So…What Is That Technical Pattern? When Rules Need To Broken/Ignored

 

Hi Dave,

Earlier in the week you posted this chart of AUD/NZD…..

However, since then prices have gone really sideways. Thus the correction off the July 23rd low, looks more like a triangle than a start of something impulsive (Wave 3).  

Could it be an A-B-C instead of 5 waves down from the top formed on July 19th?

Ken C. – Los Angeles

Ken,

Thanks for the question.

It is a really good point you make and helps illustrate a key aspect of Elliott Wave analysis….mainly that adhering to a rigid set of rules can easily take one away from gaining key insights…..and thus maybe missing out on a trading opportunity.

Let me explain. Assuming the overall count I have is correct and a larger degree triangle ended on July 18th, we would not have an A-B-C pattern taking prices lower as you suggest. This is why I posted the July 25th chart showing the early stages of a 5-wave impulsive move lower. Under traditional EW rules, an A-B-C pattern would not be expected.

However, as you correctly noted, the recent sideways chop is clearly a triangle and thus we should fully expect at minimum a solid thrust lower. Friday’s closed at 1.0621 sets the tone for lower levels next week.

So, my point in all this is that we should trade what we see; not what the EW rules say we should see. Given that being short AUD/NZD in here is a trade that might last a few days or maybe a week or more, let’s not get hung up on having ALL of the time frames line up in terms of the EW count. If they did that would be great, but it is not required for us to make money in this instance.

Hope that helps.

Dave

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Have a question for me? Just ask.

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