ElWave BW and FX

Welcome to an Objective Elliott Wave Thread:

In this thread I will examine the Elliott Wave Structure of selected Forex Charts and attempt to determine the most likely Elliott Wave structure. I will use an objective mathematical approach. I will examine a selection of Forex Pairs and try to select the most likely count from the available alternatives. I will also discuss strategy in respect to methods of trading the Elliott Wave.

I am going to do something that you do not see often, I am going to post Elliott Wave Charts before the event.


To do this I will use three resources:

1. I will use software called “ElWave” (by Prognosis.)

2. I will attempt to identify the correct Elliott Wave counts using the methods explained by Bill Williams in his books: “Trading Chaos and “New Trading Dimensions.”

(I am in no way associated with either of the above beyond being a grateful user and reader of those respective resources.)

3. I will also use MT4 to enable discussion and analysis on the MT4 platform.


Anyone can analyze a chart after the event - but to do it before the next wave arrives is a big challenge. This study of the next wave, before it arrives, requires me to say that:

Any analysis I provided is for educational purposes only.

I will not make recommendations or predictions. What I will do is try to identify the wave count and show how it can be used. How people use it is up to them.

Therefore any trades that anyone subsequently takes are taken at their own discretion and are not in any way my responsibility.


I hope that the people that read this thread and add to the discussion do their homework. There are a lot of resources on line where you can learn about Elliott Wave, Fibonacci and Bill Williams’ methods. There are some excellent relevant threads on Forex Factory in respect to the Bill Williams’ methods that are really helpful and some great people posting good material there. There are also other FF members who post ElWave Charts.

Helpful Information:

Wave Degree Labels.

When I discuss different wave degrees use this key to identify which wave level I am referring to.

http://www.elkvalleygold.com/Forex/F...es%202%20J.jpg


Chart Indicators:

I will be using the Bill Williams’ Indicators: Alligator, Awesome Oscillator, Acceleration Oscillator and Fractals. I believe Alpari has a great introduction to the Bill Williams’ indicators and how they are used.

I will also use Stochastic 14,3,3 RSI 5 and RSI 14 and sometimes, Bollinger Bands.

Fibonacci Ratios:

You can’t talk about Elliott Wave without Fibonacci Numbers. Fibonacci is a topic all in itself. Again, I urge people to do their homework. I do not plan on answering elementary questions over and over again.

Semi-log Chart Scaling:

My ElWave Software can operate in either linear or semi-log scaling. MT4 does not have a semi-log scaling option. I find that semi-log scaling is an important facet of counting Elliott Waves correctly. In some cases it may be apparent that the chart scaling that I use is different to MT4 charts in this respect. I may or may not redo a count in linear scale but my preference is to do the calculations in semi-log format.

Again, I ask readers to do their homework and come to the forum with the appropriate tools. Google semi-log charts and you will get about 309,000 hits. Read a few of them and you will have the required understanding to at least ask pertinent questions.

Requests:

I will seriously study one or more pairs and post useful charts as regularly as I can.

I am not going to do charts by request, nor am I going to venture down into the lower time frames very often.

Motivation:

I have been an educator for most of my professional life. I find the process of teaching very rewarding. I enjoy the interaction between persons who genuinely want to learn and the intellectual rewards that the exchange of ideas generates. I have traded for many years, stocks, options, dabbled in futures and more recently in Forex, but I will always be a student of the Elliott Wave Principle.

I hope to always learn from others.

Forex:

I am relatively new to Forex and I find it is a very challenging arena. I also find it fascinating and appreciate the wisdom, experience and the willingness to share ideas that the Forex Factory Community represents.


Let’s look at some charts ……………..

Okay, step up to the plate folks and let's make this thread as useful as we can. If you aren't an Elliott Wave person you are welcome to stop by and study what we do here all I ask is that you bring an open mind. I will start off my charts with the weekly EURUSD.

(See first post for degree label color code.)

The Cycle wave I and Primary wave 1 are as labeled by ElWave.

