Anyway, My trading plan precluded me from trading during the NFP so I did not and sometimes, this happens that I miss out on a nice move. No matter. So now both completed bats both hit TP1 and TP2. I'm not listing the TP profits here since I didn't make any of it. For those that were brave enough (or foolish enough) to stay in during the NFP, congrats to you cause you made a nice quick boatload of pips! Me? I got my little +49 pips I locked in before the NFP. Oh well, better +49 pips than none!
But this trade is now done and closed. Now to just wait for the next move....
Year-to-date Profits: +5,794 pips.
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Why does "overthrows" happen? Think about it. When prices break through what was formerly a TL of the triangle pattern, what do traders automatically think? Remember, through the first 4 legs of the triangle, prices have been just going sideways and consolidating, right? So that means that prices are coiling for a breakout, right? And the more they coil, the more the expected breakout will be, right? So when prices do "breakout" and break through the TL (upper TL in this case), there are more than likely trade orders (buy orders in this case) sitting there waiting to be triggered. Also, keep in mind although I labeled this consolidation as a triangle and also I labeled the abcde of the triangle as I did, there are probably many, many traders who did not see it as a triangle or maybe labeled it differently than I did. Maybe they had been playing it as an ABC-type pattern as you are suggesting. Who knows? But one things for sure, not EVERYBODY has labeled it the way I did. There needs to be differences of opinions in order for there to be price movements and in order for the market to exist. Anyway, when prices broke through that upper TL, those buy orders got filled thus driving prices higher and then when still other traders saw the TL being broken, they also jumped in and bought thinking prices were just going to go higher now. Of course, the data from the NFP exacerbated the buying frenzy driving prices even higher. This is what happened to make wave (e) jump "over" the (c) point in an "overthrow". Me being a technical trader, I believe that news data has already been accounted for in the chart. So this "spike" resulting from the NFP was nothing but irrational, emotional overreaction. Therefore, it is my opinion that the rise in prices due to the NFP could not continue. Thus, I anticipated that prices would come back down.
This is EXACTLY how "overthrows" in wave (e) of triangles work. This in no way invalidates a triangle. Technically speaking, there also is no such "rule" that says that when wave (e) violates the (c) point of a triangle, that triangle is invalidated. Yes, it may seem contradictory to see wave (e) exceed the (c) point and still maintain that this is a triangle but remember, in charting, we don't see "triangles" in a purely geometric way. They are nothing but something use to help us visualize the waves and to help us to anticipate the next moves. Nothing more than that. So therefore, they do not need to be a "perfect" looking triangle to be a triangle.
It is a RULE that wave E never exceeds the termination point of wave C.
Excerpt from Elliott Wave Principle by Prechter & Frost:
- Wave C never moves beyond the end of wave A, wave D never moves beyond the end of wave B, and wave E never moves beyond the end of wave C." (page 90)
Therefore it NEVER can be a triangle anymore.
The overshoot is mentioned as an overshooting of the A-C TRENDLINE but NOT wave C.
One of the things about the way I trade is that I do not steadfastly follow everything that Elliott Wave Theory lays down for every situation. There are many "holes" in Elliott Wave Theory that cannot explain every situation without coming up with some "extra" theorem that ends up sounding more like a "justification" than anything else. DO I play loose and fast with Elliott Wave rules? I admit. Sometimes it seems that what I am doing is that. But The number one rule that I follow above all else is this theory: The "KISS" theory. I find that Elliott Rules sometimes over-complicates things unnecessarily. When a much simpler explanation applies. This is why I never refer to myself as an "Elliottician". My methods don't qualify me for that.
So yes, you are correct that this is not an Elliott contracting triangle. Is it a triangle? If it walks like a duck, sounds like a duck, looks like a duck, it must be a duck. Maybe it's a happy coincidence that prices are working out like I am expecting it to and NOT the way Elliott rules would have them work out. Maybe I am wrong in my wave count. Could be and I have been re-analyzing the price action to see what I might've missed. Or see what has changed This is something Elliotticians do ALL the time. They keep changing their wave counts accroding to the latest price action. Nothing wrong with that. But that just goes to show that Elliott Wave Theory is not an EXACT science. YO umust keep re-adjusting your counts to "fit" the price action. Sounds like justification to me. Again, nothing wrong with that because none of the tools we currently have at our disposal can accurately predict future price action.
So back to the original point. Is this a triangle? Does it matter? I played wave (e) as the way it is and am making pips because I did. If I wait to re-analyze the price action and try to find a perfect "fit" according to Elliott wave rules, guess what? I would missed the move and missed out on the pips. I'm guessing you probably didn't take that short trade. Maybe you did. I don't know.I could explain (justify) my actions using a dozen other ways. But what is the end result? That is THE MOST IMPORTANT THING! Not if the wave count was 100% correct. This is why I don't refer to myself as an Elliottician nor do I say my wave counts are Elliott wave counts. In my way of thinking, it's simple. As long as my wave count leads me to be on the right side of the market, it does not matter that it is 100% accurate.