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If you are using Elliott Wave to analyze the market, there is one essential area you must master: how to trade Wave 4. The Elliott Wave theory offers several powerful tools to help you pinpoint exactly where Wave 4 will end. By combining the guideline of alternation, Fibonacci levels, and straight ratio math, you can predict these turning points with incredible accuracy.Today, I want to teach you one simple, straightforward way of using the guideline of alternative count. Since we spent this past month discussing the theory behind alternative count, I won't repeat the basics today. Instead, we are diving straight into a live example so you can see exactly how it works in real time.
Let's look at the US Dollar Index (DXY) on the 4-hour chart. Price has been stuck in this Wave 4 correction for a couple of weeks now. Last week, we thought Wave 4 was over, and we actually caught a few pips trying to buy the continuation. However, the market shifted directions and traded lower, dropping past 101.117.
Thankfully, the 'guideline of depth' and the guideline of alternative count reminds us never to be rigid, but to stay fluid—and we caught that shift perfectly. But what comes next now that price is still grinding inside this Wave 4 correction?"
Thankfully, the 'guideline of depth' and the guideline of alternative count reminds us never to be rigid, but to stay fluid—and we caught that shift perfectly. But what comes next now that price is still grinding inside this Wave 4 correction?"
One crucial rule is to always remember what the guideline of alternative count teaches us: stay fluid. First, we must consider the possibility that Wave 4 will continue to unfold. Since the market completed a flat pattern for the earlier part of the correction, price could now opt for a more complex correction. This means we might see further sideways movement next week, delaying the start of Wave 5 until around the middle of the month.
Another way to look at this market—and the one I am actually using as my main count—is much simpler. In this scenario, Wave 4 has already ended, and Wave 5 has officially begun. If this count is correct, we will see a strong bullish continuation this coming week as price chases its target.
What makes this so clean is that both of our counts suggest the market will start the week on a bullish note; the only difference is that this main count expects an immediate, full continuation higher
What makes this so clean is that both of our counts suggest the market will start the week on a bullish note; the only difference is that this main count expects an immediate, full continuation higher
The 1-hour chart exposes this idea beautifully. As we can see, price is moving in a straight bullish impulse, which will most likely be the very move that completes Wave 5. Because the Dollar Index is looking so strong, it means we can expect highly bearish pressure on EURUSD, AUDUSD, GBPUSD, and NZDUSD at the start of the week. Meanwhile, USD-biased pairs like USDJPY, USDCHF, and USDCAD will likely remain heavily bullish.
I will be updating these individual currency pairs tomorrow and throughout the week, so stay tuned!
I will be updating these individual currency pairs tomorrow and throughout the week, so stay tuned!