Wave (i) Targets

Wave (i) Targets

The simplest target to watch for is a projection in Wave (c) that is a ratio of Wave (a). In Chapter 4 covering retracement and projection targets I highlighted the following:

There is no uniform way of identifying where this will stall as it is not related to any prior wave. It is possible to consider the prior Wave b of Wave (v) and occasionally the prior Wave (iv), especially when this is a key swing high or swing low in a trend. Markets tend to shun testing a swing low/high on the first test. Other areas to consider are pivot levels, which I find of particular benefit.

If this is a Wave (a) of Wave (i) in a daily chart then again we should be watching the development of the five waves that construct Wave (a) and matching the projections in the internal Wave v with any of the prior Wave b of Wave (v), the prior Wave (iv) or pivot level.

Following this we shall need to observe the pullback in Wave (b) and then calculate projections in Wave (c).

Take the example of a pullback in Wave (B) in the AUDJPY market and the subsequent development of Wave (I) of Wave (C) (shown in Figure 5.1).

Figure 5.1 The Early Stages of a Reversal Higher in Wave (C) from a Wave (B) Retracement Low

In Figure 5.1. I have shown the decline in Wave (c) of Wave (B) within a rally in AUDJPY. Naturally for a Wave (C) the expectation will be for a rally in five waves that should reach a projection of a ratio of Wave (A) commencing from the Wave (B) low.

Within Wave (I) of Wave (C) there first needs to be a Wave ((a)) constructed of five waves followed by a Wave ((b)) and then projection in Wave ((c)).

Normally the easiest guideline is to look for the prior Wave b of Wave -v-. In this case this is not discernable and therefore the next stronger resistance will be the span of the prior Wave -iv-. Above there we can see the broad sideways congestion area from the top of the prior Wave -b-to the lows just below Wave - a-. These areas can be expected to provide resistance and normally cause corrections.

In the early stages of this wave development, consideration needs to be given to the potential of Wave a. Wave b. and Wave c to form the first Wave (i) of Wave ((a)). A possible initial target would be the prior Wave (b). This is often the stalling point of the Wave a of Wave (i). This will be followed by a Wave b and then a projection of Wave a to complete Wave c. This will be Wave (i). In trying to determine whether Wave (i) is in approximately the right area we should consider a minimum target of a 176.4% projection of Wave (i) that would imply a Wave (iii) that would stall in around the right area that would allow a pullback in Wave (iv), then follow through in Wave (v) to reach close to a realistic target for Wave ((a)).

Thus, approximate estimations should be made to qualify the first abc rally in Wave (i) and ensure that Wave b is a ratio of Wave a and then Wave c a projection of Wave a. In this example, while it is too small to label, Wave b was a 41.4% retracement of Wave a while Wave c was a 176.4% projection of Wave a. This formed Wave (i) at 82.10. Wave (ii) was a 38.2% retracement of Wave (i).

At this point projections in Wave (iii) can be generated. I shall cover these later in this chapter.

Wave (i)'s can develop in different ways, at times with a very tight abc move and sometimes with a long Wave c followed by steep or shallow wave (ii)'s. There has been an interesting rally in the GBPUSD market which includes the development of several Wave (i)'s that can be used as solid examples (shown in Figure 5.2)

Figure 5.2 The Initial Stages of a Rally in Wave (A) of Wave (III) in Hourly GBPUSD

Figure 5.2 displays the initial stages of development in Wave (A) of Wave (III) in the hourly GBPUSD market. Within this are four instances of Wave 's, and all are different in structural development in terms of pullbacks and extensions. Also included are various examples of alternation between Wave (ii) and Wave (iv) and, indeed, while the final Wave v of Wave (c) could not fit into the image there is also an example of how Wave b of Wave v can also be deep when Wave ii and Wave iv are both shallow.

To highlight the different structures I shall zoom in on the key areas with the use of lower time-frame charts (Figure 5.3).

Figure 5.3 Development of Wave (i) Including the Wave i of Wave (a) and Wave (c)

Figure 5.3 displays the first Wave (i) within which there are instances of Wave i in both Wave (a) and Wave (c).