Inside the primary wave 1, we see a typical, matching 3, 4, 5 divergence in the AO. We had a nice pullback to 38% for wave (4) ...the most common level for a forth wave.

Wave 2 should go back to the 62/76 area, but with the weekly AC showing two green bars and an internal ABC structure, this is probably the correct label. It would be confirmed with a break above 1.5143 at (b).

Of course it will several weeks before we know that for sure.

This chart gives us a ballpark to begin our Elliott Wave analysis of the EURUSD, a daily chart of the EURUSD will be next.

Meantime consider this:

Wave three usually heads to a 1.618 Fibonacci Ratio of the distance wave one takes added to the bottom at wave two. That would put this pair at 2.4518 and make for some very interesting times ahead.

EURUSD Weekly EW Chart Oct 4th 2010.


http://www.elkvalleygold.com/Forex/F...o%20Weekly.jpg

Generally a wave two corrects to the 62% 76% area. I think of this as the magic zone as it hapopens so often. Wave two can correct all the way back to the origin iof wave one. When ELWAVE labels a wave two at the 50% level I get suspicious and that is when I check to see where the magic zone lies and what another time frame might reveal.

Next, I ran a daily ELWAVE count and selected the count that agreed that we had a wave one top. The degree label has changed from primary to intermediate, as it sometimes does when you change time from one period to another. (I am not convinced that is a wave one in any degree anyhow but we will leave that for later.)

What I am interested in now, is how the additional detail provided by a daily chart and if it will help us interpret the wave structure. To help I have placed the weekly chart and the daily chart next to each other.

Now I like a wave two correction to head for the magic zone, 62 to 76% ...where we lurk and wait to catch a wave three.

Looking back at the weekly chart we see the magic zone lies between 0.62/1.1210 and 0.76/1.0069. Looking at the daily chart we see a corrective pattern that suggests that the price could fall to 1.0569.
which is right in the weekly chart's magic zone.

We also see a Fib target of 0.62/1.3895 for wave b of Y in the daily chart.

So if the market turns down at b and later takes out a, that would tend to get us very interested in a revised weekly count with a possible bottom in the weekly wave two magic zone. A weekly wave three would be a joy.

First, we have to see what the EW pattern begins to tell us as it evolves.

I seldom jump into a chart and instantly know where the wave structure is taking things. I have to approach each analysis like this and attempt to get in sync. EW presents a set of possible maps and it is up to us to fit the maps to the chart until we have one we can follow for at least a while. If the map says look out for a landmark then we watch out for it and see if shows up. If it does we watch for the next one, ever mindful that at any point a landmark may show up that is not on our map and we have to sort through the maps again to find one where it is shown.

As we apply the different maps we will begin to figure out where we are and get to the point where we can start down the side streets with confidence. Next we will look at the indicators and see what they tell us. Meantime watch the b level at 1.3895. It will give us the next clue.

http://www.elkvalleygold.com/Forex/F...eeklyDaily.jpg

Appreciate the direction and thought of Going into EW more in depth.. hopefully this will help me decide on acquiring a copy of Elwave soon.

Paddy

Thanks Paddy.

Elwave is a powerful tool for sure. Like any tool it takes practice and has a learning curve. Since you are the first to post back you win the prize... a free EW count on the pair of your choice if/when you need one. Just let me know.

Now, back to the EURUSD. This time I have done an ElWAVE count on the hourly chart.

Please not that the chart is horizontally compressed and some detail is lost as a result.

There are some very interesting things in this count that we can learn from. First of all it has gone past the 1.3895 we were monitoring on the weekly chart. Second, the internal strucure of the one hour chart has revealed some great places to trade from, two fractals marked with horizontal green lines. (I didn't trade either of these as I am just working my way into the count and also did not have a one hour chart count prepared to trade from when they occurred. We will get to doing that as this evolves.)

