Resource Sector
During the week there was some discussion about the difficulty in labelling BHP and the resources sector (XMJ).
I had previously posted my thoughts on the XMJ here --->
https://www.aussiestockforums.com/forums/showpost.php?p=389301&postcount=338
However, I no longer believe that the XMJ is currently unfolding in a wave (4) (as proposed in the above post)
CHART 1
Before I get into wave counts, the first chart below covers the XMJ bounce starting on the 21st Nov. Because it initially looks difficult to label - I try to find all the 5 wave moves first and then the 3 wave moves. When I get stuck with 'unexplainable' counts - I look for triangles and then see if there is a 5 wave move on the other side of the triangle (to complete a zig-zag).
So hopefully you'll have something similar to the chart below. I try to compartmentalize the obvious legs and not get too distracted by the rest.
CHART 2
Once this has been done, I just add the labels that represent higher and lower degrees as in the 2nd Chart (in this case large or small text). The next step is to try and understand what each wave is trying to say v's just copying down the 5 and 3 wave moves.
For example, the large B wave triangle in the larger A leg was a very good indicator that indicated an impulse move out of the triangle needed to occur. As a side note, the XMJ triangle tied very closely to the XAO double 3 that covered almost the same length of time and was discussed at length on this thread.
The next price of good info was after the large A leg - An impulse move downwards is not evident (which was suggested in the post above), but instead a double zig-zag with an intervening 'X' wave unfolded - a 3 wave move not 5 and therefore a key signal that the market is still correcting. One can now assume (with a reasonable level of safety) that this 3 wave move could be part of a larger flat correction (3-3-5). So the next short term move needs to be up in a 3 wave move before heading down in a 5 wave move to form wave B. These charts were taken on Thursday, so further upside has already occurred - and maybe a little more needs to occur. There are other interpretations - but the analysis seems logical to me and ties into where the XAO is heading.
SUMMARY
Once you can determine the most likely course of the market - you use your trading strategy for entry and exit points depending on the time scale to be traded. However, as the XMJ is correcting, it will be more difficult to trade these corrective moves v's entering at the start of a wave 3 impulse move.
If the market does not move in your favor or has invalidated your own count - you can exit as it's clear you have an incorrect count versus staying in and 'hoping' for it to turn.
As you can see, once the EW analyst labels the waves that have unfolded, then one needs to interpret what legal patterns are embedded in your chart and which pattern will most likely follow - flats (3-3-5), zig-zags (5-3-5) and triangles (3-3-3-3-3). Triangle being the best of course.
XMJ
I believe that the XMJ has completed 5 waves down from the high and is correcting. I am assuming that a flat or expanded flat could unfold and this could tie in well with the XAO that needs to complete wave (5) down and then correct back up.
Will take a look at BHP later. Enough work for Saturday night.
Cheers OWG