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Stocks & Commodities V. 28:8 (12-17): Gold and the New Technical Triad by Gary S. Wagner

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Stocks & Commodities V. 28:8 (12-17): Gold and the New Technical Triad by Gary S. Wagner Stocks & Commodities V. 28:8 (12-17): Gold And The New Technical Triad by Gary S. Wagner Forex Focus Gold And The New Technical Triad Forecast gold prices by combining Elliott wave, Fibonacci, incorporates many aspects of the Fibonacci sequence and and candlesticks. retracement theory. It uses different retracement levels as benchmarks that certain waves should use. When R.N. Elliott JOHN NEBRASKA by Gary S. Wagner devised his wave concept, he was not familiar with Fibonacci theory and only made this correlation later on. ost market analysts will agree that supply and demand Then there’s a third ingredient that could be added to the M economics are a major influence on the current price of mix: candlestick patterns. Adding this technique in combination a commodity. It is, however, market sentiment that determines with both wave and retracement theories can deliver greater the perceived future price. If you can understand and quantify market insight. market psychology or market sentiment, you can more effec- These techniques are all based on the assumption that market tively forecast price. This has been the underlying assumption behavior is based upon the laws of nature and market psychol- of Elliott wave and Fibonacci retracement theories. ogy. These natural cycles can be identified and quantified to use in market forecasting. All three techniques, although different, ELLIOTT , FIBONACCI , AND CANDL E STICKS have identified a specific and mathematically definable set of To the market technician, Elliott wave and Fibonacci retrace- rules and guidelines. ment theories go together like peas and carrots. Elliott wave Elliott wave, Fibonacci retracement, and candlesticks are all Copyright (c) Technical Analysis Inc. Stocks & Commodities V. 28:8 (12-17): Gold And The New Technical Triad by Gary S. Wagner XAUUSD = 1200.05 FOREX FOCUS 1224.00 Wave v 1217.451212.00 1200.00 1188.00 1176.00 1164.00 descriptions of how markets B 1152.00 Wave i 1140.00 might perform. They are all 1128.00 able to define market sentiment 1116.00 Wave iii 1104.00 or psychology in mathematical 1092.00 Wave iii A Wave ii 1080.00 terms. By combining these 1068.00 three techniques, the syner- 1056.00 C 1044.00 gistic effect is a more reliable 1032.00 5Wave a and effective process for price Wave iv b 1020.00 1008.00 3 Wave 4 Wave c forecasting. Wave b 996.00 Wave 5 984.00 Wave i a As of this writing, gold is Wave 2 972.00 1 trading at $1,230, which at Wave 3 4 c 960.00 948.00 this time is a record high. The 2 Impulsive phase 936.00 Wave 1 Wave ii Corrective phase 924.00 price of gold has moved in 912.00 a predictable manner, if you Jul 12 Aug 05 Aug 31 Sep 21 Oct 20 Nov 15 Dec 09 Jan 05 Jan 31 Feb 21 Mar 22 Apr 15 know the right roadmaps to TRADERS PRO FOREX FIGURE 1: DAILY US/UAX (FOREX GOLD) CANDLESTICK CHART WITH ELLIOTT WAVE COUNT. The motive phase drove follow. Let’s apply the Elliott gold to a new historical high of $1,221 in December 2009. The corrective phase in forex gold lasted from December 2009 to wave count. February 2010. According to Elliott wave theory, a market trend follows a cycle, which is made up of eight waves. This eight-wave sequence will repeat until the trend is By combining these methods, exhausted. This trend structure is composed of eight waves, you can produce greater insight. divided into two phases: the motive phase and corrective phase. The motive phase is composed of five waves (waves 1 through 5). Waves 1, 3, and 5 will move in the prominent direction of After the completion of the eight waves, the cycle is com- the trend. These three waves are called the motive waves. They pleted and the count begins again. Once again, the gold market are separated by two retracement or corrective waves (waves enters the motive phase. This is the phase we are currently 2 and 4), where the price action will move against the current in. The first wave (1) occurred on February 2, 2010, as seen trend. The corrective phase is composed of three waves (A, B, in Figure 2. From a low of $1,040 per ounce, gold climbed and C), which move