In the Market there are no guarantees, only probabilities. That is why traders must always look and prepare for different scenarios.
If you have been following our Precious Metals section, you have probably seen some of our articles about the triangle the price of gold was forming. The Elliott Wave Principle states, that triangles are sideways corrective patterns, constructed of five waves, labeled A-B-C-D-E, where each wave is smaller than the previous one, unless it is an expanding triangle. The chart below shows how we thought gold’s triangle was most likely to look like.
According to this scenario, the triangle pattern has already finished all of its five waves A-B-C-D-E and the price of gold is supposed to be headed towards the target of 1100. This is still our primary count of gold. However, the strong bounce that occurred after the bottom of 1183 made us look for alternative counts. Triangles are very tricky patterns. They can evolve and change in many ways. That is why we have to be prepared. The next chart shows a different type of triangle, called “barrier”.
As you can see, the upper line is declining, while the lower is horizontal. If this is the correct count, we should expect wave E to bring the price of gold back to the 1340 area before the larger downtrend finally resumes. This outlook becomes more and more probable with each dollar gold adds to its value.