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Let us have a look at an interesting situation that we have been following on the Eur/Cad.
The daily time frame has formed a harmonic pattern - a bullish Gartley.
One can see in the chart, the waves of the harmonic pattern have formed with the precise fib ratios…so far.
Now let’s put a twist to this pattern.
If we take the current wave “C-D”, and examine it in detail on the 4hr time frame, we can see that this wave has formed a perfect bearish Elliot wave.
Now, keeping things very simple, we know that if we have a 5 wave structure, it indicates the direction of the existing trend.
In this case, it means that the overall trend is down, which puts a spanner in the works of the harmonic pattern.
So, again, at the risk of repeating myself…..as a trader one must remain flexible and follow price…instead of trying to predict it.
Let’s examine the alternatives that we have here -
Option.1 - The bearish Elliot wave.
The thumb rule for the Elliot wave says that after completing a 5 wave structure, price should give an ABC correction to the upside, which usually travels to 50% to 61.8% of the entire Elliot wave.
Price then resumes the downtrend again.
This down trend could continue deeper or it completes the harmonic pattern and finds support at the D level. (This has yet to be fulfilled)
In any case, if price finds resistance at the expected level, we should be looking for shorts.
Option.2 - Price does not follow any of our analysis & keeps going up.
Well, we are not looking for longs over here & we may miss out of some long moves…if at all.
In that case, we have only spent some time in the analysis…but have not lost anything from our capital.
There will always be other opportunities.
Sunil.