Zigzag Pattern

The following figure represents to NASDAQ in its 12-hour timeframe. The chart reveals the upward process that the technologic index developed in the Christmas rally of 2018 at 5,820.50 pts.

The impulsive bullish sequence completed its internal five-wave moves at 7,879.50 pts on April 24th, 2019, from where the price began to develop a corrective zigzag pattern.

As illustrated in the last figure, the wave (a) in blue looks as a five-wave structure that ended at 7,290 pts on May 13th, 2019. The second leg of the zigzag pattern advanced close to 61.8% of the wave (a), which accomplishes the requirement of zigzag construction.

The next bearish path, corresponding to wave (c) produced a second decline in five waves and dropped beyond the 61.8% and below 161.8% of (a) which lead us to conclude that the type of zigzag pattern is normal.

At the same time, we observe that the price didn’t violate the lower line of the descending channel. However, once NASDAQ soared above the upper line of the descending channel, the corrective structure ended, giving way to the next upward motive wave.

Conclusion

In this educational article, we reviewed the characteristics of the zigzag pattern and how the wave analysts can differentiate from another kind of corrective formation. 

At the same time, the Fibonacci tools represent a useful way to validate what structure develops the market. In this context, this knowledge will allow the wave analyst to identify potential zones of reaction, which would enable us to incorporate into the trend.

In the next article, we will review the triangle pattern and how to recognize its variations.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Intermediate Wave Analysis – Impulsive Waves – Part 3

Impulsive waves are characterized by their directionality; thus creating trends; however, how the wave analyst can recognize the stage of the trend? To answer this question, we will present the canalization process.

Impulsive waves are characterized by their directionality; thus creating trends; however, how the wave analyst can recognize the stage of the trend? To answer this question, we will present the canalization process.

Impulsive waves are characterized by their directionality; thus creating trends; however, how the wave analyst can recognize the stage of the trend? To answer this question, we will present the canalization process.

Canalization

Until now, we presented a set of rules that allow that wave analyst to identify which kind of structure the price action is creating. However, these rules do not provide any clue about its target area.

To aid in solving this question, R.N. Elliott, in his Treatise, introduced the use of channels to identify the potential target zone of the next path.

Channels are a useful tool to recognize if an impulsive sequence is complete, and to identify the potential ending points of waves in progress.

In motive waves, there exist two kinds of base-line of channels; these are base-line 0-2 and 2-4. The way to trace them is as exposes the following figure.

In the left-side figure, we observe the trace of the 0-2 line. The dotted line represents a preliminary 0-2 line that was violated by the price action. In this case, the wave analyst must update the base-line 0-2 until the confirmed end of wave 2.

Once the ending of the second wave and traced the base-line is validated, the wave analyst must project a line parallel to the 0-2  line at the end of wave 1, this channel will provide a potential target of the third wave.

Analogously, on the right-side figure, we distinguish the trace of base-line 2-4 and its projection at the end of wave 3. The channel projection will provide the potential end of the fifth wave.

The procedure for executing the canalization process is as described below.

Once the price has created the first impulse wave and, then, completed the second corrective wave, a base-line is projected linking the origin of the first impulse wave to the end of the second wave.

The base-line is then projected at the end of wave 1. This channel will provide the wave analyst with the potential target of wave 3.

When wave 3 is complete, the ends of wave 1 and 3 are joined, then a parallel line is projected towards the end of wave 2.

The projection of this channel will provide information about the possible end of wave 4.

Subsequently, once wave 4 is complete, the ends of waves 2 and 4 are joined, then the line parallel to the end of wave 3 is projected, this channel will provide the potential target of wave 5.

EURNZD – Channels Suggests a Five-Wave Sequence Completion

The following chart illustrates to EURNZD cross in its 4-hour timeframe. From the figure, we observe the rally developed by price action that began on January 24th, low at level 1.66642.

EURNZD made a first rally that boosted the price in five waves until 1.71764 level reached on last February 02nd. Once its first upward sequence has been completed, the price retraced in three waves.

The corrective process brought the price to find fresh buyers at 1.67854 on February 10th. The completion of waves (i) and (ii) allow us to trace the first channel in blue, from where the next path corresponds to wave (iii).

On the figure, we observe that the price extended its third upward sequence until 1.78755 level on March 02nd. Once this fresh higher high was reached, EURNZD started to consolidate in a fourth wave. The ending of this corrective structure drives us to trace the second upward channel in brown.

The upper-line breakout of the second ascending channel carried the EURNZD cross to complete its fifth wave that found resistance at 1.90725 level, reached on March 09th.

Once it peaked at 1.90725 level, the price action pierced the base-line of the second ascending channel, this movement could drive the cross to start a corrective sequence in the coming trading sessions.

Conclusions

In this article, we have seen how the use of channels can assist the wave analyst in the process of identifying impulse wave targets.

From the example exposed, we observed how the canalization process worked in the real market. It is essential to consider that the fifth wave can fail, and not surpass the upper-line of the ascending channel.

In this context, the wave analyst should consider the signals that can reflect the end of the five-wave sequence, for example, the base-line breakdown.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Intermediate Wave Analysis – Motive Waves – Part 2

In our previous article, we covered the main rules of impulsive waves. In this educational post, we’ll present a complimentary set of rules of the impulsive waves.

In our previous article, we covered the main rules of impulsive waves. In this educational post, we’ll present a complimentary set of rules of the impulsive waves.

In our previous article, we covered the main rules of impulsive waves. In this educational post, we’ll present a complimentary set of rules of the impulsive waves.

The Alternation Rule

The alternation rule, as defined by R.N. Elliott, is not an author’s invention, alternation exists from the beginning of the universe, and this is a principle that governs nature. In the same way that the day alternates with the night, bullish market alternates with the bearish.

This rule is the foundation of wave theory; without the alternation, the wave theory would not exist. This rule states, “when two consecutive waves are compared, one must be different from the other and both must also be unique in form.

The essential element that distinguishes the alternation in the wave analysis is time. In other words, this means that if a movement on one wave occurs a reduced time span, the next move should take place in an extensive period compared with the previous move.

In wave theory, we observe the alternation in the following characteristics:

  1. Price: it is the vertical distance that the market advances.
  2. Time: it is the horizontal distance elapsed in the market progress.
  3. Severity: this corresponds to the percentage that price retraces an impulsive movement.
  4. Complexity: corresponds to the number of segments that conforms to the wave sequence.
  5. Construction: corresponds to the type of formation that market develops, for example, flat, zigzag, triangle, etc.

The Equality Rule

  1. The extension rule says that in an impulsive sequence, one of three motive waves must be the most extended. When the wave analyst has identified the extended wave, then, can apply the equality rule that refers to the other two waves that are as follows:1. If wave 1 is extended, then the rule applies to waves 3 and 5.
  2. If wave 3 is extended, then the rule applies to waves 1 and 5.
  3. If wave 5 is extended, then the rule applies to waves 1 and 3.

The equality rule establishes that two of non-extended waves tends to be equal in terms of price, time, or both.

This rule is useful, especially when the third wave is the extended wave, and the fifth fails. However, it is not helpful when the first wave is extended or is a terminal formation.

Superposition Rule

The superposition principle can be used in two different ways depending on the kind of impulsive structure; it means if the motive wave corresponds to a trend movement or a terminal sequence.

If the price action develops a trend movement, then waves two and four will never overlap. In terms of its internal sequence, the motive wave will have a 5-3-5-3-5 sequence.

If the price action follows a terminal move, then wave four will penetrate the second wave area partially. The internal subdivision of this find of waves will follow a 3-3-3-3-3 sequence.

GBPUSD Pair Follows the Elliott Wave Principle

The GBPUSD pair in its 12-hour chart illustrates the Elliott wave principle in the real market.

