Market Swings and Deep Retracements

Do recent market swings and deep retracements have you confused? If so, bring clarity to your trading by taking a top down approach rather than focusing on the time frame that you trade.... much like working a puzzle.

Start your analysis, the same way you work a puzzle... that is, look at the picture first !  Looking at quarterly, monthly and weekly charts will allow you to gain insight as to how the lower time frame wave pattern fits into the  "BIG PICTURE". 

Let's look at an example that is possibly unfolding right now in currencies. The markets have been highly correlated to the EUR-USD pair and therefore I'm looking at the Euro for clues to explain the deep retracements and overlapping waves.

Did you miss this contracting triangle?

Triangles are important to an elliotician as they forewarn that an advance, or decline has about run it's course. The pattern, is considered a continuation pattern and occurs prior to the final wave in a wave sequence. As such, triangles can be found in waves B, X or wave 4 positions. At the quarterly chart level, we see a possible triangle occupying the w. B circle position that may be followed by a five wave sequence to complete w.C circle.

Dropping to the monthly chart, we can see the subdivisions of the pattern. Notice that each wave is made up of three wave zig-zag patterns that are common to triangular formations.  That being said, the question that remains is whether the pattern is complete as indicated in the quarterly or requires another up sequence to complete w.(E) as shown in the monthly chart.

Now review your weekly, daily and 240 minute chart levels and you should be able to accurately forecast and anticipate the next move in multiple markets.

I hope you found this trading lesson helpful.

Best of Trading