[Cotton] As a trader, it is critical that your trading style is well defined. My trading style, for example, is to buy pullbacks in uptrends and sell bounces in downtrends. And because this approach is the basis of my trading style, it is imperative that I am familiar with corrective (or countertrend) price action.
And a trick I use to keep me on the right side of the fence, so to speak, is a simple checklist of three conditions: 1) The countertrend move under observation must end at or near a Fibonacci retracement (i.e., .382, .500, .618), 2) The bulk of the correction – and I'm referring to price action – must be contained by parallel lines, and 3) There must be an acceptable relationship between the waves that make up the correction, which is usually equality (i.e., Wave C = Wave A).
If you examine Chart 1, you'll see that each one of these conditions has been met, arguing that the corrective move up from 66.83 is complete at 69.89 and that the stage is now set for a selloff in wave 3 to its Fibonacci objective of 60.59.
Even though we can, with some confidence, call an end to Cotton's recent countertrend activity, we still need confirming price action. As you know, because I write about it so often, the only thing that can confirm a wave count is price action. With regard to Cotton, I believe a daily close below 68.10 would provide such confirmation and signal that wave 3 is indeed underway. Better yet, a daily close under 67.85, the extreme of the second wave b (circled) within our Double Zigzag labeling.
Because we have identified a level at which our bearish forecast will be proven correct, it is also worthwhile to identify a level at which our wave count will be proven wrong. And with our current interpretation, such an identification is simple - the extreme of wave 2 at 69.89.
BigGains !!
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