The Elliott Wave Analysis Thread

[Boggo]

Hi guys, sorry for my ignorance, I am new to the Elliot Wave thing.

With the rule for Wave 3, ie Wave 3 is usually the longest but can't be the shortest, by "shortest" we are measuring in terms of price, not time, aren't we?

So (assuming bull market here) if Wave 1 started at $2.00 and went to $3.00, then Wave 3 would have to travel at least $1.00 to be counted as a Wave 3?

Thanks,

The basic rules are... (assuming a bullish 5 wave)

Wave 2 cannot trade beyond the beginning of wave 1 ie, it cannot go below the start of wave 1.

Wave 4 cannot Close below the closing high of wave 1 ie, it can dip below but not close below the close of wave 1.

Wave 3 cannot be the shortest in price of waves 1,3, and 5.

Treat those as a starting point, next step is to recognise when wave 2 and 4 are complete once you have got these packed away.

Mike

 

[RichKid]

The basic rules are... (assuming a bullish 5 wave)

Wave 2 cannot trade beyond the beginning of wave 1 ie, it cannot go below the start of wave 1.

Wave 4 cannot Close below the closing high of wave 1 ie, it can dip below but not close below the close of wave 1.

Wave 3 cannot be the shortest in price of waves 1,3, and 5.

Treat those as a starting point, next step is to recognise when wave 2 and 4 are complete once you have got these packed away.

Mike

When I started my study of Elliott Wave I had trouble with the rule relating to W1 and W4 overlap- I still do in fact. I use the conservative formulation of the rule and consider a count to be invalid if ANY part of W4 enters the price territory of W1. Besides, if a wave sequence is strong (ie truly impulsive) there should be no room for a sordid affair between w1 and w4 as the idealized wave form does not accommodate this.

Ideally, the underlying psychology or character of w4 should really only result in a brief dip or sideways consolidation- although other deeper, prolonged corrective forms exist. I concede though that this is all theory, it's much harder to apply in practice.

I hear that certain exceptions are tolerated by some Elliotticians in some futures markets where the closing price guideline is used, as mentioned in the quote above (I understand that Elliott worked off bar charts using closing prices).

Have a look at Elliott Wave International, they have a free course you can download which explains the rules in full- they also have free videos. Just sign up for a free membership.

If there is any controversy about rules, I tend to go with Wavepicker's views or those in Frost and Prechter's classic work 'Elliott Wave Principle'.

Nick Radge has a no frills approach to EW too and I recommend that you analyze his work elsewhere on ASF. We all label charts differently so it may be worth seeking his view of the rule as well- over to you Nick if you're around.

 

[austek]

The basic rules are... (assuming a bullish 5 wave)

Wave 2 cannot trade beyond the beginning of wave 1 ie, it cannot go below the start of wave 1.

Wave 4 cannot Close below the closing high of wave 1 ie, it can dip below but not close below the close of wave 1.

Wave 3 cannot be the shortest in price of waves 1,3, and 5.

Treat those as a starting point, next step is to recognise when wave 2 and 4 are complete once you have got these packed away.

Mike

Nicely put Boggo, like the clarity of how you offer the basic rules.

The next bit, waves 2 & 4, I get a workable result estimating the end of wave 2 using fib retracement 38.2% to 50% with Metastock
And the end of wave 4 using fib 23.6% to 38.2%

This works ok for my purposes but only Intermediate waves, and I guess my question is "I would like to learn more"

Major waves 2 & 4 would probably use other fib ratios, but as I have a little difficulty counting them, I haven't persued it further as yet.

I have the EW Principle book also Dynamic Traders and would like to know what the next steps to learn are to get the best out of EW and what other things it can do to help us as traders

 

[RichKid]

There is another issue I encountered with the rule involving the prohibition against w4 entering the 'price territory' of w1.

If we have a truncated wave-v of wave 1 then the top of wave-iii of wave 1 cannot be breached. Here is a sketch of the 3 Core Rules of Elliott (attached), I find visual guides are easier to follow (even if it does involve my messy notation- apologies in advance).

I may be labouring the point here but as there are only three fundamental Rules we might as well be clear about them as these rules form the basis of your analysis.

The remaining theory about retracement levels (using fib levels), wave equality and wave targets etc are just guidelines. The 3 Core Rules take precedence. Some guidelines maybe more reliable than others (eg alternation).

Please note that EW doesn't suit everyone or every chart so don't force a count on a chart and don't force yourself to use it- there may be other forms of analysis which are a better fit for your profile. I enjoy it, so I use it. There is no point in being evangelical about a particular type of technical analysis imho, it just makes you a psychological mess when you become so attached to something in that manner. EW has really helped me integrate my technical analysis with my risk management and position sizing- that is the key imo. I'm still only just past the very basic stages of trend recognition and EW analysis so please take what I say in that context. The simpler I can make things the better.

