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Elliott Wave Trading

  • #6,841
  • Jul 16, 2014 9:01pm Jul 16, 2014 9:01pm
The Gold! Count
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  • #6,842
  • Jul 17, 2014 1:00am Jul 17, 2014 1:00am
Excerpt from Investopedia article regarding Elliott Wave
http://www.investopedia.com/universi...liottwave4.asp

Summary of the below tedious reading: Elliott wave is statistically proven to work, only on liquid securities and markets. which is 35% of stocks. and some other markets, forex!!!

Putting Elliott to the Test
In 1994, a small team from Perth led by Rich Swannell began designing Elliott Wave computer programs for traders. Swannell was a programmer first and trader second. Very few in the world of trading are good at both.

During the early years, the team consulted with Elliott veterans, conducted intense research, and developed what Swannell claims was the world's first comprehensive software program designed to analyze price data using the rules and guidelines of Elliott's theory. The problem with the software was that it was based on observations and not an exhaustive statistical analysis of wave reliability. And, while results from the software were respectable, without probabilities the trader was still trading blind. How could a way be found to overcome this weakness?

The team came up with a novel solution. Swannell developed a screen saver in 2001 that would work in the background on the computers of more than three thousand volunteers. While not being used by their owners, these machines would be scanning a universe of stocks, commodities and indexes to search for and analyze Elliott Wave patterns. The goal was to determine once and for all which patterns worked, which did not and even whether the Elliott Wave theory itself had sufficient merit to trade it with confidence. It was all based on mathematical probabilities.

After eighteen months and hundreds of thousands of hours of computer time, the team had enough data to start analyzing it. For those interested in more details, Swannell wrote a book about the experience, "Elite Trader's Secrets: Market Forecasting With The New Elliot Wave System" (2003); it includes a good analysis of Elliott patterns. Here is a summary of what they found:

 

  1. Not only did the Elliott Wave theory prove to be statistically sound, the research was able to generate the probabilities of a forecast being correct. In other words, the trader could now know the chances of a wave pattern and the resulting forecast with a low margin of error (statistical significance).
  2. The most common Elliott Wave patterns were often significantly different in both shape and frequency than the previous conceptions of them. Some patterns that were previously believed to be reliable did not work often enough to be used with any degree of confidence.
  3. The team confirmed Murray Ruggiero's finding that a correct wave count is not the most important factor in trading. Even with the help of a good program, all Elliott forecasts are, at best, an educated guess: a trader can never be certain because there is always a larger pattern that cannot be included in the analysis unless he or she goes back to the beginning of time. Swannell's team found that since many alternate counts result in similar forecasts, this problem of possible inaccuracy is not as critical as many previously thought. As long as a count is arrived at logically, adheres to the rules and is confirmed over various time periods, it doesn't matter what the larger degree (next largest wave pattern) is. In Swannell's findings, the most probable scenarios gave exactly or at least very similar forecasted results. This finding is crucial to a trader's success and means that, as Ruggiero says, the count is of less importance than the penalty for being wrong, which is the loss on the trade.
  4. By performing forecasts in various time frames, the team separated the issues that worked from those that didn't. Forecasts for those that exhibited no consensus over various time periods were deemed unreliable (see our example below for a more detailed explanation). The probability for failure in most cases was greater than the probability for success, so why take the chance?


Of the thousands of equities, indexes and commodities tested, Swannell's team found that in about 65% of the cases, Elliott Wave theory proved too unreliable to be used to trade with any degree of confidence. In other words, using the theory to trade the instruments included in this 65% would prove a losing proposition. It means that traders should limit their focus to the 35% that proved to be viable trading candidates.

But why did only about one-third of the candidates work using Elliott? It has to do with the basis of the Elliott principle, which quantifies market crowd behavior. Elliott Wave theory works best in equities that (1) have lots of volume (liquidity) and (2) move according to key forces of fear and greed on the part of many participants. When a security is not prone to this crowd behavior and is controlled instead by a few strong hands, Elliott patterns begin to break down. Issues traded by a few are more subject to manipulation and control and, therefore, are more difficult to forecast.