The first fractal is matched with a divergence on the AO, as shown, and a nice 3,4,5 count. An initial order placed just above the i fractal is not hit and we head into a corrective wave. Moving the order down to just above the b label fractal is a good strategy, then a slightly lower fractal forms at 1 that is soon taken out by the market. We go long at that point, climbing aboard a wave 3. Again we see a wave ii with a 50% correction, so this may be telling us that the EURUSD is in a 50% correction mode and we should accept that - but always keep an eye open for 62% to 76% corrections anyway.

Inside the first little wave there might be a hidden wave that we would have to go to a lower time frame to determine. I have the yellow tag pointing to it, but I will not really worry about that too much. (Analyzing things down to the minute is laborious and not what I want to do here, nor is it necessary.)

So what is the strategy now? If you were using the BW counting method you would have determined that the market is in a third wave and ELWAVE confirms this and also tells you the Fibonacci levels to watch.

One of things we have to be careful of is that the ELWAVE software labels the final bar as 3 but that does not mean it is 3 until we form a fractal, land on a nice Fib level and satisfy an internal wave count of a lesser degree.

BTW, an entry from the lower green horizontal line would be up ...well I will let you count the many, many pips.

Anyhow the next thing to watch for is for a wave three top with a divergence on the AO, a retreat on the AO to at least zero to confirm the fourth wave at the 38% fib level once the top is confirmed. THen we will stalk wave 5.

We are starting to get the map figured out and look for the landmarks we should see if we have the correct map.

http://www.elkvalleygold.com/Forex/F...H1Oct62010.jpg

Well I missed the prize but I wanted to let you know I appreciate what you're doing here and will follow with interest. if I can participate at all I will, but for the time being I'm just soaking it in.

Thanks,

Richard

Awesome, awesome, awesome. Thank you, thank you, thank you.

Phenomenal thread!

[quote=Wab;4078526]

Now, back to the EURUSD. This time I have done an ElWAVE count on the hourly chart. [b]

**This is the smallest chart I have an interest in.. I usually make my entries on a 4H and use the 1h, D1 W1 to confirm when to enter.


So what is the strategy now? If you were using the BW counting method you would have determined that the market is in a third wave and ELWAVE confirms this and also tells you the Fibonacci levels to watch.

**Being a new student to BW and having just read his chaos books a couple of times I find that I need further understanding of Wave counting. As such I am highly interested in the education you can provide here in this thread.

**I have a live account with about 20k in it.. been trading for about 2 years. I lost 1/2 my account before I smartened up and read Chaos. I have gained all my losses back and am a little on the positive side. Using Wave counts as a further confirmation of entry/exit is required to make more green, I hope I can supplement my education.

BTW, an entry from the lower green horizontal line would be up ...well I will let you count the many, many pips.

**about 1080 pips.. to bad I was chicken.

Anyhow the next thing to watch for is for a wave three top with a divergence on the AO, a retreat on the AO to at least zero to confirm the fourth wave at the 38% fib level once the top is confirmed.

**I use the attached image to remind myself of how to use divergence.

Thanks all, for the encouragement.

I am going pretty hard here with lots of information for you. Once I give you a good basis for how I do this stuff I will back off to the daily data or this will be too time consuming for me to maintain.

As I said earlier, I have no desire to do EW on a minute by minute basis.

Today I will attempt to show you some of the hard work that goes with EW analysis. (Maybe it is just me that makes it hard.)

Let's have a look at what ELWAVE has been telling us on the hourly count. we were watching that Fib level form the daily chart and counting the internal hourly waves and monitoring the AO to see where the top of wave 3 might arrive. Well have met all of those conditions ...sometimes it hits a fib level exactly, other times it is like hand grenades, close enough.

Now one of the issues you have to get used to with ELWAVE is that is compresses the chart in order to fit the counts in.

Chart one is compressed and I would like to draw your attention to a caution that ELWAVE issues about the count it displays under the guidelines area. The wave 4 label is likely premature. (The software often labels that last bar and we have to treat that with caution until it is confirmed.) 4 has not corrected far enough to the Fib target of 38% preferred or the 24% required. So we must treat the wave 4 label with suspicion for now.