Austek- imho, joining Elliott Wave International is a very cost effective way to take the next step, they have many world leading analysts such as Jeff Kennedy (& Bob Prechter, when he's around), various subscription packages and plenty of resources. I have no financial association with EWI but use their free resources a lot. As EW can be subjective you may find that EWI varies with Miner's and Radge's takes on EW.

PS. EWI summarises the three rules of Elliott for impulses as follows:

Wave 2 never retraces more than 100% of wave 1.
Wave 3 is never the shortest wave.
Wave 4 never enters the price territory of wave 1.

 

[Boggo]

The next bit, waves 2 & 4, I get a workable result estimating the end of wave 2 using fib retracement 38.2% to 50% with Metastock
And the end of wave 4 using fib 23.6% to 38.2%

I am opening my thoughts/procedure etc up to criticism with these posts but I think I am at that learning stage where I need to do this before moving on.

I am trying to set myself some basic rules/guidelines for Elliott Wave analysis.

It is taking me a bit more time than I thought (many reasons including work, reading too much into it and being a slow learner) to get my head around many aspects of this subject.

I have many notes, diagrams and rules etc that I am trying to condense into a simple set of guidelines that I can fit on one A4 page.
While I like to understand all aspects of the process I do not believe that you need to spend hours analysing all the macro portions.

My simple rules for a wave 2 or 4..... (assuming a bull trend)

Simple wave 2 or 4 is usually an ABC correction

Wave B should not go above the start of wave A ie, not above the high of wave 1 or 3.

Wave C should be lower than the low of wave A ie, wave C is often the length of wave A but has a lower starting point. and therefore should finish below wave A.

When the price moves above wave B the ABC is complete ie, after wave C the price continues to rise above the wave B high then the wave 3 or 5 is in progress.


On the smaller chart in the top left of Rich Kid's post, between the wave 3 and the wave 5 may be a more complex wave 4, but you will note that the moves seem to be contained between the wave A low and the wave B high.

These moves are outside my personal basic guidelines above except that the uptrend has continued after the price passed the highest high after the wave 3 high.

Re the wave 4 overlapping wave 1, my understanding is that by using the close of both this will match a line chart.
If you have a line chart and it closes just above the wave 1, now switch to a bar or candle chart you may find that the low of 4 may have overlapped the high of 1.

Like Rich Kid mentioned, Radge and Miner are two people that have a detailed knowledge of the subject, another I would add is Steve Griffiths, the developer of MTPredictor software.

All my comments above are an indication of my current understanding of the subject and may be totally wrong, as I said I too am learning and trying to simplify the process.

Mike

 

[Boggo]

Found this chart of VCR which may serve as a graphic view of my attempt at explaining a simple ABC.

Compare the length of A and C waves.

Looking at the volume on the last bar would indicate to me that there was a lack of interest yesterday.

If it does continue then its initial targets are between 82c and 89c.

I don't hold, just using the chart as an example.

Mike

 

[potato]

hi bogo, im a beginer too.
corrections are the most complex part of elliot wave. there are many variations of an ABC correction.
-wave B can be longer then wave A and can go past the start of wave A.
-wave C does not have to be lower then the low of wave A.
corrections can come in 3 forms (flat, zigzag, triangle) and within these there are many variations of each form. i think the correction you are referring to is in the zigzag form, try having a look at a few examples of triangles and flats.

 

[ithatheekret]

Found this chart of VCR which may serve as a graphic view of my attempt at explaining a simple ABC.

Compare the length of A and C waves.

Looking at the volume on the last bar would indicate to me that there was a lack of interest yesterday.

If it does continue then its initial targets are between 82c and 89c.

I don't hold, just using the chart as an example.

Mike

Good post Mike ,

I had a lot of friends get caught up in the buying mania that sent the price into $3.60 , these were predominantly day traders on TNO , I screamed the stock down , saying something like " this stock will be available at much cheaper levels , after the plunge , some were calling a spike in it to carry on after it hit $1.20 , but I called it to trade between 70-90 cents .

If you could show that chart in a wave perspective , that would make interesting discussion .

regards and best ,

Mark

 

[Boggo]

Volume behaviour keeps me away. The volume spread analysis (VSA) guys on "The Chartist" forum could have some interesting comments on this.

Longer term chart below.

Mike

 

[ithatheekret]

taa muchly .

 

[Magdoran]

I am opening my thoughts/procedure etc up to criticism with these posts but I think I am at that learning stage where I need to do this before moving on.

I am trying to set myself some basic rules/guidelines for Elliott Wave analysis.

