Special Impulsive Waves with Elliott Theory

Chris L
Category:  Trading Articles
The Elliott Waves Theory has some features few other trading theories have. It is mysterious enough (enigmatic rules seem to be applied differently by traders around the world) to still attract traders and revolves around a simple principle.
Are you hooked? It’s hard not to, as traders fall into the category of “sorcerers” or “wizards.” After all, how to forecast future prices?
The theory built in the middle of 1900’s is one of the few, if not the only one, to consider human behavior. According to its founder, Ralph Elliott, the market shows the “traces” of human actions, led by greed and fear.
Because of that, the principle applies to all financial markets. Even though the theory was built around the stock market, anything that moves because of human interaction is subject to Elliott Waves.
The principle calls for both an action and a reaction to happen. Or, for every action, a subsequent reaction follows.
It says that when the market move, it moves in cycles. And, each cycle has an impulsive and a corrective wave.
Moreover, the impulsive wave has five waves of a lower degree. And, the corrective wave has three.

Impulsive Waves that End a Cycle

We won’t discuss here the basics of the Elliott Waves Theory, as this is not the aim. The idea is to cover particular types of impulsive waves.
Or, the so-called ending ones. They appear only at the end of a cycle or move.
As such, they form as a fifth wave in an impulsive move of a bigger degree or as a c-wave in a flat pattern.
But there’s a catch with these impulsive waves: ALL their waves of a lower degree are corrective in nature.
That’s right: while they still should be labeled with numbers (depicting the impulsive nature), the inner structure is corrective.
In a typical impulsive wave, only two waves correct, the rest present impulsive activity. Not in this one.
Moreover, a standard impulsive wave doesn’t see overlapping between the 2nd and the 4th waves. Not this one.

Above is the EURUSD chart on the daily time frame. It shows the two and a half years consolidation in a triangular pattern before the price tried to breach parity.
But then again, such triangle forms only as the fourth wave in an impulsive wave or the b-wave of a zigzag. Considering the previous fall, it can just be a fourth wave.
Check the move that follows, labeled in blue numbers. Suggests impulsive activity, the fourth wave overlaps with the second one, and the fifth wave is a triangle.
It suggests it forms at the end of an impulsive wave of a bigger degree, or, that the entire move on the EURUSD pair from 1.40 until the end of this pattern was an impulsive move of a bigger degree.
Hence, it is no wonder the price reversed from that 1.06 area all the way to over 1.23 at the time this article is written.

Conclusion

The Elliott Waves Theory looks like a simple one. But it isn’t.
It is full of tricks and small details that make the difference between the right and the wrong count. In a way, it explains why so many traders have different Elliott scenarios on the same pair, and even on the same time frame.
 
 
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