Fifth wave opportunity: USD/YEN case study

In this case study of USD/YEN, I will show you how one could have used an extending fifth wave to prepare for a profitable trade. Let me start by asserting that the main goal of any trader is to identify low-risk trading opportunities before a move actually takes place. Once such a trading opportunity is identified, one should be patient for the right moment to pull the trigger. Elliott wave analysis offers one very clear trading set up that invariably produces impressive winners.

In your study of the Elliott Wave Principle, you would have read that in a five-wave sequence, one should normally expect one of the impulse wave to extend. If the first and third waves are of normal length, (andin my view a normal length is either equality, or the third wave being no more than 1.618 times the first), then we should look out for the fifth wave to experience an extension. For starters, one should continue to trade in the direction of the trend, ie. if we are in an up trend, we should continue to buy on every dip. Many traders will be selling their positions too early because all they notice is that we are in a fifth wave. A careful trader will know that in the present case, because we haven’t seen an extension so far, the fifth wave is likely to go farther than what most expect. So this smart trader (namely you) will gladly buy into dips! Those who short-sell in anticipation of a turn will soon get stopped, and when many stops get triggered, you will make even more money because the very action of stops being triggered is going to take your position deeper into the money.

But wait. The best is yet to come! You will probably wish to get out of your position in stages once the fifth wave travels a distance equal to the third wave. But the real icing on the cake is the knowledge that once the extended fifth wave has run its course, we will see a huge sell-off that will take the currency (or stock) straight back to about the 2nd wave of the extension. You can benefit not only from the knowledge of the speed of the move, but also from the extent of the move. (FX Option trades can be very profitable in such cases).

Let me illustrate this price action using an example from USD/YEN. Take a look at the following chart, and you will see how one could have positioned for a very nice move once you identified that the fifth wave was experiencing an extension.

usdyen trade setup
usdyen trade setup


  • Gary

    Hi Ramki –
    Since I “found” you from your posting at OEW –
    What do you think about Tony’s counting which describes this as an ABC down wave, in the B wave retracement now. That seems substantially different from – if I got this right – your 12345 up wave, in the 5th wave now.

    • Hi Gary,

      Tony does a lot of good work on his pages. However, I have some disagreement with the ‘current’ labels that he has attached to the rally off the 644 low. My chief objection is (1) if the major ‘a’ wave is made up of 3 waves, then it is, by the rules of classical elliott, the first step of a FLAT correction. That means the major ‘b’ wave will almost reach the start of the ‘a’ wave, ie near 644. However, the labels show a very shallow ‘b’ wave. (2) if this is a double zig zag, it is a different interpretation, because the ‘x’ wave need not dip very low. In this case we should label it as ‘x’ and not ‘b’. (3) if we are in a ‘c’ wave, that should be generally steeper than the ‘a’ wave, and it doesn’t look like that right now.
      Despite all these objections I want to confess that no one, including Ralph Elliott himself, can be sure of a move until it is finished. We all have a paradigm, and we should trade according to that paradigm. Within that paradigm, we should follow Elliot’s rules diligently as far as possible. That will keep our losses low (note I didn’t say that will keep our mistakes low! One can make money even if the count is wrong. It is more important to get the next direction correct than to label the moves right). Anway, I am glad you asked that question, Gary. Thanks and wish you great trading.

  • Gary

    Thank you Ramki. Now I have to go digest all this, and yes, it is all about having confidence/predicting reasonably where something is heading next.

  • rajesh

    sir did rcom finish its extended fifth at 46.55?

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