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Gold futures (trading symbol = GC) | 120-minute bars

[Updated with Elliott Wave labels, and price action since the original post yesterday. Fourth wave of ending diagonal now in progress. A fifth wave down to a new low is expected over the next week or so. However, if GC trades above 1846 before trading below Friday morning’s low, then the most probable Elliott Wave interpretation shifts to one where the whole pattern is either a Double Three or Contracting Triangle whose third (but not final) wave (a downward move) ended on Friday morning at 1767. Double Threes and contracting triangles move net sideways, so Friday morning’s low could well be the lowest low of the pattern, if it’s not a flat]

Probable Elliott Wave “flat” pattern in progress since 21 August 2011. A “flat” is composed of three subwaves, where the first and third subwaves move in the same direction as each other, but where the middle wave moves in the opposite direction. All three waves (labelled A, B and C) should ideally have roughly the same price extent. Wave A (the first wave) can be any corrective Elliott wave. Wave B (the second wave) can be any corrective Elliott Wave other than a triangle pattern. Wave C (the final wave) must be either an impulse wave or else an ending diagonal wave. Wave C of the flat pattern in gold started on 6 September, and cannot be anything other than an ending diagonal pattern. The ideal low would be around $1700, although it can fall short or extend.

One key distinction between one Elliott Wave and another is whether it moves in the same direction as the trend, or moves counter trend–where “trend” refers to the direction of movement of the larger Elliott Wave that contains the wave that is the focus of the discussion. Elliott waves are fractal, in that they have an infinite hierarchical structure–waves within waves within waves.

Waves that move in the direction of the “larger trend” are referred to as ‘actionary’ waves. Waves that move opposite to the direction of the wave that contains them are called ‘reactionary’ waves. Wave A and wave C of a flat pattern are both actionary waves, but the middle B wave is a reactionary wave.

The other key distinction between Elliott Waves is based on the internal structure of the wave:

A ‘motive’ wave usually has five subwaves, but may have any number in the sequence 5, 9, 13.. (adding 4 each time.) A motive wave does **not** move sideways. It definitely trends either up or down.

A ‘corrective’ wave usually has 3 subwaves, but may have any number in the sequence 3, 7, 11.. (adding 4 each time.) A triangle must have at least 5 subwaves, but may have 9, 13, 17, etc. Corrective waves may move either sideways, or may move sharply up or down.

There’s a lot more to it, but that’s the general framework. All that remains is the detailed ontology of wave forms, and the structural rules that distinguish one from another. I will be publishing a complete description soon.