Monday, June 16, 2014

Elliott wave analysis of GBP/USD - Why an expanding would be a better fit

GBP/USD why the expanded flat would be a better fit

I was reading some of my previous longer term analysis this afternoon and I was reading my post on GBP/USD from May 1 under the name -Which Triangle Count Is Correct.

I think it's safe to say that the count where wave E of the major (B)-wave triangle ended at 1.4809 in early July 2013 is the best count. Looking at the internal waves of the this rally we can see some very interesting relationships between them. Let's take a look at them:

Wave 2 corrected 50% of wave 1

Wave 3 became a extended wave and was 423.6% of wave 1 at 1.6794 (the top of wave 3 came in at 1.6822)

Wave 4 became very shallow and sub-normal as it didn't even correct 23.6% of wave 3

Wave 5 should ideally become 38.2% or 61.8% of the distance travelled from the bottom of wave 1 to the top of wave 3 added to the bottom of wave 4. However, wave 5 ended at 1.6996. which was just 1 pip above the 61.8% target of wave (A) at 1.6996.

Looking at the next lower degree of waves we have the following relationships:

Wave (ii) corrected was a deep correction, correcting exactly 81.6% of wave (i) at 1.5099

Wave (iii) extended and became 361.8% of wave (i) at 1.6595 (the top of wave (iii) came in at 1.6603)

Wave (iv) corrected exactly 23.6% of wave (iii) at 1.6248

Wave (v) would have been 38.2% of wave (i) through wave (iii) added to the bottom of wave (iv) at 1.6845, the top of wave (v) came in at 1.6822

Going down one degree more the relationships is as follows:

Wave ii corrected a little less than 50% of wave i at 1.5408 (wave ii ended at 1.5426)

Wave iii didn't really become and extended wave as it only became 138.2% longer than wave i at 1.6787 (the top of wave iii came in at 1.6260)

Wave iv corrected almost perfectly 50% of wave iii at 1.5843 (the bottom of wave iv came in at 1.5850)

Finally wave v became almost exactly 61.8% of the distance travelled from the bottom of wave i to the top of wave iii added to the bottom of wave iv at 1.6574 (the top of wave v came in at 1.6603).
When we find relationships like these we can be pretty sure we have the right count, but what about wave 5 which is out of tune? I have many times seen, that the ideal target is reached by the B-wave of an expanded flat correction. If this should be the case here too, then wave B will be 161.8% of wave A and end at 1.7186, very close to the 38.2% target of wave 1 through wave 3 at 1.7235 (see the chart below).

A rally towards 1.7235 will also clear the (A) wave high at 1.7042 and make this a much prettier count, that is why I think that an expanded flat is the better fit here.

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