I’m starting with the Note I posted to Joseph on his questions about longer term USDJPY view simply because in my opinion it is the most important thing you should focus when analyzing Charts.
Corrections, can start with both Impulsive action (A and C of a corrections can be IM waves) and Corrective action. But Reversals can only start with Impulsive action, and wave One could be either IM or LD (Leading Diagonal) in both cases the internal structure is 5-3-5-3-5 with the difference - possible overlapping if LD. LDs are rare.
A correction in the above note is …Reversals and Continuations can only start with IM...
When you analyze your charts, what you are interested in is finding OPPORTUNITIES.
First thing to learn in EW even before how to label a chart, should be that the only waves you would like to trade are MOTIVE waves or better said IMPULSIVE ones, and depending on the scale you would either trade the whole moves or only some of the actionary subwaves 1, 3 and 5 of the IM.
This is simply because they are more predictable and provide larger directional moves, thus presenting a better Risk to Reward opportunities (lower Risk to greater Reward potential).
Correctional moves are difficult to both predict and even more difficult to trade.
An exception could apply in cases where A and/or C are IM waves.
Since we all know the basics of EW no point on explaining them, but out of that basics comes a simple conclusion.
Motive waves move in a five wave structures and corrective in a three.
So either way there is a third wave always.
And since you need at least two points to determine direction, that is why the best waves to trade are 3rd waves of an IM and Cs, especially when C is IM itself. This also because ZigZags correctional patterns are prety much same with IM since thay have internal structure of 5-3-5 but the diference is that they are 3 wave structures, so the next 3-5 will not happen and that can full you.
What I will present here is something you all know, and is very very simple, so simple I'm not sure I sould be writing about it. But this in my opinion is the first and most you should know of EW when analysing Markets looking for opportunities.
When we are looking on a chart we are actually looking at/for either:
- Reversal of the trend
- Continuation of the trend
- Or Correction of the trend
(since I was chatting in a room, this took more time to write so I’ll make it short and then explain if there are questions)
- If we are looking for a Reversal, we will look for a finished IM wave and IM wave started after it but in the other direction (one of a smaller degree). Problem here is because the next returned IM in the other direction could be either wave 1 of the reversal or just a wave A of the correction. That is why it is better to wait for a confirmation.
Answer on this dilemma lie just below the previous IM end (top or bottom) and after the next IM wave (in opposite direction) is finished the confirmation is above that wave high.
- If we are in a Continuation, than we want to see a finished IM wave followed by a correction. This is excellent indication for a continuation above previous top (or below bottom)(exemptions are failed or truncated fifths).
- So as mentioned in previous case, Corrections are only good indication of a continuation of a previous trend. But you can also trade the 3rd waves of the corrections labeled as C waves, as they provide same or similar opportunities as 3rd waves of an IM because they can develop as IM waves too. C waves of the Flats and ZZ must develop as IM waves.
This is the essence, no matter how you label the charts, this is what will give you the most important answers and will help you find the best opportunities on that charts.
I’m preparing a video for USDJPY questions. Link coming shortly after I manage to pack it in reasonable size.
Below is the Joseph's Long Term USDJPY and 3 points of consideration.
On the second (ok if considered C but should be followed by IM... should add ...or followed by D)
Addition to the 4/1 overlapping post should be that overlapping in Impulsive waves is also possible in two special cases: Leading Diagonals and Ending Diagonals, which are type of Triangle formations but with steeper advancing slope. LD could develop in wave 1, and ED in wave 5. Difference between this two are that, while ED have internal structure of 3-3-3-3-3 same as corrective waves, LD have 5-3-5-3-5 IM structure with typical overlapping.
Last calls from 28 of Feb, came out nicely, but unfortunately I was not able to publish a follow up on them.
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