In the figure, we observe how the GBPUSD pair follows the Elliott wave principle. Firstly, the motive wave has five internal segments that create an upward trend; the third wave is not the shortest, and as shown in the chart, the third move corresponds to the extended wave.

Once finished the five-wave sequence, it starts a corrective move in the opposite direction of the trend following a three-wave structure, which still seems in progress.

Following the alternation rule, we observe that the first wave advanced 625 pips in 17 days, while the third jumped 817 pips in 11 days. Finally, the fifth wave ran 691 pips in 16 days. These measurements enable us to observe that the GBPUSD comply with the extension, equality, and superposition rules.

At the same time, we observe that corrective waves also alternates between themselves. The second wave retraced the movement formed by the first wave in 16 days, while the fourth wave retraced the advances of the third wave during 36 days.

Conclusion

In this article, we extended the toolbox for the wave analysis process, from where rules as the alternation, equality, and superposition, add to the seven basic rules and extension defined in our previous educational post.

In our next educational post, we will present the canalization process, which will allow the wave analyst to understand the price action from the Elliott wave perspective.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Intermediate Wave Analysis – Motive Waves – Part 1

In our previous article, we presented the different standard Elliott wave formations, among which we highlight the impulsive sequence. In this educational post, we will look at the rules and principles to identify impulsive waves.

In our previous article, we presented the different standard Elliott wave formations, among which we highlight the impulsive sequence. In this educational post, we will look at the rules and principles to identify impulsive waves.

In our previous article, we presented the different standard Elliott wave formations, among which we highlight the impulsive sequence. In this educational post, we will look at the rules and principles to identify impulsive waves.

Understanding the Impulsive Waves

Impulsive waves are characterized by developing in a definite direction; this is which distinguishes a motive wave with a corrective sequence. The characteristics that must possess an impulsive structure are as follow.

  1. It must be built by five consecutive segments that follow a structure of a trend sequence or a terminal formation.
  2. Three of its five internal segments correspond to impulses in the same direction, which could be bullish or bearish. The other two moves will reverse one of the three impulsive segments moving in the main trend.
  3. Once the first impulsive movement ended, the price action must develop a smaller move in the opposite direction.
  4. The third segment moves in the same direction as the first impulsive movement. This movement cannot be of less magnitude than the first move.
  5. At the end of the third movement, the price develops a fourth segment, which pulls back the move of the third leg. This movement must never penetrate the region of the first impulsive movement.
  6. The fifth and last move is characterized by being longer than the fourth movement.
  7. When measuring and comparing the extension of waves first, third, and fifth, it can be observed that not necessarily the third wave will be the largest move; however, this segment cannot be the shortest of the three impulsive movements.

If the price action does not accomplish one of these rules, the market is not moving in an impulsive sequence. Rather, it advances in a corrective structure.

The Extension Concept

The extension is the main characteristic of motive waves, and it is used to describe the largest move of an impulsive sequence.

The basic rule to classify and identify a wave as an extension states that the largest wave must surpass the next largest move, at least by 161.8%.

The Use of Labels to Identify Sequences

Until now, we have used Intermediate Wave Analysis – Motive Waves – Part 1 labels them as W1, W2, and so on, to identify each segment. From now, we will use tags as 1, 2, 3, 4, and 5, to identify each movement.

Labels are a useful tool to aid the wave analysis process. The wave analyst should consider that, in R.N. Elliott’s words, the labels are not the end of the wave analysis, it is only a tool to maintain order in the analysis process.

It should be noted that according to the labeling process described by R.N. Elliott, we will use variations to differentiate degrees, which corresponds to the timeframe that belongs to each Elliott wave structure.

Example

To comprehend the structure of an impulsive wave and the extension concept, in the following chart, we observe the GBPUSD pair in its 12-hour timeframe.

The figure shows the impulsive advance developed by the Cable when the price found buyers at 1.1958 on September 02nd, 2019. The first motive wave, identified as “1” in green, resulted in a GBPUSD advancement of 624.1 pips, rising to 1.2582.

The third wave advanced over 814 pips or 6.68%. On the chart, we observe that wave 3 in green surpasses the 161.8% of the first wave. In the same way, the fifth wave gained 691.1 pips or 5.39%, which is similar to the first wave.

Concerning corrective waves 2 and 4, we observe that the second wave is shorter than the first move, and the fourth wave does not penetrate into the first wave region, which accomplishes the rules of construction of impulsive waves.

Furthermore, we observe that the third wave advanced beyond 161.8% of wave 1; similarly, the progression of the fifth wave is slightly lower than 161.8% of the third wave.

In consequence, GBPUSD shows the progress of a bullish five-wave impulsive sequence, with Cable having developed an extended wave in the third movement of the bullish cycle. Finally, once the fifth wave reached its end and the end of the bullish cycle, a three-wave movement in the opposite direction of the previous upward sequence will occur.

Conclusion

The impulsive movement is a structure that creates trends, which follows a five-wave sequence. The knowledge of its structure allows the wave analyst to understand the degree of the advancement of the prices and, in consequence, the potential next movement of the market under study.

In the next educational article, we will unfold additional concepts to understand the nature and rules of impulsive waves.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Introduction to Intermediate Wave Analysis

The wave analysis consists of the market study following the principles described by R.N. Elliott in its Treatise “The Wave Principle.” In this educational article, we’ll introduce the concept of wave patterns.

The wave analysis consists of the market study following the principles described by R.N. Elliott in its Treatise “The Wave Principle.” In this educational article, we’ll introduce the concept of wave patterns.

The wave analysis consists of the market study following the principles described by R.N. Elliott in its Treatise “The Wave Principle.” In this educational article, we’ll introduce the concept of wave patterns.

Introduction

In the preliminary section, we presented the fundamentals of the wave analysis. We learned the wave concept, which will allow us to identify the segments that build a sequence of waves. Additionally, we unveiled the way to recognize the start and the end of each formation. Finally, we presented different rules to describe each kind of sequence according to which the wave analyst will get a panoramic overview of the market.

In the current section, we will present the concepts of wave analysis defined by Glenn Neely, expanding R.N. Elliott’s work.

Grouping Waves

In the preliminary wave analysis section, we presented the concept of “monowave,” or segment, that corresponds to the basic unit of a movement developed by a wave sequence. R.N. Elliott, in his work “The Wave Principle,” defined a set of patterns that follows a specific order according to its internal subdivision.

Elliott grouped these patterns into two main groups, defined as impulses and corrections. In simple words, impulses are directional movements, having five internal segments that create trends. On the other hand, corrections are non-directional movements and, also, moves against the trend; these formations present three sub-divisions.

According to the process of wave grouping, we have five basic kinds of patterns, these are:

  1. 5-5-5-5-5: Impulse.
  2. 5-3-5: Zigzag.
  3. 3-3-5: Flat.
  4. 3-3-3-3-3: Triangle.
  5. 3-3-3-3-3: Terminal.

There are, also, other complex combinations called double and triple three, that will be studied in depth in the advanced analysis wave section.

Analyzing Waves Formations

The process for an Elliott wave pattern analysis begins with the separation of formations that have 3 or 5 internal segments. The knowledge of the basic structures will allow the wave analyst to simplify the study of complex corrective patterns.

As the formations under study are recognized, the analyst should consider that the waves must have a certain level of similarity to each other, in terms of price and time. Two consecutive waves will be similar in both price and time if the smaller of the two is not less than one third (1/3) of the largest. In case the next wave is shorter, then the next wave is said to belong to a sequence of lesser degree. In other words, if W2 does not meet the price and time rule with respect to W1, then W2 must be associated with W3. After this association is made, the new segment should be called W2.

