The above introduction will lead to a full background on Elliott Wave.
Why is Elliott Wave significant in trading? Well, I am firstly not saying other methods are not valid, after all the market is made up of participants using these methods.
I think it is significant because Elliott focused on the psychology of the market. The moment the market found itself visual on computer screens it became possible to see market reaction over time in one place. I think we can all agree that market behavior is based on a herd approach, i.e. I follow you and so on…
If this is true then the herd must behave in similar ways at exactly the same time depending on the time frame they are in the market for which is also based on psychology. So if Psychology is the basis of market participation then does it not stand to reason that the market must be assessed based on the psychology of its participants?
This is Elliott’s point. So he devised a form of technical analysis that takes into account this behavior by observing a set of principles rooted in our understanding of how to participate in the market process.
I hope we can support this thread as there is no thread dedicated to Elliott wave in this forum. So please feel free to contribute any knowledge you have on this subject.
Paul Tudor-Jones a swing trader worth £4.3bn uses Elliott Wave to determining market tops and bottoms and so do several analysts who analyse all kinds of markets.
I am using Elliott Wave strategy for a few years. Trading all this time, I have got only 2 negative months…
If you know how to calculate waves correctly + using tight stop loose, then this will work for a long term…
We wanted to start with the daily chart for EURUSD because it shows a clear impulse wave to the downside from this summer’s high. It also shows a “throw under” in wave (v) to the downside into a “panic type” low. Prices have now returned to the underside of that broken channel line, and a push above 1.1534 would reverse over leveraged bears, spark a return as high as the “Resistance Zone” and set up the next phase of the decline.
Drilling down to the 240-minute chart, we see a couple of notable technical items: Prices held 1.1262 support this week. RSI turned up from the “bull trend support” (lower blue zone). Five waves down from the wave (iv) high are complete. The action down from the wave a/i high appears to be corrective. Even if we took the view that EURUSD is going to head down directly to par, to fulfill our longer range objective, a corrective bounce could still see the 1.1680 area first (prior fourth wave extreme). We are nimble bulls here looking for at least that level, but potentially more.
The pound is a little further along in its rally than the euro versus the dollar. Last week’s successful test of the 1.5200 area lets us know that it is an important level. As long as prices are above there, we can look for the head and shoulders target near 1.5600, and potentially up towards the prior fourth wave extremes near 1.5800 and 1.6200. RSI is has touched “sustainable bull territory” twice since the low, so contrary to many, we’re looking for further upside action to reset prices for the next down phase.
There’s little question that something is wrong Down Under. The AUDUSD continues to look much weaker than GBPUSD or EURUSD. But, that’s not to say we’re near term bearish. In fact, we have several near term bullish items to point out: Last week’s low held, leaving support intact. The action down from wave .a/.i high is clearly a three wave move. The broken down trendline was successfully retested after the wave .a/.i high in an example of reverse polarity. Channel support held at this week’s low. So, we’re looking for at least a push higher, potentially to the former support, now resistance, from the wave iii low near .8000, which is also near the upper line of the down channel. We’re not ruling out further strength beyond that, but as our recent GBPAUD tweet pointed out, Aussie should remain weaker than most currencies going forward.
Last week we wrote, “An early week low, followed by late week strength is our play here too.” It took until Thursday for the NZDUSD to bottom, but the late week strength was right on the money. A corrective decline is complete at last week’s wave b/ii low, and now we’re looking for a minimum of two equal waves up from the low at .7589. There’s further bullish potential towards the extreme of the prior fourth wave at .8036 as well. It’ll take a break of .7314 to alter our near term bullish view.
Wave b/ii looked like a triangle early in the week, although it pushed higher as the week went on. Nonetheless, the rally from the wave a/i low is clearly corrective, which opens the door for prices to decline near the 1.2200 area at a minimum. We’re holding our bearish view against this week’s top at 1.2698. I’d imagine that there’s been a lot of late to the party “oil weakness means CAD weakness” traders that will get whipped out prior to the resumption of the larger rally.
The USDCHF is a bit of a mess. Notice that our RSI goes from sustainable bull, to bear, and then back to bull again – before and after the CHF peg announcement. We’ve altered our count a bit, although we’re still looking for a slight push to the upside to complete a five wave move. The action after that will be telling to the larger trend. We’re only going to participate here if we see something that’s terribly clear, and as of now, that’s not the case.
We jumped the gun last week suggesting that wave (4) was complete, although we alerted Twitter followers to that possibility mid-week. It’s still possible that last week’s count (this week’s alternate) is valid, and that wave (5) is already underway. However, it’s usually best to assume that a range is in effect until it is broken. As such, with three waves up from 117.17, we’re looking for wave E to complete with a small up, then down, sequence. We’re going to be aggressively bullish on any dips next week, as long as prices remain above the wave C low, and we closed out the week as small bulls. We’ll eventually be looking towards 123-125.00 area before the eventual top.