We can zoom in, check it further. and see how the AO interacts applying some BW ideas. We do that in the detail chart.



http://www.elkvalleygold.com/Forex/F...RUSDH1Oct8.jpg

Detail Chart:

In this chart I went back to wave ii and added some Fib targets. What I am doing is looking for clusters. When two or more Fib levels group close together in a cluster, that tends to be a significant level to watch. Lo and behold, the 1.3500 38% correction level for 4 is practically the same as the 0.62 1.3400 level calculated form wave ii.

We will keep an eye on that cluster level.

Now we also expect wave two and four to alternate in terms of complexity. Wave 2 was a simple zigzag so I would expect to see 4 more complex. If the price drops below the present wave 4 label that would confirm all of the above suspicions.

A couple of other things: Draw a price trend line on the fractals and monitor it. Trend line breaks are good at catching a wave 5 breakout from wave four.
Draw a matching trend line on the RSI14 it usually breaks out just before the one on the price line.

Finally, let's look at the Bill Williams AO. We have the bearish divergence expected with a wave three and a retreat to at least zero. So far it all fits nicely, except for the caution about the shallow wave 4 label. The market may go lower and force us to re-label that.

A trend line break, a RSI 14 trend line break or a break above the wave 3 label fractal will be our next landmarks in our stalking of wave five. Of all the things to watch the wave 3 label is the more important one, while we try to figure out wave four for sure.

Once we get any of these happening we can start to look for the Fib levels for the end of five and plan accordingly.

Kinda fun isn't it?


http://www.elkvalleygold.com/Forex/F...%20Oct%208.jpg

This has been immensely helpful to me. I always knew there was something to EW theory but was never able to put it together. Suddenly it seems to be clearing up for me. Many thanks Wab.

I do have one request. I'm not able to view the charts you put up earlier and as best I can tell it's because they've expired. Is there a way I can retrieve them or perhaps you can post them in such a way so that they don't expire, or at least so quickly?

If this is a problem on my end, and/or if someone has a suggestion please send it along.


Thanks for everything,

Richard

The problem is on my end. I will see about fixing it.

I think that has fixed the problem. I changed the directory on my web page, not realizing that FF does not host the charts once I have linked to them. I need to leave them on my server. All a learning process.

Paddy there is a good article on hidden divergence at:

http://www.getfreeebooks.com/wp-cont...Divergence.pdf

(Am I allowed to link to things like that?)

There also used to be another good article on the Ensign Software site but it is no longer there. I may have a copy of it on my old computer, if I do I will forward it to you.

I must confess that I do not recognize hidden divergence as readily as I should.
It is one more useful tool.

[quote=Wab;4085627]Paddy there is a good article on hidden divergence at:

http://www.getfreeebooks.com/wp-cont...Divergence.pdf

(Am I allowed to link to things like that?)



That is a great link, I have read the article and it is worth pursuing. I have tried to simplify things for myself and find I overlook Divergence more than I should.

The hourly chart has made up its mind and gives us a trade as the price takes out the fractal we have labeled as wave 3. ELWAVE cautions us that several guidelines have not been not been met but price always trumps theory.

Check the guideline that tells us to expect acceleration if this really is such a small fourth wave.

Now, we have the Fib levels to watch for the end of wave 5. Normally a wave three goes to at least the 1.62 Fib ratio and the one to watch now is the minute wave iii of one higher degree. Monitor the Fib levels for wave 5 as it moves up. One of them will be at the end of a subminuette five wave sequence. We should also find another divergence in the AO as the count completes the pattern. Probably in a lower time frame.

Note the nice divergence in the AO - which actually went below zero as it should in a wave four. (Chart compression in ELWAVE makes this hard to see unless you zoom in, but you can check it in MT4.)

Enjoy wave 5. Monitor the Fibonacci levels and have fun.
http://www.elkvalleygold.com/Forex/F...20Oct%2013.jpg

Here is the possible map for the next while:

Not much to say here. The targets are shown and a likely path is mapped.