Example

The following chart illustrates Johnson & Johnson (NYSE: JNJ) in its log-scale 2-week timeframe. On the figure, when we compare wave 2 with wave 1 we observe that both comply with the similarity rule in price and time. However, wave 4 does not reach the 1/3 of time rule when compared with wave 3.

Fig 1 – Johnson & Johnson (NYSE: JNJ) 2W Log-scale. (click on it to enlarge)

Conclusions

In this article, we introduced the five basic Elliott wave patterns, which will use in the wave analysis process. Also, we presented the rule of similarity in terms of price and time between waves.

The application of these criteria and integrating the concepts of Directional and Non-Directional moves drove us to conclude that Johnson & Johnson moves in its fourth wave due that does not accomplish the 1/3 rule of minimum time compared with wave 3.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave Forex Fibonacci

How to Use Retracements to Analyze Waves – Part 5

Until now, we studied different scenarios for the retracement of W2 when it is lower than 100% of W1. In this educational article, we’ll review what to expect when the retrace experienced by W2 is higher than 100% of W1.

Until now, we studied different scenarios for the retracement of W2 when it is lower than 100% of W1. In this educational article, we’ll review what to expect when the retrace experienced by W2 is higher than 100% of W1.

Until now, we studied different scenarios for the retracement of W2 when it is lower than 100% of W1. In this educational article, we’ll review what to expect when the retrace experienced by W2 is higher than 100% of W1.

The Fifth Rule

The fifth rule surges when the price runs in wave two (W2) and its progress extends between 100% and 161.8% of the first wave (W1).

In this case, could exist four possible conditions as follows.

Condition a: this condition occurs if W0 is lower than 100% of W1. As a first scenario, W1 could be part of a corrective sequence, and in consequence, W1 should identify as “:3”. In terms of the Elliott wave formations, W1 could be the first or the second segment of a corrective pattern, like a Flat pattern, a triangle formation, or the center of a Complex Correction.

A second option considers the possibility of a five-wave structure. If it occurs, W1 should label as “:5”, and the structure could correspond to the end of a zigzag pattern.

Condition b: occurs when W0 moves between 100% and 161.8% of W1. In this scenario, W1 should be part of a three-wave structure. It means that we should identify it as “:3”. In consequence, W1 could belong to the first segment of a Flat pattern, a section of a Triangle structure, or the center of a Complex correction.

Condition c: this condition occurs if W0 is between 161.8% and 261.8% of W1. In the same way that condition b, in this scenario, W1 should be part of a corrective formation as a flat (which should be an irregular flat), triangle, or complex correction.

Condition d: occurs when W0 is higher than 261.8% of W1. In this case, W1 likely will be the first part of a corrective structure; then, W1 should identify as “:3”. In terms of the Elliott wave formations, the structure in progress could correspond to a Flat pattern, a triangle, or the center of a complex correction.

The Sixth Rule

This rule will activate if wave 2 retraces between 161.8% and 261.8% of W1. The possible conditions are similar as in the fifth rule and are detailed as follows.

Condition “a”: this condition occurs if W0 is lower than 100% of W1. In this scenario, W1 could be a three-wave structure (labeled as “:3”), and W1 could correspond to a flat, triangle, or the connector of a complex correction. A second scenario considers that W1 could be a five-wave formation (identified as “:5”), then, W1 could be the end of an impulsive movement.

Condition “b”: occurs when W0 moves between 100% and 161.8% of W1. In the same way that Rule 5, condition b, the most probable formation for W1 is a three-wave structure and should identify as “:3”. W1 could be the first segment of a flat, an internal section of a triangle, or the center of a complex correction.

Condition “c”: this condition occurs if W0 is between 161.8% and 261.8% of W1. The structure that W1 develops could correspond to a corrective pattern, which should identify as “:3”, and the formation developed could be a flat pattern with failure in C or an expansive triangle.

Condition “d”: occurs when W0 is higher than 261.8% of W1. In this case, W1 could be part of a zigzag, a segment of a contractive triangle, a flat pattern with a failure in C, or the correction of an impulsive move. In any case, W1 should identify as “:3”.

The Seventh Rule

The wave analyst must use this rule when the retrace experienced by wave 2 is higher than 261.8% of wave 1. In this case, the possible conditions of W0 are similar to rules fifth and sixth, which are as follows.

Condition “a”: this condition occurs if W0 is lower than 100% of W1. In this case, W1 could be part of a three-wave structure (identified as “:3″) developing a complex correction, or a flat with a complex wave B. Another option for W1 could be a five-wave structure (labeled as”:5″) running in the failure of the fifth wave.

Condition “b”: occurs when W0 moves between 100% and 161.8% of W1. In this condition, W1 could be a three-wave structure (identified as “:3”) performing the center of a complex correction, a flat pattern, or a contractive triangle.

Condition “c”: this condition occurs if W0 is between 161.8% and 261.8% of W1. In this case, W1 could be part of a corrective formation as a continuous correction, a flat pattern, or a contractive triangle, and W1 should identify as “:3”.

Condition “d”: occurs when W0 is higher than 261.8% of W1. In this scenario, the structure suggests that W1 could be part of a corrective formation (tagged as “:3”) as a zigzag pattern, the connector of a double zigzag, the center of a complex correction (or wave-x), or a contractive triangle.

 

Conclusions

In this educational article, we reviewed what should be the Elliott wave structure that W1 build when W2 exceeds 100% of W1. As can be observed, in most cases, the formation developed by W1 corresponds to a corrective sequence.

According to R.N. Elliott’s words, the knowledge of the corrective formations could provide to wave analyst an edge over what should be the next move. In this context, the comprehension of different rules and conditions presented could ease and offer a relevant clue in the wave analysis to the Elliott wave trader.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave Forex Fibonacci

How to Use Retracements to Analyze Waves – Part 4

In this educational article, we’ll review the fourth rule defined by Glenn Neely for the preliminary wave analysis. This rule, by its nature and context, it is likely that correspond to a corrective structure.

In this educational article, we’ll review the fourth rule defined by Glenn Neely for the preliminary wave analysis. This rule, by its nature and context, it is likely that correspond to a corrective structure.

In this educational article, we’ll review the fourth rule defined by Glenn Neely for the preliminary wave analysis. This rule, by its nature and context, it is likely that correspond to a corrective structure.

The Fourth Rule

The fourth case described by Neely considers the context when the price action developed by W2 retraces between 61.8% and 100% of W1. In the same way that the wave analyst measures the retracement developed by W1 on W0, and W2 on W1, it is necessary to evaluate the retracement of W3 on W2.

The author of “Mastering Elliott Wave” identified three possible categories of movements for wave three (W3), which are as follows.

  • Category “i”: will be considered if W3 is higher or equal to 100% and less than 161.8% of W3.
  • Category “ii”: this category occurs if W3 moves between 161.8% and 261.8% of W2.
  • Category “iii”: this category will occur if W3 is higher than 261.8% of W2.

The categories mentioned and their implications are detailed below.

Condition “a”: we consider this condition if W0 is lower than 38.2% of W1. For the three categories mentioned, in the most common cases, W1 could be the first segment or the center of a three-wave formation. In this context, W1 should identify as “:3”. In terms of the Elliott wave patterns, the structure could correspond to a Flat formation, the center of a triangle, or a segment of a complex corrective sequence.

In some particular cases, W1 may correspond to the end of a zigzag pattern inside of a complex correction or the end of a third wave. In this situation, W1 should identify as “:5”.

 

Condition “b”: will occurs if W0 is greater or equal than 38.2% and lower than 100% of W1. Depending on the extension of W3, W1 be likely the beginning or the mid-part of a corrective formation; then, W1 should identify as “:3”. In this context, W1 could be part of a flat pattern or the center of a Triangle formation.

