Examples of the Strength and Accuracy of the Modified Harmonic Structure

Other Examples of the Strength and Accuracy of the Modified Harmonic Structure

Next in Chapter 3, I provided the example of Figure 3.17 which displayed a Zigzag higher in 30-minute EURUSD with an overlap in Wave [i] and Wave [iv]. I have reproduced the image with the key price levels listed (Figure 4.14).

Figure 4.14 Zigzag Higher in 30-Minute EURUSD with Overlap in Wave [i] and Wave [iv]

 Table 4.8 displays the wave relationships for each section of the corrective rally.

Table 4.8 Wave Relationships for the Zigzag higher in Figure 4.14

I have separated each specific wave and listed the results. The first section is nothing new as it merely relates to the Zigzag development in the overall Wave (b), developing in an (a)(b)(c) move. Wave (b) was a 61.8% retracement of Wave (a) and Wave (c) a 161.8% projection of Wave (a).

The modified structure is highlighted in the construction of Wave (a) and Wave (c), each comprising five waves but all of them in three-wave structures.

In Wave -iii-of Wave (a), note that Wave-c-had a projection at 1.3914 while the extension in Wave -iii-was the common 176.4% projection of Wave -i-. Given Wave -ii-was just about a 100% retracement of Wave-i-we can see that Wave-iv-was a shallow 38.2%. This gave rise to a 76.4% projection in Wave -v- to the same target as a wave equality projection of Wave -a-in Wave-c-.

In Wave (c) it can be seen that a similar process provided remarkably accurate targets in Wave [c] of Wave [iii] and the extension of Wave [i], which turned out to be a wave equality target with Wave [i]. Similarly the targets for Wave [c] of Wave [v] and Wave [v] itself were within six points.

This larger Wave (b) was actually a deep Wave (b) of a declining Wave (iii) which retraced an exact 66.7% of Wave (a).

In another example in Chapter 3 I offered the five-wave decline in Wave efc in USDCAD (as shown in Figure 4.15).

Figure 4.15 A Decline in Wave efc in 10-minute USDCAD to Complete what was a Wave (iv)

Table 4.9 shows the table of the individual waves that constructed the decline

Here I have separated each of the impulsive waves and also the breakdown of Wave -a-and Wave -c-of Wave -v-.

The modified structure in this example is remarkably accurate, with the majority of individual wave targets matching the internal abc waves to within one point. Only in the final Wave -c-of Wave -v-was there a difference of six points, but then the Wave v of Wave -c-did have a 66.7% projection that matched the 66.7% Wave -v-projection at 1.0545. All waves adhered to the normal ratios seen in the modified wave structure.

As a third example, in Figure 4.16. I have taken the deep Wave -b-of Wave - iii-that was shown in Figure 3.21 in the hourly USDCHF market.

Figure 4.16 An (A)(B)(C) with a Deep Wave-b-in Wave -iii-in Hourly USDCHF

Table 4.10 shows the individual waves that constructed the rally.

In Wave (A) we had a standard five-wave move in which Wave (v) ended midway between the 76.4% and 85.4% projections. The retracement in Wave (B) was just over 33.3%.

After seeing the pullback in Wave (B), we would be looking for a rally in Wave (C) and thus we should be concentrating on normal projections generated from Wave (A). These produced potential targets at:

100.0% = 1.0732

114.6% = 1.0785

138.2% = 1.0872

161.8% = 1.0958

Table 4.11 displays the relationship in Wave (C).

 Table 4.11 Wave Relationships for the Wave (C) Rally in Figure 4.16

Here I am concentrating on the rally from the 1.0366 Wave (B) low until the completion of Wave (C) at 1.0897. In terms of projections of Wave (A), the final 1.0897 high was not particularly accurate, which disappoints. However, the Wave -v-projection of 66.7% came within three points and the 114.6% projection in Wave -c-of Wave-v- was actually perfect.

Once again, the rally in Wave (C) was fueled by common wave ratios. Note the relatively shallow 33.3% retracement in Wave -ii-that spurred a deeper Wave -b-of Wave -iii-that was the very common 66.7% retracement. In addition the 138.2% projection in Wave -and the 423.6% projection of Wave -i-, both arrived at the same area with only four points of variance.

In this case, the Wave -iv-was probably deeper than would normally be expected at 50% and this would have had to have been managed by observing the nature and structure of the decline in the five-minute chart.

The 66.7% projection in Wave -v-and the 114.4% projection in Wave -c-also matched with a variance of four points.

I should add at this point that the 85.6% and 114.4% projections in Wave–c-are surprisingly common. I can only imagine that there is a common observation that wave equality relationships occur quite frequently and the slightly shorter and slightly longer are reflections of early profit taking and stop losses being triggered from reversal positions at the wave equality target respectively. However, from the analyst's perspective, what we are looking for are matching targets drawn from both the larger projection of Wave -a-and the internal Wave v of Wave -c-.

In Figure 3.22, I also covered the rather unusual structure in Wave -a-of Wave -v-. Therefore, we should also take a closer look at the internal structure and wave relationships (as shown in Figure 4.17).

Figure 4.17 Internal Structure of Wave -a-of Wave -v-Higher in USDCHF

The related table of wave relationships is shown in Table 4.12.

This type of price development is not the easiest to forecast due to the number of less common wave relationships. An 85.6% retracement in Wave b (of Wave i) must always be one of the areas to watch out for, but it can begin to cause some doubts when approached. The 141.4% projection in Wave c is not one I'd usually look for, but since this is an hourly chart the wave development in the five-minute chart should have provided some indication. The 85.6% retracement in Wave ii would have again raised some doubts but the key was the fact the Wave b low was not breached.

Given that both Wave b and Wave ii were exceptionally deep, the guideline of alternation would warn that Wave b may well be short and shallow. Indeed it was, and then Wave c of Wave iii extended by 166.7% which again is less frequently seen. To have it match again with a 141.4% extension of Wave i is not high on the list of common projections.

Even after a 50% retracement in Wave iv the 76.4% projection in Wave v is very common, but the 423.6% projection in Wave c is not.