It is taking me a bit more time than I thought (many reasons including work, reading too much into it and being a slow learner) to get my head around many aspects of this subject.

I have many notes, diagrams and rules etc that I am trying to condense into a simple set of guidelines that I can fit on one A4 page.
While I like to understand all aspects of the process I do not believe that you need to spend hours analysing all the macro portions.

My simple rules for a wave 2 or 4..... (assuming a bull trend)

Simple wave 2 or 4 is usually an ABC correction

Wave B should not go above the start of wave A ie, not above the high of wave 1 or 3.

Wave C should be lower than the low of wave A ie, wave C is often the length of wave A but has a lower starting point. and therefore should finish below wave A.

When the price moves above wave B the ABC is complete ie, after wave C the price continues to rise above the wave B high then the wave 3 or 5 is in progress.


On the smaller chart in the top left of Rich Kid's post, between the wave 3 and the wave 5 may be a more complex wave 4, but you will note that the moves seem to be contained between the wave A low and the wave B high.

These moves are outside my personal basic guidelines above except that the uptrend has continued after the price passed the highest high after the wave 3 high.

Re the wave 4 overlapping wave 1, my understanding is that by using the close of both this will match a line chart.
If you have a line chart and it closes just above the wave 1, now switch to a bar or candle chart you may find that the low of 4 may have overlapped the high of 1.

Like Rich Kid mentioned, Radge and Miner are two people that have a detailed knowledge of the subject, another I would add is Steve Griffiths, the developer of MTPredictor software.

All my comments above are an indication of my current understanding of the subject and may be totally wrong, as I said I too am learning and trying to simplify the process.

Mike

Hello Mike,

If you are serious about learning EW, go and do a member search on this site for wavepicker, and have a read of a variety of his works.

Personally, I think his work is probably the most interesting interpretation of EW on this site, in that key ideas like understanding ending diagonals, and nesting patterns is very detailed and informative.

He has also posted some very detailed charts real time in advance. I think you will find his calls quite profound.

But you be the judge. Have a look and see what you think.


Regards


Magdoran

 

[gazelle]

NAB 18th January . Hows the weather in sunny Kansas ?

 

[wavepicker]

For those interested in EW analysis who would like to exchange opinions, these are my current musings for the XAO.

ATM I have 2 counts in play, both point to the same conclusion(Ending Diagonal pattern in progress), the only difference is the TIME remaining for the pattern to complete. The Ending Diagonal pattern is characterized by the volatility and loss of momentum we have seen since July 2007 and is classed as creeping trend that can only end in 3 ways:

- A throwover above the upper converging trendline(falsebreak) to end wave 5 and then a very sharp reversal
-A throwunder below the upper converging trendline(possibly even a truncation relative to wave 3) to end the pattern and result in a sharp reversal
-A termination close to the upper converging trendline to finish wave 5.

Recently(the last 3-4 months) the USD Index has had a similar pattern in force(still underway) but in reverse to the that of XAO.

The first chart shows that we still have 2 more upward legs of the Ending Diagonal to complete, taking the market to about 7105pts approximately.
Until recently this was my preferred scenario or wave count for this market, however time cycle analysis points to only one more leg up for this bull market and as such I have an alternate wave count that better reflects the Time Cycle Analysis. The Time Cycle analysis coincides with the end of a Metonic Cycle going back as far as the Crash or 87 and is will result in the termination of multiple degrees of trend or cycles. As such the second wave count shown reflects the Time Cycle Analysis. This chart shows the market complete one final push up(wave 5) before the current bull ends. A rule in EWT is that wave 3 cannot be the shortest wave, therefore the current wave 5 in the Ending Diagonal cannot be longer than wave 3 both in time and price. Wave was 12 bars long(weekly chart) and therefore wave 5 should complete no later than 12 weeks from now(Middle Of March)

Some months back we said that the turn window of 01/10/08 to 29/03/08 would be quite significant. At this stage I am betting on the Feb/March on timezones but it could be earlier.

Hopefully Magdoran will be available to help determine some critical dates if he has found a good vibration for Pattern, TIME, and Price level to come together.

Cheers

Wavepicker

 

[macca]

Hi Wavepicker,

If we accept the rumours that there will be an interest rate rise in the first week of February, that will work in with your time frames for a downtrigger.

Especially if the latest rumour of a .5% hike is true

 

[chops_a_must]

The first chart shows that we still have 2 more upward legs of the Ending Diagonal to complete, taking the market to about 7105pts approximately.
Until recently this was my preferred scenario or wave count for this market, however time cycle analysis points to only one more leg up for this bull market and as such I have an alternate wave count that better reflects the Time Cycle Analysis. The Time Cycle analysis coincides with the end of a Metonic Cycle going back as far as the Crash or 87 and is will result in the termination of multiple degrees of trend or cycles. As such the second wave count shown reflects the Time Cycle Analysis.

