This runs a similar pattern to the GBPUSD we wrote about last week.
Traders can place their risk above the Aug 24 high while targeting new lows below 1.08.
There is an alternate view that suggests we are in a larger degree (X) wave that likely digs deeper. A move above 1.15 will enhance this count.
Sentiment is running with net sellers going into the FOMC meeting tomorrow. Be mindful of your trade size as is likely to pick up.
Wave 3's can be powerful and I don't want get caught long when i'm anticipating a wave 3 lower.
BTW, where exactly are you seeing the bullish rsi divergence? Which time frame?
I think you are off to a great start. There are some little details that you'll train your eye to see as you keep working at it. Let me throw a couple of pointers at you...
1) the five (v) waves make up the larger blue wave '1'...therefore place the '1' on top (physically higher on the chart) of the (v) so that way it shows that it represents the ending point for both those waves
2) likewise, at the end of 'c' that also represents where blue wave 2 ends
Now, wait for Elliott's rules. If the blue waves only make up 3 waves higher, then its not an impulse...it will be corrective (labeled a-b-c)
Keep asking the questions.
Now, specifically to your question, divergence in the 5th wave is a characteristic of the wave, but not a rule. It is a symptom to alert you that a 5th wave could be upon us...but that symptom doesn't have to be present for the wave to be a 5th wave.
Think of it like being sick. When you don't feel good, you go to the doctor and the doc asks you several questions to determine what the symptoms are to then make a diagnosis. There may be several symptoms he/she is looking for:
Could one person have the flu and show only 2 of the symptoms? Sure. Could another person have the flu and show the other symptoms but not the same 2 symptoms as the first person? Sure. That is the same scenario when dealing with the characteristics of waves.
5th wave divergence is one thing we look for as "chart doctors".
Other items (among other things) I look for are wave relationships and wave measurements. I've shared a smaller time frame chart (1 hr) to illustrate how some wave relationships have lined up pretty well giving me confidence as a doctor of the 5 wave move. (See the tan notes associated with the red dotted horizontal lines.) If those wave relationships didn't exist, I would then lean heavier on alternate counts.
Does this answer your question?
There are a couple of ways to approach.
1) If you sell now, where do you place your stop? Ideally above the Aug 2015 high, but that is 300 pips away. Therefore, you end up with an arbritray zone which isn't good.
2) Wait for support levels to break - this indicates a greater likelihood that a top is in especially if the turn occurs in a marked zone. This could be trend line support or horizontal support. That way, if the support never breaks, you are kept out of a losing trade.
Therefore, the recommended approach is to wait for support levels to break then trade. Horizontal levels could be 1.1375 or 1.1290. Or, draw trend lines and use them. That way, you can place your stop loss above the recent swing high.
If we trade below current levels on the London open Monday, it may signal the top is in and the wave 3 lower is in play. So this is illustrating my previous comment (point #2) above. This would be about 100 pip risk for a target towards 1.1070 then 1.08 (300 or 500 pips of reward).
Keep in mind, a probabilistic view is not a certain view. We don't know for sure if this will happen...the probabilities appear shifted in that direction.
So long as resistance levels hold, we can continue to look lower. Prices may retrace to 1.12 but would need to stay below 1.1270 to keep the 3rd wave interpretation as the preferred view. A wave 3 should ultimately break 1.08 and pressure 1.04.