Elliott warned us that his theory worked best on indexes and very liquid securities, so Swannell's finding was not all that surprising. But now the notion was proven and quantified and a list of trading candidates was identified. In the process, a large amount of subjectivity and uncertainty was removed. All this information was now stored and available in a large database for immediate computer reference.

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  • #6,843
  • Jul 17, 2014 2:05am Jul 17, 2014 2:05am
Quoting FXBeppie
USD/JPY might be ready for a last push up. Because I just posted this on my blog I will keep it short. The 10 yr and USD/JPY appear to be ready to jump out of the triangles they are in. A nice target for this wave 5 would be the 1990 trendline visible on the monthly. Charts will tell it all. {image} {image} {image} {image}
There is a problem with those triangles. The Wave A in a triangle MUST be a SINGLE zigzag. Neither of them satisfied that condition. There are a lot of consolidations that look like triangles but they are not. Pattern-wise you may wish to use them for projecting triangle targets but for wave counts it is incorrect...

BTW, for everyone's information, this week are the 24 & 48 week cycle lows...
No I haven't got the wave structure wrong! I've corrected it!
  • #6,844
  • Jul 17, 2014 5:25am Jul 17, 2014 5:25am
Quoting Me@Home
I hope this is the right side! {image}
Very interesting chart. Is AUDUSD going up or down from here? Like to get your view.
Elliott Wave for optimum entry, exit and risk management of trades
  • #6,845
  • Jul 17, 2014 6:01am Jul 17, 2014 6:01am
Quoting shahidfx
Excerpt from Investopedia article regarding Elliott Wave http://www.investopedia.com/universi...liottwave4.asp Summary of the below tedious reading: Elliott wave is statistically proven to work, only on liquid securities and markets. which is 35% of stocks. and some other markets, forex!!!
Hi Shahid, I can understand the scepticism with regards to Elliott. Years ago I was even kicked off the Moneytec forums because I attacked Elliott traders telling them they lived in a fantasy world and EWT was completely subjective and nonsense.

How embarrassing because later on reality kicked in and I had to do a 180.

I'm trading for 10 years full-time and buried Elliott 4 times in the 5 first years of my trading. Only to come back to Elliott because there is nothing better at defining risk and giving direction. It's a complete framework and you should use every aspect of it. EW channels, fibs, counting, all kind of corrective patterns, waves of different degrees etcetera. If everything comes together you have found yourself a high probability trade, with low risk and potentially high reward.

You need thousands of hours of screen-time to get a grip at it. But most people don't like that and go back to Woodies CCI or some kind of a MA cross which works beautiful in a trending market but then they have to give it all back (and more !) in a ranging market (Wave 4 or B, WE know).
  • #6,846
  • Edited 7:02am Jul 17, 2014 6:15am | Edited 7:02am
Quoting WaylDz
{quote} what do you think about this counting ? {image}
I think it's great, thought about that one as well, but personally I look at correlation as well. If this WXY materializes then it still points to a stab higher later on and there will be no breakout of this larger triangle (if you see it as one).

Personally I would wait for the pop and then come back to the upper bound of this triangle, so if your scenario unfolds there would be no trade according to this setup.
  • #6,847
  • Jul 17, 2014 7:01am Jul 17, 2014 7:01am
Quoting Ian Copsey
{quote} There is a problem with those triangles. The Wave A in a triangle MUST be a SINGLE zigzag. Neither of them satisfied that condition. There are a lot of consolidations that look like triangles but they are not. Pattern-wise you may wish to use them for projecting triangle targets but for wave counts it is incorrect... BTW, for everyone's information, this week are the 24 & 48 week cycle lows...
Hi Ian, I appreciate your comment. Well yes, i would label Wave A in the second triangle as a double zigzag. But quite frankly, I've never heard of your assumption that Wave A in a triangle must be a single zigzag. Because you stated this quite categorically in my view I dove into some books I have here, but nothing found yet which points in this correction. But I found a couple of examples from Prechter though where ALL(!) 5 waves of a valid triangle(a/b/c/d/e) (according to this Robert of course) are double zigzags.