In a particular case, W1 could be the end of a five-wave sequence; therefore, W1 must label as “:5”. If this scenario occurs, W1 could correspond to the end of a zigzag pattern.

 

Condition c: this condition occurs if W0 is greater or equal than 100%, and lower than 161.8% of W1. In this case, W1 belongs to a three-wave formation and should identify as “:3”. In terms of the structures defined by R.N. Elliott, the sequence in progress could correspond to a Flat pattern, a Triangle formation, or the center of a complex corrective formation, for example, a double or triple three pattern.

Condition d: this condition occurs if W0 is between 161.8% and 261.8% of W1. Similarly to condition “c,” in this case W1 should identify as “:3”. And in terms of the Elliott wave analysis, the structure in progress could be a flat, a triangle formation, or any part of a complex corrective sequence.

Condition e: will consider if W0 is higher than 261.8% of W1. In this condition occurs the same situation that conditions “c” and “d.” It means that W1 is part of a three-wave structure and should be tagged as “:3”.

According to the structures defined by the Elliott wave theory, W1 could be the first segment of a flat pattern, the center of a triangle formation, or the center of a complex corrective sequence.

Conclusions

In this article, we have seen the possible formations that could develop according to the retracements experienced by waves W0 and W2 concerning W1, and W3 compared to W2.

In terms of the patterns defined by the Elliott wave theory, the most likely formations to which W1 might belong is to a flat pattern, a central segment of a triangle structure, or the center of a complex corrective sequence.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd edition (1990).
Categories
Forex Elliott Wave Forex Fibonacci

How to Use Retracements to Analyze Waves – Part 3

In this educational post, we will review the third rule on the use of retracements in the wave analysis devised by Glenn Neely.

In this educational post, we will review the third rule on the use of retracements in the wave analysis devised by Glenn Neely.

In this educational post, we will review the third rule on the use of retracements in the wave analysis devised by Glenn Neely.

Third Rule

The third rule occurs when wave 2 (W2) retraces precisely 61.8% of wave 1 (W1). This scenario tends to be somewhat confusing to analyze because when the price retraces to 61.8%, there is the same likelihood that the structure in progress is an impulsive or corrective formation.

Once the retracement of W2 is compared with the height of W1, the wave analyst should evaluate the length of W0 relative to W1. From the resulting measure, several potential scenarios follow, each meeting one of the six following conditions.

Condition “a”: this condition occurs when W0 is lower than the 38.2% level of W1. In this case, W1 could be the end of a zigzag structure inside a complex corrective sequence. In this case, the end of W1 should be identified as “:5”. Another option is that W1 moves inside a continuous correction, or it is part of the first leg of a flat pattern, in this case, the end of W1 should be identified as “:3.

Condition “b”: this condition occurs if W0 is higher or equal than 38.2%, and lower than 61.8% of W1. Considering the lengths of waves “3” (W3) and “-1” (W-1), W1 could be the end of a zigzag pattern inside of a complex correction; in this case, W1 should be identified as “:5. There is another possible scenario when W1 is part of an ending pattern of an impulsive structure; for this setting, W1 should be tagged as “:3”.

Condition “c”: this condition arises when W0 is higher or equal than 61.8% and lower than 100% of W1. In this scenario, W1 could be part of a corrective structure, like a Flat or Triangle pattern. In consequence, W1 should be identified as “:3”. When the length of wave 3 (W3) is shorter than W1, W1 could be the end of a zigzag pattern, and W1 should be labeled as “:5”.

Condition “d”: this condition appears when W0 is higher or equal than 100% but lower than 161.8% of W1. Depending on the lengths of waves W2, W3, and W-1, W1 could be the first segment of a zigzag pattern. In this case, W1 will be identified as “:5”. In another instance, W1 could correspond to a section of a triangle structure or the central part of a flat pattern. If the wave analyst faces this scenario, it should identify to W1 as “:3”.

Condition “e”: This condition occurs when W0 is between 161.8% and 261.8% of W1. In the same way as with the “d” condition, W1 could correspond to the first segment of a zigzag pattern. Therefore, W1 will be identified as “:5”. The second possibility is that W1 could be the central section of a flat formation that concludes in a complex corrective pattern or a segment of a triangle formation. In this case, W1 will be tagged as “:3”.

Condition “f”: this condition occurs when W0 is higher than 261.8% of W1. In this case, it applies the same identification alternatives for W1 as a “:5” or “:3” described in the previous conditions. In other words, W1 could be part of a zigzag, flat, or triangle pattern.

Conclusions

The third rule studied in this article, reveals that this case corresponds mainly to a corrective formation. On the other hand, during the preliminary wave analysis, it is relevant to study the context in which the price action advances.

In the same way, although there are three kinds of basic corrective structures, as the price advances, the wave analyst must discard the options that couldn’t correspond to the Elliott wave formation. As said by R.N. Elliott in his work ” The Wave Principle,” the knowledge of the corrective structures provides the student an edge to visualize the potential next move of the market.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave Forex Fibonacci

How to Use Retracements to Analyze Waves – Part 2

In our previous educational post, we presented the first rule defined by Gleen Neely to analyze waves. In this article, we will introduce the second rule.

In our previous educational post, we presented the first rule defined by Gleen Neely to analyze waves. In this article, we will introduce the second rule.

In our previous educational post, we presented the first rule defined by Gleen Neely to analyze waves. In this article, we will introduce the second rule.

Second Rule

The second rule defined by Neely occurs when W2 is greater or equal than 38.2%, and lower than 61.8% of W1. Once the retracement realized by W2 is measured, the length of W0 will provide five possible conditions as follows.

Condition “a”: occurs when W0 is lower than 38.2% of W1. In this case, wave W1 should be identified as “:5”. This movement could correspond to an ending sequence of a corrective structure. Another possibility for this condition is that W1 belongs to the ending move of an impulsive sequence.

Condition “b”: this condition takes place when W0 is greater or equal to 38.2%, but lower than 61.8% of W1. In this case, it is likely that W1 corresponds to a five-wave sequence and completes a corrective formation and should be tagged as “:5”. However, it is also possible that according to a specific advance of waves W2 and W3, wave 1 is a three-wave structure and should be identified as “:3”.

Condition “c”: this condition occurs when W0 moves between 61.8% and 100% of W1. In this case, W1 could correspond to the end of a flat, or zigzag pattern, and in consequence, W1 should be identified as “:5. Depending on the context of the market under study, the structure could correspond to a complex corrective sequence. On the other hand, if W0 and W2 hold some specific lengths, W1 could be a three-wave structure, and W1 should be labeled as “:3”.

Condition “d”: this condition must be considered when W0 moves between 100% and 161.8% of W1. In this case, W1 could correspond to a zigzag formation, and in consequence, W1 should be labeled as “:5”. Another scenario may consider the possibility that the structure in progress would correspond to a triangle formation. In this case, W1 should be identified as “:3”.

Condition “e”: this considers the movement of W0 beyond of 161.8% of W1. When this situation occurs, wave 1 corresponds to a five-wave structure, and in consequence, W1 should be labeled as “:5”.

Conclusions

As commented in the previous article, when the wave analysts study the market structure, each movement should not be analyzed individually, instead of this, wave analyst must study the market in a context from the previous moves, and the progress developed by market across time.

In the following educational article, we will unfold the third rule described by Glenn Neely.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave Forex Fibonacci

How to Use Retracements to Analyze Waves – Part 1

In our previous educational post, we learned to identify the end of a movement. In this article, we will discuss how to use and evaluate retracements in the wave analysis.

