The Elliott Wave Phenomenon: Analysis of Horizontal Corrections

Earlier in issue 18 of Fortader.ru with the major currency euro I assumed the end of the corrective phase and the continuation of the euro strengthening against the dollar. However, the real wave picture shows some incomplete correction.

The philosophy behind the 3-3-5 horizontal correction formula

You already know that there is an Elliott model called horizontal correction. Today's issue will be devoted to such correction, the construction of which is going on at the moment on the EURUSD pair. It received such a name mainly because of its properties, which are expressed in a shallow pullback from the previous impulse and development almost in a horizontal direction.

In accordance with the rules of construction, it consists of three main waves, two of which A and B are also three-wave, and the third wave C consists of five waves, that is, the pulse.

The philosophy behind the 3-3-5 horizontal correction formula is that the first wave A is not strong enough and market participants have not yet believed in the market easing, and this uncertainty does not allow the correction to develop in full force. The second wave B is usually caused by the same uncertainty; it inherits all the signs of wave A and usually ends just below its base. During the development of the final wave C, as a rule, most market participants become aware of the imminent decrease, the confidence grows, and the wave develops in five-wave style, taking the form of an impulse endowed with power. Often it goes slightly below the base of wave B.

The horizontal development of this type of correction is due to a very strong dominant trend, and the more powerful the trend, the shorter can be correction. Horizontal corrections, as a rule, are formed in wave (4) of the impulse, thus heralding the final spurt in relation to the main trend.

The real EURUSD picture is just full of horizontal corrections: at the moment we have as many as four of them, but at different levels, and it is quite possible that one of them will disappear and another one will form (bifurcation - see the alternative) in the nearest future.

Practical examples

Let's break down what we see on this chart. The symbol (3) in the upper left corner indicates that the current situation was preceded by a powerful upward impulse, which is undoubtedly true. Then we have two waves A and B, which comply with all the rules described above, namely, they consist of triplets [a][b][c] and [w][x][y] respectively, wave B completed slightly below the base of wave A. It remains to expect the formation of the final wave C, which may slightly surpass the base of wave B in depth.

Very the indicative horizontal correction on this chart is the correction (a)(b)(c) of [x] of the shallower wave level. The basic rules are also observed here: waves (a) and (b) are triplets, wave (c) is an impulse (here a diagonal triangle, will be considered in subsequent issues), wave (b) has not reached the base of wave (a), wave (c) slightly exceeded the base of wave (b).

Also wave C of horizontal corrections can lengthen, forming a extended wave plane. An example of an extended wave plane we see on the same chart at position (a)(b)(c) of [w]. All the basic rules are also observed here, but wave (c) has significantly exceeded the base of wave (b), which is quite typical for this type of flat corrections.

Another example of an extended wave plane in position (a)(b)(c) of [y] of X, you can already observe the basic rules yourself, without my hints.

On this chart we see some changes in the markup of the waves, namely, the symbols [w][x][y] (double tric - will be discussed in the next issues) are replaced by [a][b][c] - another horizontal correction appeared, and also the last rising section is replaced with (a)(b)(c) - extended wave planewhich in this case disappeared, by (i)(ii)(iii)(iv) and, attention, (v) - a wave that may well still occur. As you can see, by recombining the waves we get a scenario different from the previous one, which is a bifurcation (bifurcation) in the treatment of wave models. Accordingly, let's leave the present scenario as an alternative.

At first glance, everything may seem very complicated, confusing and incomprehensible - yes, wave analysis is not a child's toy, but a powerful analytical tool, which requires skills and experience in identifying wave patterns, the features of which we will consider from now on. But still we should not be afraid of difficulties beforehand, patience and work, as they say...

• Mid-term trend is directed down to 1.5300In this case, the breakdown of the level of 1.5650 confirms the main scenario; the fixing of the price above this level and the passage upwards to the highs activates the alternative variant.
• The long-term trend is directed upward, the price should break through the maximum of 1.6000 and pass the distance determined on the basis of Fibonacci extensions, which will also be discussed in the following articles.