TRADING BINARY OPTIONS WITH ELLIOTT WAVES - AUD/USD EXAMPLE

The first three parts of this Elliott Waves series dealt with laying down the most important rules both for impulsive and corrective waves. Also, we explained the notion of a cycle and why the Elliott Waves theory consists of interpreting various cycles of different degrees.

While there are many other things to consider, even this basic information is enough for trading binary options with. As such, this part deals with the latest price action on the AUDUSD pair, as we interpret the move on the daily chart, starting with the end of 2015.

Before anything, keep in mind the time frame: the daily chart. As such, the expiration dates for the potential binary options can’t be shorter than the one day.

As a matter of fact, end of the week and end of the month are more appropriate.

AUDUSD Daily Chart Elliott Wave Analysis

December 2015 saw the AUDUSD pair bottoming around 0.68. From that moment on, the pair didn’t revisit those levels anymore. The idea is to use the Elliott Waves rules and information explained so far, and to see potential binary options trades that might result from the logical process.

As mentioned on the previous parts, an Elliott Wave trader must answer first the following question: is a move impulsive or corrective. That is, the first swing higher from the lows: from the 0.68 until the 0.78. At a first glance, it seems to be impulsive. It has five segments. The market moves over a thousand pips…

Yet, if we check the rules of an impulsive move, we see that there’s no extension. However, an impulsive wave MUST have at least one extended wave. This move doesn’t have one.

Therefore, it isn’t impulsive. That’s a powerful statement. For, Elliott clearly stated that if a move isn’t impulsive, it must be corrective. Just like that, we answered the most important question. We just established the one-thousand pips move is corrective in nature.

The next step is to look at the type of corrective waves. Elliott found flats, zigzags, and triangles. Obviously, it isn’t a triangle. But, it can’t be a zigzag either.

The rules of a zigzag state that the first wave must be impulsive. Or, the swing higher we interpreted earlier. Well, it isn’t. We just established is corrective.