This is my first try on Elliot wave cycle that I am applying to hourly chart of GBP/USD. The PDF file attached displays the waves.
In this diagram I see the wave starting at Wave 1 in downtrend with high of 1.6379 ending at 1.5791. Wave 2 starts at that point and ends at 1.6113. Wave 3 starts at 1.6113 and ends at 1.5844. Wave 4 is expected to be an uptrend that has partially starterd and came to an unfinished end (I am using DealBook 360) at 1.5946, due to the close of the Market Friday PM. Now when I apply Fibonacci retracement between start and end of wave 3, I get figures of 1.5946 (38.2%), 1.5977 (50%) and 1.6009 (61.8%) as Fib levels. Interestingly enough the market closed at GBP/USD 1.5946 which corresponds to fib retracement of 38.2%.
Now there are two questions here, namely 1) have I drawn EW motive waves correctly and 2) if we just applied Fib retracement, do the retracement figures make sense? For Fib extensions I get 1.5679 (61.8%), 1.5577 (100%) and 1.5475 (138.2) and 1.5412 (161.8%) respectively.
I also find Elliot Waves very subjective, however, your chart seems to have a harmonic pattern forming. I believe there is a harmonics thread somewhere on the intraday trading forum. Maybe worth a visit.
Yes dudley could be right. If price was adhering to EW, then wave 3 should go past wave 1 before truly starting wave 4. However, if going with a harmonic pattern, like a gartley or butterfly, that presently is looking more likely. It’s too soon to tell.
I still like to see whether it will turn up into an EW pattern of some sort although stricly speaking Wave 3 should finish lower than Wave 1 as stated.
I have changed the display from line to candles in the one hour chart. I also added Ichimoku chart to this diagram (see attached chart). If we just consider the Ichi Kumo or cloud itself (the shaded area above the last green candle) we will see that the lower band of cloud which offers first resistance coincides with 38.2% fib showing. If the price pierces through this line and goes into the cloud then the next resistance line will be around 1.6012. This pretty much corresponds to the 61.8% of Fib line.
This prediction may or may not be correct, and as yet to be seen. There are often gaps post weekend openings that may invalidate the whole prediction by price opening at much higher or lower position.
I tried to create an Elliot Wave (EW) pattern on the daily chart and to me it seems reasonable.
In general the wave principle posits that collective investor psychology (or crowd psychology) moves from optimism to pessimism and back again. If we therefore accept such an argument as the basis for EW, then a plausible assumption would be (in this case), the start of a downtrend EW on 6th August with BOE raising of the Quantitative Easying and later on with another blow to GBP on 24th September with BoE Governor’s comment that cheaper sterling is good for Britain and export.
So with reference to the attached diagram, Wave 1 is from 1.7027 till 1.6092. Wave 2 starts from the end of Wave 1 and extends up to 1.6740. Wave 3 is a long downtrend that starts from 1.6740 and ends at 1.5769.
At this stage we see the start of wave 4. The general acceptance is that Wave four is typically corrective. Prices may move sideways for an extended period, and wave four typically retraces less than 38.2% of wave three. Volume is well below than that of wave three. This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, the most distinguishing feature of fourth waves is that they often prove very difficult to count.
With that said, one can then build the Fib retracement on Wave 3 with 1.6140 as 38.2%, 1.6254 as 50% and 1.6369 at 61.8%. The so called extensions are at 1.5169 (61.8%), 1.4798 (100%), 1.4427 (138.2%) and 1.4198 (161.8%) respectively.
It would be interesting to see how Wave 4 forms. If wave 4 forms as anticipated, then it is expected to retrace les than 38.2% of Wave 3 or to GBP/USD of 1.6140 as shown in the diagram. This will then be followed by waive 5 (downtrend) as the final motive wave, followed by corrective waves A, B and C.
As this note on 3rd October said indeed it was interesting to see whether there was any confirmation for Wave 4.
This evening (evening being 10PM London time) I looked at the daily GBP/USD in more details. As I said before the general acceptance is that Wave four is typically corrective. Prices may move sideways for an extended period, and wave four typically retraces less than 38.2% of wave three.
Thus the attached PDF file shows the daily plot of GBP/USD. In addition to the price candles this graph includes the drawn Elliot Waves labelled Wave 1 to Wave 3. In addition I have drawn the anticipated Wave 4 (in red). Also there are three additional lines. These are the 26 period Kijun-sen (blue), the 9 period Tenkan-sen (purple) and the Chikou Span (orange) that takes the current closing price and time shift it backwards 26 periods (for more info on these lines see thread “Ichimoku charting system” in this forum). Chickou Span shows the levels of support and resistance. These have been identified for the past 9 days with green horizontal lines.
The blue Kijun-sen line for the past 9 days is flat indicating a trenless or sideways situation. The price candles are in a range, which I believe, as stated above is a feature of Wave 4. The closing price for today was 1.6067. Now if we expect Wave 4 to be as expected then the next GBP/USD figure to watch is 38.2% Fibonacci retracement at 1.6140 folowed by corrective wave A (downtrend).
Today GBP/USD is trading above 1.6060 after going south for a while. My view would be that we may be seeing the fourth wave of Elliot Wave with prediction that it may rise up to 1.6140 before heading south again. The attached daily GBP/USD is an interesting reading.
Mich, has this wave 4 been invalidated as it went to 16300 earlier today? Still looks like a harmonic pattern to me. However, if this is an EW, then wave 3 is not yet finished and has some more downside to go before wave 4 begins.
I have been thinking about this for a while and hence my delay in replying to see how the so called Wave 4 develops.
The answer to your question is I am not sure Wave 4 is invalidated.
During the latter part of last week we saw a large uptrend on Thursday followed by a spin top on Friday. The price closed at 1.6354 on Friday which is just under 1.6369 at 61.8% Fib retracement.
Now the question is where the price is going. I decided to draw a trendline from A to B (see the attached graph) and extend it to point C where it interests the so called projected Wave 4. If we assume that intersection C is the end of Wave 4 then it should happen around 1.6444 when we will see the start of correction Wave A.
I admit the interpretations are very subjective. If we take Wave 3 on its own merit and draw a Fib Retracement then the price has already passed 1.6140 (38.2%) and 1.6254 (50%) levels and is just under 1.6369 (61.8%).
Now moving away from the theory do we expect the price to go higher or turn back as expected. What are your views?
“Now the question is where the price is going. I decided to draw a trendline from A to B (see the attached graph) and extend it to point C where it interests the so called projected Wave 4. If we assume that intersection C is the end of Wave 4 then it should happen around 1.6444 when we will see the start of correction Wave A.”
In the early hours of this morning (all London time) GBP/USD shadow hit a high of 1.6446, two pips about the projected value of 1.6444. That closed my market order. If you look at the attached daily plot of GBP/USD you will see the intersection point C and what appears to be the end of Wave 4 and possibly the start of Wave 5. I guess we should expect downtrend from now.