In our previous educational post, we learned to identify the end of a movement. In this article, we will discuss how to use and evaluate retracements in the wave analysis.

In our previous educational post, we learned to identify the end of a movement. In this article, we will discuss how to use and evaluate retracements in the wave analysis.

Defining Retracement Rules

Glenn Neely, in his work “Mastering Elliott Wave,” establishes a set of rules and conditions to evaluate the retracements that each wave makes.

The first step begins with the analysis of the first movement and comparison of the retracement made in the second move (W2) with the first one (W1). Once we evaluated the retracement of W2, we need to analyze the retracement developed on the previous wave (W0) with respect to the first move.

In summary, depending on the retracement of wave 2 (W2) with respect to wave 1 (W1) and the retrace of wave zero (W0) compared to W1. Neely defined a ser of rules and conditions to evaluate and identify each movement. The set of rules will be as follows.

First Rule

We consider this rule when the second wave (W2) is lesser than 38.2% of the first wave (W1). Once we have measured the retracement made by W2, we must evaluate the previous wave (or wave W0). Under this rule, there are four possible conditions.

Condition “a”: occurs when the high of W0 is below the 61.8% level of W1. However, it is necessary to evaluate the retracement experienced by the previous wave to W0 (it is W-1). Depending on its length, W1 could be identified as “:3” or “:5”. It means that W1 could be part of a corrective or impulsive structure.

Condition “b”: this condition occurs when if  W0’s high is above 61.8% but below 100% of W1. Depending on the length of W-1, W1 could correspond to an impulsive or a corrective wave; thus, W1 could be identified as “.5” or “:3.

Condition “c”: this condition occurs when W0 is above or equal to 100%  of W1 level and less or equal than 161.8 of W1. In this case, we will label as “:5” the end of wave 1. However, under certain conditions, W1 could correspond to a “:3” structure.

Condition “d”: occurs when W0 is larger than 161.8% of W1. In this case, the end of W1 must be identified as “:5”. The labeling means that W1 corresponds to a five-wave sequence.

 

Conclusions

The evaluation of the retracements experienced by W2 and W0 could deliver insights to the wave analyst of what kind of wave is W1. However, in some cases, it is necessary to evaluate the context of more waves. This study would provide the wave analyst an overview of the Elliott wave structure that the market develops. For example, if the structure in progress corresponds to a terminal movement of a corrective sequence or an impulsive wave in development.

In the following article, we will continue discovering the rules described by Gleen Neely for the wave analysis.

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
– Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd edition (1990).

Categories
Forex Elliott Wave

How to Start a Wave Analysis – Part 4

In our previous educational article, we learned to identify the end of the directional and non-directional movements. In this article, we will learn to recognize neutral movements.

In our previous educational article, we learned to identify the end of the directional and non-directional movements. In this article, we will learn to recognize neutral movements.

In our previous educational article, we learned to identify the end of the directional and non-directional movements. In this article, we will learn to recognize neutral movements.

The Neutral Movement

When the wave analyst faces the market in real-time, it is common to observe the price action running at a lower price/time relationship than the usual market speed. When this phenomenon occurs, we are in the presence of a neutral movement.

In particular, when the price changes its direction if the angle between the initial move and the next one is lesser than 45° thus, we are facing a neutral movement.

Depending on the kind of movement developed by segments under study, there exist two possible scenarios of a neutral move.

  • If the neutral movement runs in the middle of two legs that advances in the same direction, thus the end of the first path will be at the end of the neutral segment.
  • The second case occurs if the neutral movement advances between two segments that run in the opposite direction. In this case, the end of the first movement will be at the end of the second segment.

Neutral Movements in the US Dollar Index

The following chart shows the US Dollar Index in its 8-hour timeframe. In the figure, we observe a first neutral movement, which runs upward from 96.98 until level 97.40.

The ascending sequence makes two pauses that look horizontal. Applying the neutral movement concept, we conclude that this movement corresponds to a single path that advances into the rectangle.

In the second rectangle, we observe the decline that the Dollar Index from level 97.72 until 96.45. This bearish move exposes an acceleration that turns complex the wave analysis. In this case, the neutral movement concept helps us in determining that the bearish move corresponds to a single movement.

If the wave analyst looks for a detailed decomposition of the entire bearish segment simplified by the neutral movement, in words of R.N. Elliott, the wave analyst should have to study the move in a lower timeframe to identify every segment.

Waves Observation

Until the previous section, we observed that each movement produced is divided into two main categories depending on the segments that compound each sequence.

According to the Wave Principle, R.N. Elliott described the existence of a movement that follows a trend, and the reaction of the initial move. Elliott defined to these movements as an impulsive and corrective wave.

  • An impulsive wave progresses in a defined direction. Its internal sequence is formed by five segments, where three movements follow the same path, and the other two move against the main trend.
  • A corrective wave characterizes by its progress against the main trend direction. A corrective formation is composed of three segments.

Identifying Movements

To facilitate the wave analysis, R.N. Elliott, in his Treatise, defined the use of labels to identify the advance of the movement of each segment.

Elliott, in his work “The Wave Principle,” tells us that the use of tags to identify each movement is not an end by itself. Instead, it is a tool to ease the wave study.

The following chart represents the GBPUSD in its 4-hour range. From the figure, we observe the Cable developed a rally that advanced in five segments from level 1.19585 touched on September 03rd, 2019.

The sterling reached its highest level at 1.35149 on December 12th, 2019, from where the price action began a corrective process that still looks in progress.

Conclusions

Sometimes, the nature of the movement makes complex the waves’ observation process, and in consequence, to determine where it begins or ends.

The neutral movement concept aid the wave analyst to determine, in an objective way, where it starts or ends a move when it is not simple to define. Once the wave analyst discerns where each movement starts and finishes, the analyst will be able to advance in the wave identification process.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd edition (1990).
Categories
Forex Elliott Wave

How to Start a Wave Analysis – Part 3

In our previous article about the preliminary wave analysis, we commented on the relation between price and time and distinguished the difference between directional and non-directional movement. In this educational post, we will extend new concepts to develop a wave analysis.

In our previous article about the preliminary wave analysis, we commented on the relation between price and time and distinguished the difference between directional and non-directional movement. In this educational post, we will extend new concepts to develop a wave analysis.

In our previous article about the preliminary wave analysis, we commented on the relation between price and time and distinguished the difference between directional and non-directional movement. In this educational post, we will extend new concepts to develop a wave analysis.

Finding the end of a Movement

Identifying the end of a movement is usually a tough task, especially when the wave analyst makes its first analysis.

To reduce the subjectivity in this stage, the basic rule to identify the end of a segment is: if the price action of the following section of a directional movement experiences a retrace for more than 100%, it is indicative that the movement has ended.

To illustrate this rule, let us consider the GBPNZD in its 8-hour chart. In the figure, we observe the bearish directional movement starts at 2.00187. The last directional segment that begins at 1.87283 and declines until 1.82790.

Once the price surges from the lowest level, and advances over 1.87283, reaching at 1.90588, we observe that the bearish directional movement has finished.

In the case of a non-directional movement, the segments series that conforms to the consolidation formation frequently tends to finish once the price exceeds the 161.8% level of the non-directional range.

The next chart exposes to NASDAQ e-mini futures contract in its 12-hour timeframe. The figure illustrates the non-directional movement that developed once the price reached 8,040.75 pts.

The e-mini NASDAQ futures price made a first bearish segment From 8,040-75 until 7,359.75 pts. From this low, the price action reacted, making a bounce that exceeded the 61.8% of the first bearish decline. In the same way, the third internal segment retraces more than 61.8% of the second non-directional move.

After NASDAQ surpassed 8,040.75 pts, the price continued developing a directional sequence that drove the e-mini index to reach several consecutive record highs to the date.

