Sunday, August 23, 2015

What Drive The Diagonals?

The diagonal pattern is one of the 2 motive waves discussed by the elliot wave theory. The diagonal is so often followed by a fast and high momentum breakout that it has become its 'after-formation' characteristic.

But, what drive the diagonals to behave so?

The close of trades of UsdJpy and GbpJpy last week showed clearly how price responds after a diagonal pattern has formed.

In the last post on GbpJpy titled GbpJpy: When Will The Bears take Over , I quoted thus:

"If price is contained below 195.755 and breaks 193.34, price could start a big fall to 190.863 (in the short term) and 173.553 as the final 'after-diagonal' price reaction target."

Price did just that after the completion of the diagonal as shown by the chart below.

In the Intra day updates of Usdjpy, diagonal was also spotted before completion. Immediately the possibility was spotted, I posted :

"To complete this pattern, price is expected to rally but must stay below 125.75 to be considered a valid pattern.  If the pattern completes, a dip is expected to at least 123".

After the pattern completion, I set 123 as a target and price has since gone beyond in a typical 'after-diagonal' volatile move as shown by the chart below.

Prices react to diagonals in high volatility and momentum much more often than not. We might not bother about what cause this but know that markets behave this way.

Follow UsdJpy intra day analysis >>>>> 

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