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Taso Anastasiou
Director: FX/PM Global Technical Strategy Group
UBS Investment Bank
Phone : +44 (0)20 7567 6870
E-Mail : taso.anastasiou@ubs.com
3
a
4
1
2
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Market Psychology
SECTION 1
A Quotation
Traders of my generation armed themselves with charts and
computer-generated graphics that predicted future price
direction. We sat day after day in front of these screens,
mesmerised by blinking lights and ever-changing numbers
in a deafening cacophony of information overload.
With the possible exception of Elliott wave theory, an
intellectual framework for understanding the course of social,
political, and economic events was noticeably forgotten in
favour of just making sure that one was part of the ever
quickening process.
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W e a k te st
C o n s o lid a t io n
se
Reversal
p ri
but
Consolidation
sur
Trend
Stro n g
re ve rsa l
Stro n g
r e s u m p t io n
Stro n g
d -tre n d
C o n s o lid a t io n
Stro n g re ve rsa l
t
bu
su
rp
r is
C o n s o lid a t io n
W e a k te st
W e a k r e s u m p t io n
No public participation
1
Phase 2
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Phase 3
33
Fundamental factors
peaking
Increased public
participation
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a
c
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The impulse
Impulsive segment
as the impulse
a
c
is itself constructed as a
series of five waves of
which 135 are impulses
of a minor degree
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Zoomed in
3
5
Phase
Impulsive segment
c1
b
a
2
c
2
c
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Correction
4
1
a
c
abc corrects
Waves 1 to 5
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In Practice
Your start point
should always be
a significant high
or low
Start point is
labelled 0, the
impulse segment in
this phase is labelled
1 and is corrected by
the lettered phase
labelled 2
2
0
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4
1
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5
b
3
4
3
c
4
1
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4
1
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5
5
5
4
b
1
5
b
2
2
c
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USD/CAD
1
5
3
a
2
c
2
11
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Rule 1
There are three basic ground
rules used when defining an
impulsive phase
0
2
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Rule 2
Incorrect count
3
1
Alternative count
iii
i
1
ii
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Rule 3
5
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iii
4
iv
ii
2
5
b
3
4
2
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0 1 2
4 5
A B C
Super cycle
0 I
II III IV V
A B C
Cycle
Primary
Intermediate
0 1
Minor
0 i
ii iii iv v
Minute
0 1
Minuette
a. b. c.
Sub-minuette
0 I
II III IV V
Micro
0 i
ii iii iv v
Sub-micro
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Extensions
5
3
1
5
7
3
1
1
2
2
1
3
1
2
22
1
1
3
5
5
5
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Example of an extension
B
2
ii
iv
1
3
5
iii
v
3
5
C
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In Practice - GBP/USD
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In Practice - GBP/USD
5
3
4
1
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In Practice - GBP/USD
5
3
b
a
c
4
1
b
a
c
2
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In Practice - GBP/USD
5
3
v
b
iii
a
iv
1
c
4
b i
a
c
2
ii
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iii
i
iv
3
ii
4
34
3
ii
4
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3
1
4
1
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1
v
iii
i
2
iv
ii
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1
5
4
2
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90
80
70
60
1991
1992
1993
1994
1995
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2
91.22
90
1
80
(II)
a
4
3
3
(I)
70
(IV)
c
60
(III)
1991
1992
1993
1994
(V)
1995
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The Trap...
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Ground Rules
You can quantify trends and market positioning by biasing your
position base in the direction of the underlying trend
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Corrective waves
We have seen that movements against the trend are known as
corrective waves, sometimes referred to as consolidations or
lettered phase
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Zig-Zag
535
Flats
335
Triangles
33333
Double and
triple threes
(combined structures)
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Zig-Zags 535
Bull market correction
ii
b
c
i
iv
a
ii
iii
iv
v
a
b
iii
v
c
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Zig-Zag corrections
Zig-Zags have a 535 wave structure
These formations are usually found in Wave 2 position
It would be fair to assume that they would also occur after
Wave 5 as a traditional head and shoulders reversal pattern
is formed
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B2
4
1
3
4
5
A
3
5
C
A=C
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ii
b
1
i
iv
a
iii
c
v
3
5
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b
c
a
a
c
b
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Flats 335
Flats are counted as 335
There are standard flats which are typically ranges
There are irregular flats where the B wave exceeds the high,
but can only be counted as a 3-wave affair
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Triangles 33333
Bull market correction
b
d
Five waves a / b / c / d / e
e
c
a
e
d
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b
c
iv
iii
b
v
a
ii
ii
b
c
iv
iv
ii
iii
iii
v
c
b
v
a
iv
iii
v
c
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ii
b
c
i
iv
iii
ii
iv
v
a
iii
v
c
c
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ii
b
c
i
iv
iii
ii
b
i
iv
v
a
e
c
iii
a
v
c
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ii
b
c
i
iv
ii
iii
b
v
a
iv
iii
v
c
a
c
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ii
ii
b
b
cc
ii
iv
iv
iii
iii
bb
v
va
a
ii
ii
aa
ii
iv
iv
iii
iii
v
cv
c
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b
d
e
c
a
a
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a
c
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a
c
a
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x
b
a
c
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ii
b
c
i
a
iv
iii
ii
b
iv
v
a
iii
a
v
c
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b
d
e
c
a
a
c
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ii
iv
iii
b
v
a
b
c
ii
i
iv
e
iii
c
v
c
c
Zig-Zag
Irregular flat
Triangle
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B
X
a
c
A
A
A
c
C
FLAT
IRREGULAR
FLAT
FLAT
C
ii
ZIG-ZAG
A=C
C
ZIG-ZAG
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The rule also states that only one of the impulse waves will extend
(and can itself extend)
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Alternation
5
4
4
1
2
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a
FLAT
TRIANGLE
b
c
a
2
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4
1
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Ratio analysis
Ratio analysis has revealed a number of precise price
Retracements
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Retracements
Typical retracement levels
100
24.6
38.2
50.0
61.8
76.4
Typical of Wave 2
100
Typical of Wave 4
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5
3
1.00
3
.618
.382
2
3
.618
.382
1
2
1.00
2
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b
x
b
1.00/.618/2.618
1.00
1.00/6.18/1.618
1.00
Zig-Zag
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Irregular flat
b
b
1.00
1.00
.618 a
1.618
c
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3?
1
ii
2
Wave 3 = 1.00/1.618/2.618 of Wave 1
2
Wave 5 can be equal to wave 1
0.618 of 3 0r .382 of waves 1 and 3
Calculating targets
5?
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Fibonacci relationships
Wave 2 retraces just
above the 61.8% level
of wave-1
2
ii
4
iv
Failed
iii
v 5th
5
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(V)
1.8904
1.8500
1.8000
(III)
1.7500
1.7207
1.7000
1.6500
(I)
1.6000
1.5000
II
1.4500
IV
1.6618
(IV)
1.5489
1.5500
III
1.4000
1.3811
(0)
1.3500
May-95
Nov-95
May-96
Nov-96
May-96
Nov-96
May-97
Nov-97
tmta3 DEM-USD Weekly Bar 06-Mar-9528-Nov-97 [Zoomed] 1.8904 1.3455 1.7635 0.3685 0.0000
V 2.980014 Copyright 1994-1997 Tradermade International Ltd.
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A word on momentum
2
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4?
1
2
Potential for bearish divergence in momentum
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iii
3
i
5
v
iv
ii
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Analyse
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Analyse
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Analyse
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Analyse
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Disclaimer
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