GBPJPY Continue Developing in a Non-Directional Move

The GBPJPY cross went bearish, starting from the 147.954 level in a five-segmented wave creating a directional sequence until 141.161. From there, the price found new buyers expecting the boost of the GBPJPY once again.

The surpassing of the previous high of segment “4” at 143.054 makes us perceive that the bearish directional movement ended with the advance of leg “6” that ended at the 144.364 level.

Once the top of segment “6” at 144.364 was reached, the price reacted bearishly, making a new decline that created a new lower low at 140.818. In view that the movement exceeded a retracement of 61.8% and was less than 161.8%, the sequence corresponds to a non-directional move.

The next movement, identified as “8”, brought the price to 144.524. This path corresponds to an additional segment of the non-directional sequence. Once that fresh high was reached, the price action reacted downward. The movement remains currently active and based on the previous analysis, the price action bias is bearish.

Conclusions

The identification of the beginning and end of each segment allows the wave analyst to reduce subjectivity in the study.

We must remark that directional and non-directional movements are not the same concepts as impulsive and corrective movements.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd edition (1990).
Categories
Forex Elliott Wave

How to Start a Wave Analysis – Part 2

In the previous article, we presented the wave identification process starting with the segment as the basic unit of the price movement. In this educational article, we will introduce some rules to support the preliminary analysis.

In the previous article, we presented the wave identification process starting with the segment as the basic unit of the price movement. In this educational article, we will introduce some rules to support the preliminary analysis.

In the previous article, we presented the wave identification process starting with the segment as the basic unit of the price movement. In this educational article, we will introduce some rules to support the preliminary analysis.

Price and Time in the Waves Identification

When an Elliott wave analyst decides to study a financial asset, he tends to choose a specific timeframe, and in consequence, he will visualize a defined group of waves. However, in view that the speed of price changes across time, the analyst must be flexible in the timeframe selection process.

The psychology of masses changes over time; this phenomenon can be reflected in the speed of price, making a market more volatile in a specific moment than another. For this reason, it is useful to analyze using different timeframes.

R.N. Elliott, in his work “The Wave Principle,” exposes the importance of selecting different timeframes when the speed of price doesn’t allow us to visualize the different waves adequately.

Directional and Non-Directional Movement Concept

Before starting to analyze the price through time, it is essential to distinguish the concept of directional and non-directional movement. The directional move contains a group of segments that produces a global increase or decrease in the value of a financial asset.

When the price action runs in a directional movement, the segment that moves in the opposite direction of the previous move, never retracing beyond the 61.8% Fibonacci level of that movement.

Directional and Non-Directional Movement in GBPJPY Cross

The following chart illustrates the concept of directional and non-directional movement. The GBPJPY cross in its 2-hour chart exposes the bearish directional movement started on December 13th, 2019, when the price reached 147.954 and ended when the price found support at 141.161 on December 23rd, 2019.

The bearish directional movement ended once the segment identified as “6” surpassed the origin of the last bearish section tagged as “5”.

The sixth segment climbed until 144.364, from there, the cross found fresh sellers, which drove its price to a new low at 140.817. This non-directional movement is identified as the segment “7”.

After this new support, GBPJPY bounced in a segment identified as “8” until 144.524, being the third segment of the non-directional sequence. Currently, the price is retracing in a bearish segment that still is active.

Conclusion

The price moves following a rhythm that changes through time. Sometimes, in a different timeframe, it isn’t straightforward to visualize the Elliott wave formations, in this case, the wave analyst has to be flexible to select a different timeframe to develop its study.

The identification of directional and non-directional movements will allow the analyst to understand and follow the rhythm of the market.

Suggested Reading

– Neely, Glenn. Mastering Elliott Wave: Presenting the Neely Method. Windsor Books. 2nd Edition.

Categories
Forex Elliott Wave

How to Start a Wave Analysis – Part 1

The wave analysis begins with a preliminary study of the basic patterns defined by the Elliott Wave Theory. In this educational article, we will view how to start to develop a wave analysis.

The Basic Concept

Glenn Neely, in his work “Mastering Elliott Wave,” introduces the concept “monowave” to describe a basic movement that develops the price within a price chart. However, by convenience, we will use the term “segment” hereafter to identify the basic move.

Waves Identification

The first step is the chart representation on the chart with which the entire wave study will be guided for it. The simplest way is to begin through a daily timeframe.

Concerning the type of chart, this could be a bar chart or a candlestick chart. This election does not be a limitation to advance in the wave analysis. In some cases, the use of a line chart could be useful in identifying structures.

Once chosen the asset to study, we will have to identify the lowest point, and the end of the first movement once identified these movements we identify the point where the move exceeds the end of the first wave.

The following chart corresponds to Copper in its daily range.

From the figure, we distinguish each segment that Copper develops in green, the upward move, and in red the downward movement.

The bullish sequence started in early January 2019, when Copper found buyers at $2.52 per pound. The red metal ended the upward path on April 17th, 2019, at $2.99 per pound.

Alibaba Still Moves Higher

The following example corresponds to Alibaba (NYSE: BABA) in its 2-hour timeframe. The chart exposes the rally developed by the e-commerce giant since October 08th, 2019, when BABA found fresh buyers at $161.92 per share.

Once the price found support at $161.92, BABA started to move upward, building the first segment. We identified this first move as “1” labeled in blue, the section ends at $178.59 on October 17th, when the price reacted retracing the first segment. This drop is identified as “2”.

The third segment is active after the surpass of the end of the first move at $178.59. The third movement finishes at $188.17 per share. From this segment, we distinguish that the third movement is extender than the first segment. In other words, the first upward movement advanced $16.89, while the third progressed $20.10.

However, we observe that the seventh segment rallied $28.17, which is the most significant move developed by the entire bullish sequence that started on October 08th to date.

Conclusion

Wave identification is a first step that allows us to recognize the trend of each market in a specific timeframe. Due to the fractal nature of market movements, this procedure will be valid in any range of time.

Suggested Reading

  • Neely, Glenn. Mastering Elliott Wave: Presenting the Neely Method. Windsor Books. 2nd Edition.
Categories
Forex Elliott Wave

Basic Concepts of Wave Analysis

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Wave Concept

The first step before to start to analyze waves is to understand what a wave is? A wave is a movement that develops a market in terms of price over time. This move has its origin in the imbalance between the buying and selling forces that interact in the market.

Glenn Neely defines a “monowave” as a movement that begins with a variation in the direction of the price. This move ends when the next price variation occurs.

A monowave can have an ascending or descending diagonal direction. The speed with which it occurs in time can vary, but in no way will this be a vertical line.

The movement that develops the price through time can slow down and then gain momentum again. This variation is part of the same wave.

The Psychology of Participants

When a market moves for a large part of the time in the same direction, the interest of public participation tends to increase.

Different information media starts to pay more attention to the same time that the market movement progresses. In this stage, the general public seeks to participate and benefit from that movement. However, when it occurs, market movers tend to start to close their positioning.

R.N. Elliott, through his study, identified specific patterns that tend to repeat over time in different markets. However, these patterns do not have the same dimension; neither happens in the same way in the markets.

On the other hand, as patterns described by Elliott have specific similar characteristics. Its knowledge and identification allow making forecasts about the next movement with a high level of precision.

Types of Waves

There exist two types of basic wave movements; these are:

  • Impulses, that move in a defined direction. Impulsive waves characterize by composed of 5 segments, of which 3 of them move in the same direction of the trend.
  • Corrections move in the opposite direction of the motive movement. Generally, it tends to progress in a sideways sequence. These formations are composed of 3 segments.

