One of the most complex corrective waves are the so called double combinations and they are forming either as a 4th wave type or a 2nd wave type or even an x wave type.
Like the name suggests, a double combination is formed out of two different corrective waves and they can be either a flat and a contracting triangle or a flat and a zigzag.
These two corrective waves are linked by another corrective wave that actually goes in the opposite sense when compared with the current correction and this means it goes with the previous trend. This x wave is also a corrective wave and it is in most of the cases a simple corrective wave.
Between a Flat and a Contracting Triangle
The most typical arrangement is between a flat and a contracting triangle. Actually, a double combination that ends with a contracting triangle is the one that is most common and the least common is a double combination that ends with a zigzag.
Double combinations are also being found as the entire leg of a contracting triangle, and this is happening mostly on the first leg, wave a of a contracting triangle.
Classical Double Combination on Video
The two videos that are coming with this educational series here on Binary Options Academy project are showing you a classical double combination that respects all the rules and that is showing why such patterns are so important. Before anything, it is vital for a trader to have a clear understanding how market is moving and what makes market moving. The natural laws of supply and demand are coming into place in trading as well, regardless of the financial product that is being traded, be it a currency pair or a stock or indices. If there are no buyers that market cannot move to the upside, as well as the opposite being true.
Possible Wrong Tactics
The tricky part when trading currency pairs is that sometimes people are looking at volumes offered by a specific broker in order to find out levels with strong supply and demand potential, but from my experience that is a wrong tactic for at least a couple of reason.
Firstly, the volume is referring only to the clients that broker has and not to the entire FX market. While it gives an educated guess about where buyers or sellers are stepping in, it is not referring to the whole market and this represents a major flow. When market is moving is doing that in an impulsive way or in a corrective way. But because trading is taking place during different time zones and trading sessions, the most liquid ones are bringing the impulsive moves while the less liquid ones are bringing the corrective ones.
Moreover, markets are spending overall more than sixty percent of the time in corrective waves so a clear understanding how these are forming and what are the forces that influence price in corrective waves is key. There are two types of corrections: simple and complex. Like the name suggests, a so-called double combination is having two simple corrections that are connected by another corrective wave, of the same degree, that goes in the opposite direction when compared with the main corrections.
The connecting or intervening wave has the tendency to be a simply correction on its own but it is not forbidden to be a complex one as well.
What matters for traders is the move that follow such a pattern and here are some possibilities to take into account when trading binary options: –
- every analysis should start from the time frame the analysis is made as it is mandatory to adapt the expiration date according to the time frame you’re looking at. For example, it doesn’t make any sense to trade five minutes expiries if the analysis is made on the daily chart;
- if one is identifying a five waves structure and then the move that comes after the impulsive move is a double combination, should trade options in the opposite direction as most of the times market is reversing beyond the 61.8% Fibonacci level.
Another important thing to take into account is the fact that the first correction in the double combination cannot be a triangle. This simple rule is enough to allow a trader to correctly identify a double combination. Besides all the above, it is important to consider the currency pair or the financial product that is traded.
Analyze Crosses with Corrective Waves
It is a known fact that currency pairs are grouped between majors and crosses. Between the two groups, crosses are consolidating much more than majors. Therefore, if looking for ranges and corrective waves, then it is advisable to analyze crosses rather than majors as the probability to find double or even triple combinations is greater in crosses.