Good analysis WP. I just can't see the XAO getting above 7000, it really doesn't seem feasible to me... unless we get something totally stupid happening. So... are there other counts that wouldn't see it near 7000, or would that be outside of any EW analysis?

Cheers.

 

[wavepicker]

Hi Wavepicker,

If we accept the rumours that there will be an interest rate rise in the first week of February, that will work in with your time frames for a downtrigger.

Especially if the latest rumour of a .5% hike is true

Hi Macca,

Not sure what sort of trigger would cause this if it in fact actually happens that way because we are after all dealing with probable patterns. Anything is possible.

My point in that last post was the pattern in play, the key is the pattern and all the cycles work around the pattern. For those unfimiliar with ED type EW patterns, I have attached a very similar pattern of a recent stock and the aftermarth. That is what can be expected IMO if the pattern plays out.
So it's the pattern that I look to trade not the speculation or rumour of a political statement or event etc. For investors these patterns can be a nightmare if they caught the wrong way, for swing traders they can offer a great RR trade assuming the right contingencies are planned.

Cheers

 

[wavepicker]

Good analysis WP. I just can't see the XAO getting above 7000, it really doesn't seem feasible to me... unless we get something totally stupid happening. So... are there other counts that wouldn't see it near 7000, or would that be outside of any EW analysis?

Cheers.

Good evening chops, how things with you?? Long time no hear?

I can't really anwer that question not sure to be honest. I am not really concerned with the price level as such and whether it goes over or 7000. Depending on the type of ED that plays out it may or may not. But let's look at what has just happened in the market for the 1/11/07 to 18/12/07, and that is an abc zigzag correction by the looks(unless I have the wavecount wrong and that is always a possibility)

My point was the PATTERN and the TIME analysis, they are the key, and they are what I am more confident in. This last 5th wave in the ED as mentioned in the earlier post might go over the last high or it might not. Working the Fib Ratio Analysis by the book(EW) I came up with 7105pts, but that is just a guide and not necessarily cast in stone

Cheers

 

[chops_a_must]

My point was the PATTERN and the TIME analysis, they are the key, and they are what I am more confident in. This last 5th wave in the ED as mentioned in the earlier post might go over the last high or it might not. Working the Fib Ratio Analysis by the book(EW) I came up with 7105pts, but that is just a guide and not necessarily cast in stone

Cheers

Yah. It's going to be interesting never the less, because that all time high is going to be hard to take out...

And I'm good. I hope you are as well.

 

[wavepicker]

Have just been looking into ANZ at present.

In post #49 it shown that a great shorting opportunity was at hand. Back then ANZ was trading at $31.70. We had just completed a wave 2 upward retracement and the acceleration phase of wave 3 was about start.(see first chart)

We were reminded in this thread that one must never short financial stocks as they only go up. A typical example was poster projecting the past trend (ANZ) into the future , and as such is a very poor strategy for trading the market.One must take into account all the possibilities and probabilities.

How things have changed in the last few months of the credit crunch with ANZ getting smashed by 15%.

The next chart shows that ANZ should in the coming weeks undergo it's biggest upward rally(retracement of the impulse down) since that bearish forecast was made back in October. I beleive this will coincide with the broader market rally into our major Cycle turn window of 10/01/08 to 29/03/8
(I need to establish the most probable dates in the weeks ahead)

But IMO there will be more downside for ANZ post this upward rally finishing but for the moment I am looking for longs on this one.

Cheers

 

[buggalug]

Have just been looking into ANZ at present.

In post #49 it shown that a great shorting opportunity was at hand. Back then ANZ was trading at $31.70. We had just completed a wave 2 upward retracement and the acceleration phase of wave 3 was about start.(see first chart)

We were reminded in this thread that one must never short financial stocks as they only go up. A typical example was poster projecting the past trend (ANZ) into the future , and as such is a very poor strategy for trading the market.One must take into account all the possibilities and probabilities.

How things have changed in the last few months of the credit crunch with ANZ getting smashed by 15%.

The next chart shows that ANZ should in the coming weeks undergo it's biggest upward rally(retracement of the impulse down) since that bearish forecast was made back in October. I beleive this will coincide with the broader market rally into our major Cycle turn window of 10/01/08 to 29/03/8
(I need to establish the most probable dates in the weeks ahead)

But IMO there will be more downside for ANZ post this upward rally finishing but for the moment I am looking for longs on this one.

Cheers

Hi Wavepicker,

Looks like you were bang on the money with ANZ, amazes me how often you are correct with these things!

Keep up the good work, and thanks for sharing.