Elliot Wave gives us a good map and a likely set of Fib ratios to watch for a top. I like to exit on wave three tops and stay out of the wave four.

BW says to enter (and add on) at the up fractals as the price breaks above them and to move the the stop to just below the prior down fractals.

The AO and AC are green again and we can expect some nice action ahead.

Always keep that stop in place though... nothing is written in stone in any market. Play it safe and we will talk about stop strategy in future posts.

Go wave three!


http://www.elkvalleygold.com/Forex/F...20Oct%2014.jpg

Go wave three!

So the questions lies in what do you use to get the timeline for the target?

Paddy

Here is an update of the H1 EURUSD chart:

Check the Fibonacci ratios which, apart from some spikes, are pretty nice.
Also note the next 1.62 target at 1.4058, if we have indeed bottomed here.

With the AO and AC both green the odds are good.

I will try to answer the question about timing when I get some (time that is.)

http://www.elkvalleygold.com/Forex/F...20%20OCT18.jpg

In our search for wave 4 we had to look for the Fib level that was going to work. Most often this is 38% but in this particular case the market decided to bounce off 24% after an expanded correction.

My take on this is that the impulse wave has to pause to correct, however the forces making it move ahead are so strong that they stretch the corrective wave out of shape into the direction of the dominant move. So we have a distorted wave four, like the one shown in the chart, that only corrects 24%.


http://www.elkvalleygold.com/Forex/F...USDH1Oct20.jpg

I have zoomed in to show the detail inside this messy distorted correction.

Of course, if we stay out of the lower time frames then we avoid worrying about all the small internal waves.

http://www.elkvalleygold.com/Forex/F...0%20Detail.jpg

Bill Williams strategy is to trade on the break out from a fractal. Fractals of course are the places where we place Elliott Wave labels. However not all fractals are suitable places to trade from, so we look for the ones that are strategically located ...preferably ones that let us get in on a third wave with an nice 1.62 Fibonacci target.

Now there are no guarantees in trading so we use the BW strategy of placing an order just above our fractal of choice (or just below if you are going short) and letting the market decide. The Holy Grail is wanting what the market wants.

Let's look at the chart we have been following:

I have placed two green horizontal lines on the key fractals. If we break above the upper one at 1.3972, we have a very good chance at a run to the 1.62 target at 1.4428. That would be a nice move of 0.0456 and it should also be fairly fast as we are on the H1 chart.

On the way to 1.62 we should carefully monitor the other Fibonacci levels shown for signs of exhaustion, five internal waves completed etc. There is no guarantee it will go to the 1.62 level though a wave three often does at least that much.

The lower green line shows the fractal below which the price should not go or it violates our wave count. It is usually two fractals back and this one is.

This how I like to plan a trade:

I follow the wave count until it gets to a point where it has to go one way or the other and a large enough target is there to make it worth while. Then I wait for the market to take me in as it passes my fractal of choice. However, if it passes the fractal where the count is proven wrong and tells me that idea is not going to work I am not in and I will rework the EW until I find another high possibility set of fractals.

It is important to note that I am not taking sides on this. I have a plan to trade but the market decides whether I take that trade or not.

Want what the market wants.

I would really like the market to zoom to the 1.62 level but I am not in the prediction business. The market will do what it will. If I have the correct EW count and my order is sitting there ready to enter as it breaks out. That is as good as it gets. I will have a high probability trade with a good potential profit target.

How will I know if I am correct beyond that?

Well a wave three is fast, it often opens with a gap. the AO will be very strong and form a new high that will correspond with the internal wave 3 of this wave three.

Watch the AO. You may want to go to a lower time frame to count the internal waves and identify the bearish divergence that tells you the end of the move is near. In an ideal world that will start ot happen as we get near the 1.62 target.


Note that the key levels I have shown may vary on your charts as the data differs slightly from one broker to another.

Again, I am not making any recommendations, merely explaining what I do and how I use the EW and BW ideas.

It will be interesting to see how this works out.


http://www.elkvalleygold.com/Forex/F...20Oct%2022.jpg