Weekend Elliott Wave Analysis Attempt for GBP/USD 4/15/12.
In the GDP/USD chart below is the very first attempt at applying Elliot Wave Theory. Here’s a basic rundown of what you should see and for anyone unfamiliar with Wave Patterns this should be (or at least appears to me to be) the most basic 5-3 wave cycle coming to completion.
The principals behind Wave Theory are based on relative price movement rather than absolute price movement, and while I’m sure this chart is just littered with errors, I’ve done my best to identify the most blatant and basic impulse (5 point waves) and corrective (3 point) waves, which combined form a 5-3 wave cycle.
Let me first explain what you’ll see on my chart.
Intermediate Waves (numbers or letters with a bracket around them).
Minor Waves (the smaller, plain numbers and letters)
The minor waves in impulse wave [5] have created a triangle, or rising wedge. Also, you can see that where minor wave 5 of [5] come together, you have an extremely strong sell signal which you can clearly see.
After wave [5] forms [A] which is a 5 point wave (basic corrective waves are typically 5-
The minor waves are subwaves of one intermediate wave. [1], [3], and [5] are impulse waves or motive waves (waves that form the trend). Waves [A], [B], and [C] (unknown) are corrective waves of [1]-[5] therefore, after [C] we can hope to expect a long movement up.
[C] is forecased at the 1.5720 area which, if you bring up the weekly chart, can be seen as a major past support and resistance area. This area is also riding on the 23.6% retracement level of the last intermediate wave and typically, in a basic ABC pattern, C will extend to retrace the majority of the last impulse wave of its degree. With the confluence of the major S&R + a prime fib retracement area at the 23.6 as well as the 100% fib extention area of [5]-[A]-[B] it would seem we have a good, solid area to expect the market to begin a new 5-3 cycle upward.
The real question is where will the market go until then? From current price (1.58434) to [C] that is a 100+ pip move. The chances of it dropping 100 pips straight down from current price position to that level, in my eyes, is unrealistic, especially after such a large sell off from Friday. Observing the H1 chart below zoomed into what is blossoming as the final intermediate wave C of the intermediate cycle, we can see that it is partially created (remember, waves A and C are typically made up of 5 subwaves while B is a 3 subwave wave).
So far, we can see that minor waves 1, and 2 have been created, with 3 looking to be finished at current price area. Price now needs to make minor corrective wave 4 upwards before coming back down towards [C] that would form minor wave 5. The red circle denotes our target sell area so we can get into the market for what hopefully should be a 150 pip move down to the 5700-5720 area.
You can see I have a retracement drawn on minor wave 3. This is done to predict where the market will move to on minor wave 4, which will be our entry short for the minor wave 5 ride down. One very important rule of Wave Theory as that wave 4 cannot retrace into the area of wave 1. This being said, we can accurately predict that price will not go past our 50% retracement of minor wave 3 (it will probably lean more towards a close at the 61.8 which is confluent with the last intermediate cycle’s 61.8 level also), as doing so it would enter the territory of minor wave 1 of [C]. If this happened, my waves are drawn wrong and it is back to square one. As I am always the optimist, I am pending a short in the upper area of the red circle drawn hoping to catch the peak of minor 4 which will start minor 5 and bring us down to [C] where we can reasonably expect the birth of a new intermediate cycle with a large impulse wave upwards.
Whew…talk about working out your brain! This is the stuff dreams are made of! At least mine anyway, hah. Either way I hope you enjoyed this. I know it’s a lot of seemingly crazy information but I warned ya! Elliott Wave Theory is serious business! While this is obviously an incomplete analysis, I’ll be very curious to see how this plays out this week and the accuracy of my first analysis.
