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Sugar: The Five-Wave Form And One Big Move
On my very first day of work at Elliott Wave International, my colleague gave me the "One-Minute Guide to Understanding the Elliott Wave Principle." Here it is:
Tear out a blank piece of paper. Draw a house on the page and name it "Elliott." Label the foundation of that house "The Five-Wave Form." This is the structural base upon which the entire Elliott Wave Principle is built. Last step: Title the design of the house "Fractal." The End.
To this day, I keep that drawing taped to the front of my desk as a reminder that no matter how complicated things seem, all roads lead back to that 60-second sketch. So, let’s break it down into its main parts:
The Five-Wave Form: This is the single, overriding model of market progression. It adheres to these three main rules:
- Wave 2 never moves beyond the start of wave 1
- Wave 3 is never the shortest of waves 1, 3 and 5, and is often the longest
- Wave 4 never ends in the price territory of wave 1
Here, Elliott Wave Principle -- Key to Market Behavior presents the ideal model of the Five-Wave Form:
Now for the second part of the lesson: Elliott waves break down into fractals -- self-repeating patterns at different degrees of trend -- called impulses and corrections. Impulses are 5-wave moves that point IN the direction of the larger trend. Corrections are 3-wave moves that go against it.
Okay. Armed with the basics, we can now observe the five-wave form and fractal in a real-world example. Below is an actual price chart from the October 7 issue of Elliott Wave International's Daily Futures Junctures. There, long-time editor and EWI's chief commodity analyst Jeffrey Kennedy presented this labeled close-up of Sugar from the March 2009 low.
The picture is perfect: the pattern of one larger degree is the Intermediate structure of waves (1) through (5). Within that, wave (3) subdivided into the self-similar five-wave form of Minor degree for waves 1 through 5 (in red).
So, with a fully developed pattern behind it, the next question is -- what's ahead for sugar prices?
Well, in the words of Jeffrey Kennedy: "Price action in sugar the past few days has been exciting," due to a major incident regarding the "Base Channel" illustrated in the right-hand side of the chart. Find out what this event means for the markets next big move. Subscribe absolutely risk-free today for the full scoop.