Waves Identification

The market moves across time, and each movement developed can be grouped in different time ranges, from seconds to years. Elliott defined degrees and labels to ease the study of any market through time.

When a movement is grouped in a specific timeframe, each move should be considered in terms of the relationship between price and duration of itself over time, and not analyze it in absolute terms either price or time.

Once recognized, the wave to study, the next step is its identification. This stage will require the use of labels in each part of the sequence. Labels are a tool that allows distinguishing both the impulse as the correction and the degree to which it belongs each wave.

When the wave analyst carries on the labeling process, these should be used in waves of similar size and complexity. It means that waves should be identified in the same timeframe and kept proportionality between one and another measure. The labeling process will make it easier to ask where the market is going.

Another aspect to take into consideration is the complexity of waves. In other words, complex structures are the result of a combination of the combination of three or five waves; the result of this combination is the creation of a wave of a higher degree or timeframe.

The figure represents the concepts of wave (or monowave used by Glenn Neely), impulsive and corrective wave and label.

Conclusions

The study of Elliott waves lets us understand the path that a market develops. In this way, the study and the identification of patterns described by R. N. Elliott, allows the wave analyst to answer the question of where the price is and where it possibly goes with a considerably high level of precision.

Both, the use of degrees and the labels are tools that permit maintaining a logical order in the wave analysis.

Finally, when identifying wave patterns, there must be a level of proportionality in the structure being analyzed, that is, there must be consistency in terms of price ranges and time.

Categories
Forex Elliott Wave

Introduction to Wave Analysis

To think in a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

To think in a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

To think about a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

The Background

The Elliott Wave Principle is part of nature and can be applied to the financial markets as a socio-economic phenomenon. The result of this application is a graphic representation of mass psychology.

The interaction of different market participants reflects prices into identifiable patterns. These patterns tend to repeat across time and allow us to foresee the most likely next movement of the market.

In financial markets, the price does not have an absolute top or bottom. The application of the Elliott Wave can help to determine the time and price where a trend could start or end. The study and analysis of specific patterns or price structures support this analysis once formation ends.

Why the Wave Theory?

The comprehension of the psychology of the masses allows the trader to participate in any financial market. For example, stock markets, commodities, currency market, among others.

Compared with traditional technical analysis, the wave theory is based on the perspective of price behavior over time, not on the identification of a specific pattern, for example, a head and shoulders pattern, double or triple top or bottom, etc.

It should be noted that the wave theory is adaptable over time. Further, although wave patterns repeat over time, there are not two markets that make the same move at the same magnitude.

Pros and Cons

  • Panoramic overview, Wave theory knowledge provides an overview of the market and what should be the most probable next path.
  • To know the psychology of masses and the wave structures allows us to understand the market expectations. Further, it will enable us to identify the phenomena as fear and euphoria.
  • Complexity, the wave theory is probably the most complex method of analysis in its understanding.
  • Flexible mentality, the wave analysis requires to detach from the mass opinion, and comprehend what stage runs the market.
  • Time available to study and apply this method.
  • Indetermination when a price structure is incomplete. However, once the wave pattern is complete, the structure and the potential next move is clear.

Conclusions

The wave theory is a complete method that can represent the psychology of masses in identifiable patterns. This method provides a comprehensive perspective of the market situation and the most likely next move.

The difficulty in the application of wave theory requires not only to learn the basic concepts. It also is fundamental to develop the capacity of abstraction to visualize the movements in progress. This capability increases across time and continuous study of different markets and conditions.

Categories
Forex Elliott Wave Forex Market Analysis

DAX Could Keep Making New Highs- An Elliott Wave Scenario Planning

The German index DAX 30 contains the 30 biggest German public companies traded in the Deutsche Böerse. In this article, we will review what to expect from the German index for the coming weeks.

The German index DAX 30 contains the 30 biggest German public companies traded in the Deutsche Böerse. In this article, we will review what to expect from the German index for the coming weeks.

The German index DAX 30 contains the 30 biggest German public companies traded in the Deutsche Böerse. In this article, we will review what to expect from the German index for the coming weeks.

The Big Picture

DAX 30, in its two-week chart, shows the price action progress of the index from the lowest level it touched in early March 2009. Once the DAX found buyers at the 3,585.8 points, the price rallied until 13,602 points when the German index completed the wave III labeled in black.


Since the March 2009’s low, the price moved in a bullish impulsive sequence that is still incomplete. The German index has already completed three waves of Primary degree, labeled in black. Currently, the price is running in its wave IV, also labeled in black.

The First Scenario

As we discussed in a previous article, scenarios allow us to analyze the likelihood of different “what if?” viewpoints.

The first possible scenario showed on the daily chart consists if wave IV is complete with the corrective move as an (A)-(B)-(C) sequence ended at 10,279.1 points.

Thus, a first approximation to the current path could be a possible ending diagonal pattern in progress. If this scenario is valid, the DAX should be moving in a wave (3) (labeled in blue), and we must assume that this wave is incomplete.

Consequently, the next leg should have a limited decline, and bringing the way for a new bullish movement as a wave (5).

The Alternative Count

The second scenario proposes an alternative count. In this case, the daily chart shows the price action moving in an incomplete wave (B), labeled in blue.

In this context, as the wave (B) is incomplete, the price action is running in an internal leg identified as wave C labeled in green. At the same time, wave C is incomplete and should finish the waves ((iv)) and ((v)) of Minute degree labeled in black.

According to the Elliott Wave Principle, under this scenario, DAX could be developing an irregular flat formation. This structure is characterized by following an internal sequence divided into 3-3-5, and the price tends to surpass the previous relevant high, in this case, located at 13,602 points.

If this scenario is valid, the price should develop a downward wave (C), which could drive to DAX to re-test the zone of the last Christmas low at 10,279 points.

The Conclusion

Both scenarios proposed to grant us the likelihood of a marginal upside and, then, a corrective move. However, the extension of the next path will confirm the Elliott wave structure that corresponds.

Probably, DAX will extend its gains over the 14,000 points, reaching a new all-time high before starting a deeper corrective move. This movement to the upside could emerge as a three or five wave structure, depending on which scenario is right, as stated above.

Categories
Forex Elliott Wave Forex Market Analysis

Dollar Index Long Term Wave Analysis

The US Dollar Index (DXY) from last October shows signs of exhaustion of the bullish cycle that started in February 2016. What says us the Elliott Wave Principle about the next path of the US Dollar? In this article, we will discuss what to expect for the Greenback.

The US Dollar Index (DXY) from last October shows signs of exhaustion of the bullish cycle that started in February 2016. What says us the Elliott Wave Principle about the next path of the US Dollar? In this article, we will discuss what to expect for the Greenback.

The US Dollar Index (DXY) from last October shows signs of exhaustion of the bullish cycle that started in February 2016. What says us the Elliott Wave Principle about the next path of the US Dollar? In this article, we will discuss what to expect for the Greenback.

Fundamental Perspective

The Federal Reserve, during the last FOMC meeting, realized on December 11, decided to keep the interest rate at 1.75% by letting it unchanged for the second consecutive month.

The FED’s Chairman Jerome Powell, in his latest statement, indicated that the current monetary policy is adequate to sustain the expansion of economic activity in the United States. On the other hand, the labor market conditions remain stronger, and inflation continues in the 2% target.

In its projections for next year, the committee members do not visualize any further cut changes in the reference rate.

Technical Perspective

Dollar Index (DXY), in its weekly chart, shows the price action developing a downward corrective structure. This bearish structure began on January 03, 2017, when the DXY reached the level 103.82.

Until now, DXY has carried out two internal waves, which we identified as wave ((A)), and ((B)) labeled in black. In the weekly DXY chart, we observe that wave ((A)) progressed in five waves.

