A double combination is ones of the most complex types of corrective wave, forming as either a 2nd wave or 4th wave type or sometimes, even as an X wave. As the name implies, the formation of a double combination consists of two different corrective waves – either a flat together with a contracting triangle, or a flat together with a zigzag. The two correctives waves will be linked with another corrective wave which goes in the opposite direction of the current correction and therefore goes with the prior trend. This X wave will also be a corrective wave, and it will usually be a simple corrective type. Typically, the double combination will be made up of a contracting triangle and a flat, with the most common type of all being a double combination ending with a contracting triangle. The least common formation of a double combination is one which ends with a zigzag. A double combination may also be the whole leg of a contracting triangle, usually on its first leg.
Volumes and Double Combinations
Before trading a double combination, it is important for traders to be aware of the way in which the market is moving and what is causing its movement. Supply and demand comes into play when trading any financial product, whether it is indices or a currency pair – without buyers, the market will never be able to move to the upside, and the opposite also holds true. When trading, some traders make the mistake of looking at the volumes a specific broker offers in order to identify the levels with a strong potential for supply and demand. However this is not a good tactic. This is because the volume from a single broker only refers to that broker’s clients, and not the market as a whole. Although it is possible to obtain an education guess about the places where sellers or buyers are entering into trades, it does not give the entire picture of the market overall and this is a major flaw. As trading takes place in different trading sessions and time zones, the most liquid ones bring impulsive moves, while less liquid ones will bring corrective ones.
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How to Trade Double Combinations
The market spends over 60% of its time in corrective waves, and therefore, it is important to understand how these form and which forces influence the price in corrective waves. There are both complex and simple corrections, with a double combination being made up of 2 simple corrections connected with another corrective wave in the same degree to the opposite direction. Although this intervening wave is usually a simple correction on its own, it can sometimes be a complex one.
When trading double combinations, it is important to bear the following in mind:
Each analysis should begin from the time frame on which the analysis is made as the expiry date must be adapted according to the time frame being used. If a five wave structure is identified, with the move following an impulsive move being a double combination, a trader should execute options in the opposing direction, as usually the market will reverse beyond the golden ratio of the 61.8% Fibonacci level. It is also important to bear in mind that the first correction of a double combination can never be a triangle. This is enough to enable the trade to make a correct identification of a double combination. When a trader can identify a double combination correctly, they are then able to use this information to inform their trades and generate a good profit.
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- Genetic optimization of adaptive trading agents for double-auction markets. Cliff, D. (1998, March).In Computational Intelligence for Financial Engineering (CIFEr), 1998. Proceedings of the IEEE/IAFE/INFORMS 1998 Conference on (pp. 252-258). IEEE.
- Using evolutionary game-theory to analyse the performance of trading strategies in a continuous double auction market. Cai, K., Niu, J. and Parsons, S., 2008. In Adaptive Agents and Multi-Agent Systems III. Adaptation and Multi-Agent Learning (pp. 44-59). Springer Berlin Heidelberg.