Simple, here is my 4 hour AUDUSD chart with some simple counts. Basically I've counted the 5's and 3's of the up move your chart shows. We've spent a lot of time discussing this because from the perspective of a bar chart, wave 4 enters into wave 1 territory which breaks one of the fundamental rules. However, if you look at a line chart which shows the closes, this rule is not broken. Also it is important to note that forex is a leveraged instrument and according to Robert Prechter, in leveraged instruments, wave 4 can dip into wave 1 slightly but it shouldn't stay there long. With these details aside, the move definitely represents a 5 wave series to the upside off of the lows. I've noted on the chart each 5 wave structure inside of the larger structure. The only other thing that makes me question the overall structure is that wave 3 (the second 5 wave count I have in Blue) and wave 5 (the final 5 waves in blue) do not diverge. Now typically we would see divergence (like I've noted on the smaller counts) between waves 3 and 5. This helps confirm counts because wave 3 is the strongest in terms of momentum and wave 5 should be weaker than 3 in terms of momentum thus indicating exhaustion. I know pennies has gone short around 96 on Friday and I definitely agree that we are on the verge of a correction. I cannot tell you where the correction will take us. I believe Pennies is expecting a much larger move down, however time will tell. I think its safe to say we'll see high 94's to low 95s. This is based on the fact that typically after 5 waves the correction retraces back into wave 4 territory. Now if this move is a much larger 5 wave sequence, we could be looking at a pullback to anywhere in the 88-90 range.
I'll post up some interesting ways to trade wave structures and hopefully that will help you and others get an idea of how I'm working on trading EW.
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