Elliott Wave Count on the GBPUSD FOREX Pair
Per reader request, I wanted to share a possible Elliott Wave interpretation for the British Pound/US Dollar FOREX currency pair. Even if you don’t trade FOREX, you can use this as an example of a near ideal Elliott Wave pattern unfolding. Below is an internally valid wave count that ends with an interpretation:
GBPUSD FOREX:
Click for larger image.
Bear in mind that this is technically a Corrective Pattern after a multi-year impulse up, so the larger structure probably should be labeled A, B, C instead of 1, 2, 3, and I will describe how these counts would be different.
First, if this is an “ABC” Correction, then instead of a 1, we would have an “A”, and instead of a 2, we would have a “B” and we would currently be in the “C” Wave Down. Under this interpretation, one could argue that the Corrective Phase has ended with the C wave completing 5 waves and now we’re perhaps in a brand-new impulse yet to be determined.
Under the 5-wave impulse view – which I’ve labeled above – then we perhaps have another leg down to go to complete the 5th wave and enter a corrective phase back up. We may currently be in fractal 2 (perhaps starting fractal 3) of the terminal 5th wave, meaning two swings down are yet to come.
Keep in mind that Elliott Wave analysis is fractal in nature, meaning each larger wave subdivides into smaller waves, and while – for me at least – it’s easy to label smaller waves, sometimes it’s more difficult to provide the exact count on the larger structure (which seems backwards, but I start with the fractal and build upwards while I suppose others start with the large-scale and conform downwards – both should arrive at similar results but both methods have their faults and strengths).
What I’m trying to do with these posts on Elliott Wave examples is not so much try to predict the future, but rather show you examples of how to sub-divide waves into the proper fractal forms and demonstrate that the Wave Principle divides larger waves into internally valid smaller ‘fractal’ waves. I’m also trying to take Elliott into real-time examples in terms of wave labeling.
Currently, we appear to be in a corrective phase, and we might even be forming a triangle (perhaps expanding diagonal) of some sort, wherein we can label “abcde.”
Though there are certainly alternate counts, it would appear to me that we are in a corrective pattern currently and most likely have at least one if not more ‘legs’ (swings) down, which would be bearish for the British Pound and Bullish for the US Dollar.
Again, the point of this post is to show internally valid Elliott Wave fractals that comprise a larger picture – the more examples we see and practice, the better Elliotticians we will become.
Corey Rosenbloom
Afraid to Trade.com
Highly likely that you will end up having to move that last 4 wave as it tests your 3-4 C high.
Note also that you have the formation of a megaphone bottom pattern forming. There is a good chance you will have to move your 3 and 4 up higher and mark your 3 as your 5.
http://www.trending123.com/patterns/Megaphone-Bottom-Chart-Pattern.html
This is why (as you correctly point out), that Elliot wave charting is in the eye of the beholder, and can not really be used as a prediction tool.
Beautiful patterns. Notice how wave c of circle 2 was a diagonal that led to the expected steep selloff. Since circle wave 2 was a flat I’d change iii-iv to i-ii, 3-4 to iii-iv and circle 3-4 to plain 3-4 and expect circle 4 to be a still to come sharp. The 5 waves down could be forming a large wave A.
ShortBus,
You’re exactly right – I wasn’t sure how to work that into the analysis properly. It almost reminds me of a “Broadening Top” formation, similar to the one we saw at the top of the market in the S&P 500 (as swings became quite volatile before collapsing downwards).
This would be the opposite of that, where swings become erratic, sellers lose conviction, and the market could indeed burst to the upside.
It’s quite possible we’re looking at the bottom for the Pound (against the Dollar) which would be bearish the dollar and bullish commodities.
Andrew,
My gosh if what we’re looking at here is just an “A” wave, that would be intensely bearish for the Pound. I could see the 3 wave pattern above as perhaps completing an A Wave which perhaps would later form a large Flat, but to have such a large-scale Zig-Zag would take the Pound far lower against the Dollar in the coming years.
I always have trouble with the larger structure of the waves and tend to over-focus on the building blocks and internal counts.
I offered that A wave possibility to explain how a correction can start with a five but remember currencies are tricky because you are only seeing one side of the pair. Dollars in Pounds is in an impulse up. Also don’t forget that Sterling dipped below 1.0000 back in the 1980s so that big zig-zag is not impossible!
An Expanding megaphone is not always a reversal pattern it is simply a consolidation pattern. Many of these consolidation patterns have not behaved as you would expect e.g ascending triangles in the SPY produced a drop instead of a clean break to the upside etc. What happens as you trace out the e is crucial to get an idea of what the pattern means. Just my 2 cents,
Andrew,
True, it’s not out of the question, but we – or at least I – tend to be constrained looking at the shorter time frames and miss the larger picture.
FOREX and Elliott are seeming to work well but you’re right – it’s sometimes difficult to line up all the currency crosses properly. I find analyzing the respective indexes to ‘work better.’
It will be interesting to see the resolution!
gbpusd very risky this time