Throughout the second half of the year so far, NZDCAD has been on a big bearish move. In this article, we will look at an emerging pattern that will signal the probable end of the bearish trend for a bullish correction. The following is based on 8 November NZDCAD Elliott wave analysis and trade setup.
08 November, AtoZForex - There is no doubt that Elliott wave theory is one of the technical methodologies for forecasting and trading the markets. But it has often times been criticized for its subjectivity. Different analysts can give 2-3 different interpretations to a price chart. Despite this subjectivity, Elliott wave theory is a very useful tool. To reduce the subjectivity, one of the easiest thing to do is to analyze and discover Elliott wave patterns.
Elliott wave theory basically analyzed price charts into five core patterns. Motive waves (Impulse waves and Diagonals) and corrective waves (Flats, Zigzags and Triangle patterns). These 5 core patterns have varieties which in total make 12-14 wave patterns. The good thing is that, these patterns are well defined and traders can focus on the ones that are easiest to spot and have the best accuracy. Some of them are the Impulse wave, Ending diagonal, Zigzag, Double zigzag, Contrasting triangle, Regular flat and more depending on the user's preference.
For example, I love spotting Impulse waves and ending diagonal patterns especially when the 5th wave of an impulse wave ends with this diagonal. I will show an example on NZDCAD where this is emerging. The potential profit of this setup if it holds is 450 Pips or more and a risk of about 150 Pips. More than 1:3 R/R. The chart below shows the setup.
8 November NZDCAD Elliott wave analysis and trade setup
The chart above shows an impulse wave from 0.976 now in the 5th wave. the 5th wave is coming up as an ending diagonal. This is a classic and clear setup and patience is needed for it to complete. The ending diagonal 5th wave needs to complete the last leg toward 0.8700 or below. A breakout upside is a safe entry with stop loss below the lowest point. Target is at 0.94-0.95. This setup will be invalid if price breaks below 0.861. Price may not break below 0.8700 before it breaks upside but should make a slightly significant dip. You can also wait for this setup and risk properly. You can even use a different entry method that suits you once the pattern is complete.
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