Wave,
Thanks for the input to the thread.
I often question myself wether EW is of any use on the ASX, simply because of the size of the market. The reason I explored its use was for forex with its huge liquidity.
Using a strategy that requires liquidity narrows the opportunity that may be found in the ASX. Is this worth pursuing if one only trades the smaller lighter markets? This may cause some anguish with some but it is worth serious research I feel.
The viability of EW and the ongoing validity of any wave count seems to me to depend upon the magnitude of the activity of the market participants remaining somewhat comparable. That is to say that the greater the probability of a small number of partipants moving the market with enough force to take it well outside the bounds of even extreme volatility ie. a large multiple of the ATR (3+???), then greater will be the probability that a chart with perfectly countable waves could become undiscernible.
In this way it's not actually the liquidity of the market that is the threat to EW being viable, but rather the probability of a small number of participants skewing the mean-sentiment (chart patterns) of other participants and creating
beyond extreme (price-relative-to-time) activity.
And it is not only the activity of a small number of forceful participants that can affect the viability of EW for a given market. Consider a global catastrophic event. eg. aliens invade, or something. Presuming the market was still operating, a subsequent run on the market by the multitude of participants could generate such extreme (price-relative-to-time) activity that wave counts would likely go out the window. Aliens invading might seem a little facetious...but what if you were trading markets in a country with an overly powerful government, or a dictator? Where the decisions of few can skew the mean-sentiment of the many wave counting is at risk.
Some will argue that all of this extreme activity is part of the actual wave counts, if only we zoom out to a count of high enough degree...but this suggests that Elliott Wave can predict things that haven't yet happened. Anyone who attempts to convince others of this are full of the proverbial. To quote Prechter and Frost...
"the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path". Notice that they said "typically", not always. Practical application of Elliott Wave is attempting to observe and sort out how human beings "typically" progress and regress a market. It does not and cannot predict.
Practical applications for trading EW with small cap securities in consideration of the above mumbo jumbo...
1. Use line charts based on close. Extremeties of large intraday price moves that formed 'tail' patterns and broke an EW rule might not appear. Your wave count could remain valid despite a single atypical event.
It's important to note however, that 'tail' patterns can have their own bullish/bearish meaning, so don't stop looking at bar/candlestick charts!
2. Realise that even when an EW count is so clear that it virtually jumps off the screen at you, there can always be an unknowable threat to any open postion. Manage risk.
3. A good wave counter may get their count correct on 80% of occasions but still win less than 50% of trades. Position size.
This is what I do. You don't have to do the same...it's just how I rationalise EW and incorporate it into my trading.
The ASX Gorilla.