The initial Wave i higher from the Wave (II) low is more often than not impossible to predict. As long as the end of Wave (II) was expected it really sets a marker down for subsequent wave development. However, the prior Wave (b) of Wave (v) lower is a common target on initial reversals. In this case, although not labeled, there was a brief Wave a followed by a sideways consolidation in what appears to be a Triangle before the rally in Wave c to reach Wave iii. The extension in Wave iii was 166.7%. Given the deep Wave ii, the expectation is for a shallow Wave iv (33.3%) followed by a final Wave v (76.4%) into the span of the prior Wave (b) of Wave (v) lower. This five-wave rally can then be labeled as Wave (a) of Wave (i).

How deep Wave (b) will retrace would be unknown, and in the end it turned out to be a deep 90.02% retracement to 1.4810 which was exactly in the middle of the Wave b Triangle in Wave iii. The next step will be to consider where a probable target for Wave (i), and therefore Wave (c), could end. To judge this, a strong idea of the larger wave structure must be known. This Wave (i) will be part of Wave (A) of Wave (III). The Wave (iv) high is a possibility if it represents a key swing high that would confirm a swing reversal of the previous downtrend, which is more often than not the case. Wave (iv) was at 1.4984. Projections of Wave (a) should also be made.

100.0% = 1.4886

114.6% = 1.4912

138.2% = 1.4933

161.8% = 1.4954

Therefore the broad 1.4886-1.4933 area is where the Wave (c) is most likely to end, with a lower risk of the 161.8% projection at 1.4954.

Wave -i-rallied in three waves to the high of the prior Wave b of Wave (b). The correction was quite deep, to two points below the 76.4% retracement. From here a target in Wave -iii-can be estimated:

138.2% = 1.4927

176.4% = 1.4956

185.4% = 1.4962

Wave -a-rallied and reached 1.4922 with Wave -b-being also very deep to the 76.4% retracement. It is possible that some doubts could arise over the depth of retracements as there doesn't appear to be much evidence of alternation. However, a target for Wave -c-can be generated and matched with targets for Wave -iii-.

85.4% = 1.4931

100.0% = 1.4949

114.6% = 1.4959

With Wave -a-having completed at 1.4922 the 85.4% projection can be eliminated. That leaves a target area of around 1.4956-59 and possibly 1.4962. In fact, Wave -iii-ended at 1.4961.

Now, with Wave -iii-having ended at 1.4961 it has already exceeded the 161.8% projection in Wave (c) at 1.4954. Therefore deep projections should be considered. At the same time, a retracement in Wave -iv-and then extension in Wave -v-should also be considered.

In Wave (c):

185.4% = 1.4975

223.6% = 1.5009

238.2% = 1.5022

261.8% = 1.5043

With the depth of retracement in all corrections until this point it would seem probable that a shallower correction would be most likely. In the event even Wave -iv-was a full 50% to 1.4891, and this provided projections of:

61.8% = 1.4984

66.7% = 1.4992

76.4% = 1.5006

85.4% = 1.5020

100.0% = 1.5042

There are several matching projections here; the 223.6% Wave (c) with 76.4% Wave -v-, the 238.2% Wave (c) with the 85.4% Wave -v-, and the 261.8% Wave (c) with the wave equality target in Wave -v-.

Identifying just where this final wave will end requires supporting analysis, a projection in Wave c of Wave -v-, and the use of momentum.

In Figure 5.4 I have added my own RSI, a more sensitive version that tends to swing more frequently between high and low extremes and identify divergences more effectively. The high finally came at 1.5017.

Figure 5.4 Identifying the Completion of Wave -v-and Wave (c) Using Momentum

From this point, focus can be made on identifying the Wave (ii) and resumption of the uptrend in Wave (a), Wave (b), and Wave (c) of Wave (iii).

Figure 5.5 displays the development of Wave (a) and most of Wave (c) of Wave (iii). I shall not go into as much detail for these as the intention is more to provide examples of the different ways a Wave (i) can develop. Here, Wave (ii) was exceptionally brief and therefore highlights the risk of a long and deep Wave (iv) (which eventually did happen). In Wave (a) the Wave i stalled a little short of the Wave (i) high and saw a deep Wave ii, while in Wave (c) there was a similar strong extension in Wave c to complete Wave i and a shallow Wave ii as was seen in Wave (i) and Wave (ii).

Figure 5.5 Extension in Wave (a), Wave (b), and Wave (c) of Wave (iii) Higher in GBPUSD