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Elliott Wave Retrospective: A Deep Dive into EURUSD in July 2015

Title Image : EURUSD Elliot Wave Forecast and Analysis - 150727

Examining a Key 4-Hour Setup

Hello there! Let's take a moment to look back at a fascinating Elliott Wave setup that was unfolding on the EURUSD 4-hour chart back on July 27, 2015. Analyzing past market movements through the lens of Elliott Wave Theory (EWT) is one of the best ways to sharpen our forecasting skills and understand how the market's fractal nature plays out in real-time.

The situation we're reviewing started early on that Monday morning. The Euro was pushing higher against the US Dollar, a move that initially seemed like a simple correction within a larger downtrend. However, as the price action evolved, it began to signal a more complex structure, specifically morphing into what we classify as a double zigzag correction.

The Double Zigzag: Understanding the Shift in Structure

In Elliott Wave terminology, a correction is the market's way of pausing or moving against the main trend.

  1. A simple correction (like a basic zigzag, labeled W-X-Y) is common.
  2. A double zigzag is a more extended and complex affair, usually labeled (W)-(X)-(Y). It essentially links two simple corrective patterns with a connecting wave.

The fact that the upward move in EURUSD continued with strength on July 27, 2015, suggested that the market's retracement wasn't complete. This persistence was the primary reason for shifting the count from a simpler structure to a complex double zigzag correction (which we'll refer to as the green wave correction).

This change in classification was crucial because it allowed for a more precise forecast regarding the correction’s end point. When a complex correction approaches its completion, it often precedes a powerful move in the direction of the larger trend.

The Forecast: Anticipating the Impulsive Decline

Based on the newly identified double zigzag structure, the Elliott Wave count suggested that this corrective upswing was near its end. The prevailing medium and long-term view for EURUSD at that time was bearish, meaning the overarching trend was down.

Therefore, the core forecast was:

  1. Expect a Top Soon: The completion of the double zigzag (the green wave correction) was imminent.
  2. Anticipate an Impulsive Decline: Once the correction terminated, we should expect a sharp, decisive decline—the start of the major green Wave 3. Wave 3s are typically the strongest and longest waves in an impulse, making them highly sought after by traders.

The Invalidation Line and Risk Management

No wave count is guaranteed; the market always has the final say. This is where the concept of the invalidation line becomes central to responsible trading.

In Elliott Wave analysis, the invalidation line marks the point where the current wave count must be discarded because the price action violates a core rule of the theory.

  1. The Invalidation Rule: For this specific setup, if the price had broken significantly above a predefined level (the invalidation line), it would mean the structure was not a corrective double zigzag, and a fresh recount would be necessary.

Crucially, as noted in the original analysis, even a recount would likely not impact the medium or long-term structural outlook. Why? Because the invalidation of a smaller wave structure (like a Wave 2 correction) usually just means it was a different, perhaps larger, type of correction (a Wave 4 correction, or an even larger Wave B) before the main trend resumed. The primary long-term trend, driven by larger economic forces, typically remains intact.

📉 Executing the Trade: Shorting the EURUSD

For a trader monitoring this setup on July 27, 2015, the strategy was clear: wait for confirmation of the top and then enter a short position.

Confirmation Signal

The trade entry was contingent on seeing a bearish confirmation candle on the 4-hour chart. This confirmation could be:

  1. A large bearish engulfing candle.
  2. A shooting star or pin bar rejected sharply from a key resistance level.
  3. Any definitive 4-hour candle that closes strongly lower, confirming that selling pressure had taken over from buying exhaustion.

Trade Parameters

Professional trading always involves predefined risk management. The two critical parameters for this short trade were:

  1. Stop Loss: The specified stop-loss level was 1.2120. This placement is strategic—it should be positioned safely above the invalidation line and the absolute peak of the anticipated double zigzag correction. Placing a stop loss is a non-negotiable step to protect capital against an unforeseen market move or an incorrect wave count.
  2. Entry: Short entry upon bearish candle confirmation.
  3. Target (Take Profit): While not specified in the original snippet, the target would logically be the expected completion zone for the powerful green Wave 3, which could involve levels significantly lower than the entry point.

The Value of Structure

This analysis highlights a fundamental truth about technical analysis: identifying the structure of the market's moves is often more important than the individual moves themselves. The shift from a simple correction to a double zigzag was the key insight that set up the potential short trade, providing a high-probability entry with a clearly defined risk limit (the 1.2120 stop).

Wisdom from Past

“Don’t focus on making money, focus on protecting what you have.” — Paul Tudor Jones

Crucial Risk Management Advice

Crucial Advice: Effective trading is based on disciplined risk management, not prediction certainty. Always use a firm stop-loss to protect your capital. Macroeconomic news, particularly from the Federal Reserve or the European Central Bank, can override any technical pattern instantly.

Profile Image of Ghulam Muhiuddin, Certified Technical Market Analyst, 18 Years of consistent market analysis and forecasting</strong>

About the Author

Experience: This analysis reflects the insights gained from 18 Years of consistent market analysis and forecasting, specializing in the application of the Elliott Wave Principle and advanced technical structures.