The last time we wrote a free piece about gold, we showed you how Elliott Wave analysis helped us to predict the price surge in the second half of December, 2023. Long story short, the decline from $2149 to $1973 was a five-wave impulse. According to the theory, a three-wave correction follows every impulse. Hence the expectations for a recovery.
The other great thing about the Elliott Wave theory is that it also tells us what to expect once the correction is over. An impulse, followed by a three-wave correction, produce a complete 5-3 wave cycle. Having one in place strongly suggests that the trend should resume in the direction of the impulsive sequence. In theory, it really is that simple. Now, let’s proceed to a real-life example of putting that theory into practice.
The calendar had barely turned to 2024, when we shared the chart above with our Elliott Wave Pro subscribers. It revealed the aforementioned bearish 5-3 setup, whose wave (b) looked like a complete a-b-c zigzag correction. It seemed to have ended shortly after touching the 61.8% Fibonacci resistance level. That setup put targets below $1973 on the bears’ radar in wave (c). Soon enough, the price of gold accelerated its decline. Things then kept going according to plan for over a month… Well, soft of.
Gold fell to $1984 on Valentine’s Day and the bearish count had been serving us reasonably well until that point. But it had also become obvious that wave (c) wasn’t going to be a pretty impulse pattern. The next most likely scenario implied that it was going to develop as an ending diagonal. Once wave 4 up was over, it would be time for another drop in wave 5 to complete the pattern. This was the chart we included in our February 19th, EW Pro analysis of gold.
Alas, a week later, the odds of that actually happening had diminished significantly.
Similar Elliott Wave setups occur in the Forex, crypto and stock markets, as well. Our Elliott Wave Video Course can teach you how to recognize them yourself!
Bu February 26th, the recovery from $1984 just no longer looked like a fourth wave of a diagonal. It was getting too big and starting to ruin the shape of the pattern. The rule is that analysts should change counts as soon as the market inspires a better idea. There is no point in stubbornly clinging to a single prediction, when the market is clearly sending a different signal.
The count, which served us so well until then, was no longer going to. So, we came up with a new one, where wave (b) was a complete triangle correction and wave (c) was a truncation. Truncated C-waves and fifth waves occur very rarely, but they do. With that in mind, we concluded that wave (c) was already over at $1984 and the uptrend has most likely resumed. Just over a week later now, that’s already obvious to everyone.
This entire example shows not only the Elliott Wave principle’s ability to put us ahead of the market, but also highlights the inevitable uncertainty all that involves. Novice traders understandably hate that uncertainty, but with time and experience, one learns to embrace it. The market is fluid, flexible and largely unpredictable. That doesn’t mean traders cannot be successful in it.
It only means that we have to be fluid and flexible, as well. It is always better to have an alternative in mind to switch to if things don’t go as planned, than to stay fixated on the first idea you came up it. Doing this, however, requires letting go of the ego and the desire to be “right” versus “wrong”. Letting go of the illusion of “knowing” what’s going to happen. The market is not an enemy to outsmart, but a friend to understand.
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