opposite to the primary trend. Waves A $100 higher to more than $1,140. Gold prices moved from and C will be corrective waves, while the B wave will move the 78% retracement level to above the 38% retracement level in the direction of the primary trend. on this single wave. This signaled the first corrective wave Figure 1 is a daily candlestick chart of forex gold (US/ (2). There are specific rules for the wave count. Corrective UAX ) in which the Elliott wave count has been added. The wave 2 should not retrace more than 61.8% of the gains motive phase drove gold to a new historical high of $1,221 XAUUSD = 1203.25 in December 2009. The cor- 1220.00 rective phase in forex gold 1210.00 lasted from December 2009 1203.601200.00 A to February 2010. With this 1190.00 top in place, I calculated the Wave 2: Prices usually do not retrace more 3 1180.00 than 61.8% of the wave 1 gains Fibonacci retracement levels. 1170.00 The final C wave marks the 1160.00 I used the low created just be- B end of the corrective phase 1150.00 fore gold broke $1,000, which 1 1142.20 (0.0%) 2 1140.00 was at $980 per ounce, and the 1130.00 high at $1,221. During the cor- 5 1119.34 (23.6%) 1120.00 1110.00 rective phase, the market will 1105.19 (38.2%) 1100.00 give back a percentage of its 1093.49 (50.0%) gains. It will not be until the 2 1090.00 1082.08 (61.8%) 1080.00 completion of the full wave 1070.00 count at the C wave that gold 1065.73 (61.8%) C 1060.00 will find a bottom and begin the 1050.00 wave count all over again. By Nov 29 Dec 16 Jan 05 Jan 24 Feb 11 Mar 02 Mar 21 Apr 08 Apr 27 the completion of this correc- FIGURE 2: DAILY US/UAX (FOREX GOLD) CANDLESTICK CHART FROM CORRECTIVE PHASE TO CURRENT MOTIVE tive phase, gold had given up PHASE. The first wave (1) occurred on February 2, 2010. From a low of $1,040 per ounce, gold climbed $100 higher to more almost 78% of its gains, clos- than $1,140. Gold prices moved from the 78% retracement level to above the 38% retracement level on this single wave. This ing at just $1,040 per ounce. signaled the first corrective wave (2). Copyright (c) Technical Analysis Inc. Stocks & Commodities V. 28:8 (12-17): Gold And The New Technical Triad by Gary S. Wagner You can create a triple filtering system at points where all three indicators are in confluence. achieved in wave 1. Wave 2, XAUUSD = 1202.73 which took just under three 1220.00 Examples of corrective wave patterns 1210.00 weeks to complete, did in fact B Wave 3 can never be the shortest impulse wave 1202.731200.00 trade right to that Fibonacci A 1190.00 C Wave 2 can never exceed the start of wave 1 retracement level. Zig-Zag Wave 4 can never overlap wave 1 1180.00 To the untrained eye, some A (i.e. cross into the same price data) 1170.00 might consider the wave count 3 1160.00 to be subjective, with room for C 1150.00 interpretation. Because of the 1 1140.00 1130.00 complexities in which markets 1 1120.00 behave, there are many varia- 1110.00 tions to the basic wave pattern. Basic Elliott wave sequence 1100.00 However, all wave patterns 2 3 5 B 1090.00 must follow the three major B 1080.00 5 rules that R.N. Elliott identi- 1 4 A 1070.00 C 1060.00 fied. There’s no flexibility in 2 1050.00 these three rules, so they must Nov 29 Dec 16 Jan 05 Jan 24 Feb 11 Mar 02 Mar 21 Apr 08 Apr 27 be followed exactly. Figure 3 illustrates the basic example of FIGURE 3: DAILY US/UAX (FOREX GOLD) CANDLESTICK CHART WITH ELLIOTT WAVE RULES. Here you see a basic the wave count with all three example of the wave count with all three rules in place. Because rule 3 states that wave 4 can never overlap wave 1, you have rules in place. Because rule 3 a clear indication that the current wave 3 has not ended. states that wave 4 can never overlap wave 1, you have a clear indication that the current 5 3 1220.00 1210.00 wave 3 has not ended. Wave 3 = 1.618 x wave 1 1202.88 Wave 5 = wave 1 1200.00 Figure 4 is a daily chart of Wave 2 = .618 x wave 1 3 1190.00 forex gold starting at wave Wave 4 = .382 x wave 3 1.000 Wave 3 = 1.618 x wave 1 1180.00 1170.00 1 after the completion of the 1160.00 eight-wave count. On this .382 1 1150.00 chart, you see the Fibonacci 4 1140.00 1130.00 rules needed for a correct wave 1 1.618 1120.00 count. According to this count, 1110.00 1100.00 we are currently in wave 3.
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