P1: PIC/b P2: c/d QC: e/f T1: g
c07 JWBK195-Saettele June 5, 2008 19:52 Printer: Yet to come
Explanation of Elliott Wave and Fibonacci 175
FIGURE 7.25 Wave 4 into Wave 5
Source: Chart created on TradeStation
R
, the flagship product of TradeStation Tech-
nologies, Inc.
correction (wave C), you do not know whether the pattern will resolve as
a flat or a triangle. For this reason, it is important to keep risk tight when
trading wave C of a flat. The example in Figure 7.26 of the EURJPY shows
that wave B retraced nearly 100 percent of wave A before wave C began.
SOME DIFFERENCES BETWEEN STOCKS
AND FX IN ELLIOTT
The path of the stock market represents human progress and regress, con-
struction and destruction, growth and decay. The stock market is always
in one of the five waves at the largest degree of trend. Degrees of trend are
not covered in this book in detail, but an introduction is in order. As de-
scribed in Elliott Wave Principle, “All waves may be categorized by relative
size, or degree. The degree of a wave is determined by its size and position
P1: PIC/b P2: c/d QC: e/f T1: g
c07 JWBK195-Saettele June 5, 2008 19:52 Printer: Yet to come
176 SENTIMENT IN THE FOREX MARKET
FIGURE 7.26 A Wave C Selloff
Source: Chart created on TradeStation
R
, the flagship product of TradeStation Tech-
nologies, Inc.
relative to component, adjacent, and encompassing waves. Elliott named
nine degrees of waves. From largest to smallest, they are:
r
Grand Supercycle
r
Supercycle
r
Cycle
r
Primary
r
Intermediate
r
Minor
r
Minute
r
Minuette
r
Subminuette
The authors go on to say, “Cycle waves subdivide into Primary waves
that subdivide into Intermediate waves that in turn subdivide into Minor
waves, and so on.”
12
P1: PIC/b P2: c/d QC: e/f T1: g
c07 JWBK195-Saettele June 5, 2008 19:52 Printer: Yet to come
Explanation of Elliott Wave and Fibonacci 177
Additionally, “the theory of the spiraling Wave Principle suggests that
there exist waves of larger degree...Perhaps Homo sapiens himself is one
stage in the development of hominids, which in turn are one stage in
the development of even larger waves in the progress of life on Earth.”
13
The stock market is the best barometer that we have to measure human
progress, and it is interesting to look at it within the perspective of very
long term waves. For example, the creation of the U.S. stock market in 1792
with the Buttonwood Agreement may have been the beginning of wave 5 of
Grand Supercycle degree. Wave 5 of Grand Supercycle degree divides into
five waves of Supercycle degree, and so on. As mentioned, the stock mar-
ket is always in one of the five waves at the largest degree of trend, which
then subdivides into smaller degrees of trend. Waves in currencies are not
as intuitive though.
Currencies have only been freely traded since the early 1970s, so the
largest degree visible on charts is Cycle. There is a much more impor-
tant distinction between counting long-term waves in the stock market and
currencies. The theory of the spiraling wave principle (see Figure 7.27) in
1978/1999 Robert R. Prechter
FIGURE 7.27 Spiraling Wave
Source: Courtesy of Elliott Wave International, Inc.

Get Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.