Deep Wave (b) of Wave (iii)

Deep Wave (b) of Wave (iii)

This type of alternation is what we have come to expect from Elliott's guideline. The added complication comes from the fact that Wave (iii) develops in three waves. Contrary to the widely held belief that Wave 3 is normally the most aggressive wave, and in a strong trend this does remain the same even in the modified structure, I have found that in some instances Wave (b) of Wave (iii) can retrace very deeply, as shown in Figure 3.20.

Figure 3.20 Shallow Wave (ii) and Wave (iv) but a Deep Wave b of Wave (iii)

This particular version of alternation doesn't occur that frequently. In foreign exchange, for example, I note this tends to occur more frequently in JPY crosses such as EURJPY and GBPJPY where there are clearly trades being made in the two individual currency pairs that make up the cross as well as the trades in the cross itself.

At first glance it may actually look as if price has rallied to Wave a in a five- wave move and is casually counted as a Wave (a). However, the key to confirming this type of move is in the wave relationships. Clearly Wave (iii) must be a projection of Wave (i) and also a projection of Wave c in Wave (iii). To confirm this, the completion in Wave (v) must also be a projection of the distance from the beginning of Wave (i) to the end of Wave (iii) and projected from the extreme in Wave (iv).

Figure 3.21 displays an example of a deep Wave -b-wave within a Wave -iii- rally which occurred as I was preparing this section. I will detail the measurements in Chapter 4, which details examples of the type of wave development that can be seen and supports these with wave relationships to confirm their validity. However, suffice it to mention at this point that the relationship of Wave -c-to Wave -a-was not only very accurate but also matched with a projection in Wave -iii-.

Figure 3.21 Deep Wave -b-within Wave -iii-of Wave (C) Higher in USDCHF

The three waves in Wave -i-are simple to recognize but it was the Wave -iii- that became very complicated. In these cases it is almost impossible to forecast how the wave will develop, and only by taking detailed measurements did I actually confirm that a five-wave decline did in fact occur. A series of potential target projections can be generated from the prior wave and it is then necessary to ensure that the wave developed with a structure relevant for its position.

The fact that Wave -ii-was quite shallow and brief would raise the potential for a more complex Wave -iii-due to the guideline of alternation. That is, we would know that alternation could provide a deep Wave -b-. Again, having seen Wave - i-and Wave -ii-complete, we could generate a series of potential targets in Wave -iii-and keep in mind the targets for Wave (A).

Figure 3.22 displays the rally in Wave -a-of Wave -v-in USDCHF shown in Figure 3.21. as an example of how alternation can occur in a different way.

Figure 3.22 Shallow Wave b Following a Deep Wave ii within Wave -a-Higher

It can be seen that Wave i developed in three waves and was followed by a very deep Wave ii that ended just above the Wave b of Wave i. In the subsequent follow-through higher in Wave iii we can note a very brief and shallow Wave b. This offers an example of how a deep Wave ii can generate a brief pullback in Wave b of Wave iii. Interestingly, the Wave iv was also very deep, even overlapping with the peak in Wave i. However, once again, all the wave relationships followed normal ratios and offered targets for Wave iii and Wave v.

Again, I shall include this example when providing greater detail of using ratios in Chapter 4.

Another example of a deep Wave (b) is shown in Figure 3.23, which also provided earlier an example of an extended wave. This correction was a quite steep 61.8%, but did then provide the same target as the projection in Wave (iii). Equally, both Wave (ii) and Wave (iv) were limited.

Figure 3.23 A Five-Wave Decline in Hourly EURUSD with a Deep Wave (b) in Wave (iii)