According to the Elliott Wave Principle, the formation developed by DXY should correspond to a corrective structure that presents the characteristics of a zigzag pattern. A zigzag formation is characterized by a 5-3-5 internal sequence.

The graph below shows the daily DXY chart, which reveals a bullish sequence that develops into three internal waves, labeled in blue as (A), (B), and (C), which corresponds to the complete movement of upper-degree, identified as wave ((B)).

Likewise, we recognize how the price developed a structure in the form of an ending diagonal, that in terms of the Elliott Wave Theory, appears typically in waves “5” or “C.”

On the other hand, the pierce and closing below the August 2019 low at 97.17, make us suspect that the price could be making a change from the upward cycle started in February 2018 to a downward trend.

This movement could start the third internal move of the corrective wave, which should be developed in five waves.

Our Forecast

The 4-hour chart shows DXY has completed its first bearish motive wave labeled as (1) in blue. Once its five internal segments has ended, the price bounded off from the level of 96.59 on December 12.

Short term, we expect a bullish rebound in three waves that could reach the zone between 97.94 and 98.44. From this zone, the Greenback could find sellers waiting to activate their short positions.

The long-term target is located in the zone of the 90 points as a psychological round-number level. Further, this zone is the area of the 2018’s lows. This target area coincides with the lower line of the downward channel.

The invalidation level of the bearish scenario is located at level 99.67, which corresponds to the highest level reached in early October 2019.

Categories
Forex Elliott Wave Forex Market Analysis

NZDUSD Long Term Wave Analysis

The NZDUSD pair has shown signs of recovery in recent weeks. Have we to think in the buy-side for the coming weeks? In this article, we will review the probable next movement from the oceanic pair.

The NZDUSD pair has shown signs of recovery in recent weeks. Have we to think in the buy-side for the coming weeks? In this article, we will review the probable next movement from the oceanic pair.

The NZDUSD pair has shown signs of recovery in recent weeks. Have we to think in the buy-side for the coming weeks? In this article, we will review the probable next movement from the oceanic pair.

Fundamental Perspective

The Reserve Bank of New Zealand (RBNZ), realized in November its last monetary policy decision, from where the policymakers kept the Official Cash Rate unchanged at 1%.

In the decision statement, Governor Adrian Orr stated that employment remains at high levels; however, inflation remains below the 2% target. Moreover, the RBNZ projections for the coming year 2020 pointed to stable interest rates at low levels so that inflation can be ensured to reach the target level.

The next meeting of the reserve will be in February 2020. As a consequence, the fundamental traders will have to closely monitor the evolution of macroeconomic data during the following two months.

Technical Perspective

From the technical point of view, the NZDUSD in its weekly chart moves sideways in a corrective process that found the first support in August 2015 at 0.61968.

During 2019, NZDUSD approached the lowest level of 2015, developing Elliott’s ending diagonal pattern, which found support at 0.62037 in early October.

According to the Elliott Wave Principle, a diagonal ending formation is an impulsive pattern that has an internal structure that is divided into 3-3-3-3-3. In turn, this formation can be found in a wave ‘5’ or ‘C’ within a corrective structure.

Once NZDUSD touched the level 0.62037, the pair found buyers and began to realize a bullish movement in three waves. The completion of this upward sequence makes us foresee the possibility of a new decline. Probably the next move will be in three waves.

Our Forecast

The NZDUSD pair in its 4-hour range shows the possibility of a corrective move to the area between 0.64647 and 0.64078. This zone could bring us the opportunity to incorporate us in the potential long-term next rally.

The invalidation level is placed at 0.62028, which corresponds to the lowest level reached by the NZDUSD in October 2019. Our long-term target is at 0.7558 level.

Finally, depending on the retracement level of the NZDUSD, the corrective sequence will reveal to us the strength or weakness for the next path.

Categories
Forex Elliott Wave

Planning your First Wave Analysis – Part 2

In a previous post, we talked about the ideal structure of an impulsive and corrective wave. Also, we discuss the starting point of the study of a market. In this

In a previous post, we talked about the ideal structure of an impulsive and corrective wave. Also, we discuss the starting point of the study of a market. In this

In a previous post, we talked about the ideal structure of an impulsive and corrective wave. Also, we discuss the starting point of the study of a market. In this opportunity, we will deepen the steps to identify a wave.

 

Watching the waves

 

Before continuing, we must consider the concept of “wave.” A wave is a defined movement of the market, which is reflected in a price variation. Depending on the price action, the change may have a higher or slower speed, but it will never be perfectly horizontal or vertical.

Depending on the sequence of a group of waves, the market may develop an impulsive or a corrective wave structure. An “impulsive wave” is made up of five waves with a relationship of the same degree. On the other hand, a “corrective wave” is composed of a set of three waves. The following figure shows an ideal impulsive and corrective wave.


Wave proportionality

Once we define the start point and the timeframe of the market study, we must consider that waves should have specified “proportionality.” Consider that some Elliott structures could not be easily visible by simple observation. For this reason, we must be flexible in terms of the selection of the timeframe to analyze. Remember that the same timeframe will not necessarily useful to examine all markets. Elliott, in his “Treatise,” reminds us that in markets with low volatility, the weekly chart may be more fit than the daily chart.

 

Price and time relationship

In a sequential movement, the price action is developed following the relation between price and time. On the following chart, we observe the Financial Select Index ETF (AMEX: XLF) on a weekly timeframe. In the example, we note that the sequence starts in the March 2009 low at $ 4.47, and ends when XLF reached the February 2011 high at $ 13.90. After this top, XLF developed a retrace in February 2011, which led to a higher low at $ 10.02.



In this example, there is a similarity in the advance and retracement of the price with the time. In summary, the movement of two consecutive waves of the same degree cannot be less than one-third (1/3) of the greater in terms of price and time.

Categories
Forex Elliott Wave

Planning the First Wave Analysis – Part 1

Before to start to analyze any market, it’s necessary to set-up the chart earlier to begin to identify motive and corrective waves. In this article, we will learn how to

Before to start to analyze any market, it’s necessary to set-up the chart earlier to begin to identify motive and corrective waves. In this article, we will learn how to

Before to start to analyze any market, it’s necessary to set-up the chart earlier to begin to identify motive and corrective waves. In this article, we will learn how to start to analyze the market applying the Elliott Wave Theory.

 

Setting-up the first chart

The first step consists of choosing the market to be studied, and then select a starting point for the analysis. Once we decided the market of interest and the inception point, in a monthly chart, we will identify the highs and lows of the asset in the order of appearance. After that, we must establish the relevant date and price of every segment.

As an example, the following chart corresponds to the DAX futures in a monthly timeframe. As you can notice, there are identified the “relevant” highs and lows from March 2000 until the present.

Once we defined the starting point,  we will begin the analysis by moving our timeframe from higher to lower. In means, from monthly to daily timeframe, and even to an hourly chart. However, this could demand you extra time to update the analysis.

The identification process

When the identification is complete, we must distinguish the start and end of each wave. From our example, we will start from the March 2009 low at 3,588.5 pts, until the January 2019 high at 13,181.5 pts.

The same process must be realized in the weekly and daily timeframe. As you can notice, we still do not begin to talk about motive and corrective waves. The reason is that the first step is to learn to recognize the movement under study.

As was discussed in the previous article, we will use labels to identify each wave. In our example of the FDAX monthly chart is as follows.




Summarizing, the monthly chart of the FDAX shows a bullish sequence which currently should be developing a wave ((5)). As we learned, waves ((1)), ((3)), and ((5)) moves in the bullish trend direction; it is a motive wave. The waves ((2)), and ((4)) retraces the main trend movement, or in other words, these waves are corrective of the principal trend.