No criticism intended and I would welcome a link which underpins this because now I want to be sure about this.
  • #6,848
  • Jul 17, 2014 8:01am Jul 17, 2014 8:01am
Quoting skyhok
{quote} Very interesting chart. Is AUDUSD going up or down from here? Like to get your view.
Hi skyhok, I'm a weaver learner, about a 6 month ago I have started to trading with this method...
If I have right count the waves, I think that this cross will move down to conclude the b13 wave on 0.9250
  • #6,849
  • Jul 17, 2014 8:15am Jul 17, 2014 8:15am
Quoting FXBeppie
{quote} Hi Ian, I appreciate your comment. Well yes, i would label Wave A in the second triangle as a double zigzag. But quite frankly, I've never heard of your assumption that Wave A in a triangle must be a single zigzag. Because you stated this quite categorically in my view I dove into some books I have here, but nothing found yet which points in this correction. But I found a couple of examples from Prechter though where ALL(!) 5 waves of a valid triangle(a/b/c/d/e) (according to this Robert of course) are double zigzags. No criticism intended...
If it walks like a triangle, quacks like a triangle, looks like a triangle, it must be a triangle. I prefer WayIDz's scenario right now but usd/jpy will ( after a shallow pulll back) go up from here regardless.
  • #6,850
  • Jul 17, 2014 8:18am Jul 17, 2014 8:18am
Quoting skyhok
{quote} Very interesting chart. Is AUDUSD going up or down from here? Like to get your view.
aud/usd will go down again from 94 where it will hit the trend line it broke 2 days ago.
  • #6,851
  • Jul 17, 2014 8:26am Jul 17, 2014 8:26am
Quoting Molby
{quote} aud/usd will go down again from 94 where it will hit the trend line it broke 2 days ago.
Thank you.
  • #6,852
  • Jul 17, 2014 8:32am Jul 17, 2014 8:32am
On E/U the prices will grow till 1.3574 (or so) to form the 4334 wave. I have a sell limit at that price, to surf the 4335 wave 50pips below... (I hope)

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  • #6,853
  • Jul 17, 2014 10:20am Jul 17, 2014 10:20am
Quoting Me@Home
{quote} Hi skyhok, I'm a weaver learner, about a 6 month ago I have started to trading with this method... If I have right count the waves, I think that this cross will move down to conclude the b13 wave on 0.9250
Thank you Me@Home and Molby for the view on AUDUSD.
Elliott Wave for optimum entry, exit and risk management of trades
  • #6,854
  • Jul 17, 2014 10:23am Jul 17, 2014 10:23am
Quoting FXBeppie
{quote} Hi Ian, I appreciate your comment. Well yes, i would label Wave A in the second triangle as a double zigzag. But quite frankly, I've never heard of your assumption that Wave A in a triangle must be a single zigzag. Because you stated this quite categorically in my view I dove into some books I have here, but nothing found yet which points in this correction. But I found a couple of examples from Prechter though where ALL(!) 5 waves of a valid triangle(a/b/c/d/e) (according to this Robert of course) are double zigzags. No criticism intended...
FXBeppie

In December 1992 I visited the EWI office. At that time they categorically told me that the Wave A of a triangle MUST be a single Zigzag. I have conformed this in John Murphy's Technical Analysis of the Futures Markets page 389 which was a reference to the Frost and Prechter book which Robert Prechter gave to me.

Prechter may have decided that he felt that other combo's can be used. However, I can very much confirm that that is NOT the case. I have NEVER seen a valid triangle that did not have a single zigzag.
No I haven't got the wave structure wrong! I've corrected it!
  • #6,855
  • Jul 17, 2014 1:06pm Jul 17, 2014 1:06pm
Quoting Ian Copsey
{quote} FXBeppie In December 1992 I visited the EWI office. At that time they categorically told me that the Wave A of a triangle MUST be a single Zigzag. I have conformed this in John Murphy's Technical Analysis of the Futures Markets page 389 which was a reference to the Frost and Prechter book which Robert Prechter gave to me. Prechter may have decided that he felt that other combo's can be used. However, I can very much confirm that that is NOT the case. I have NEVER seen a valid triangle that did not have a single zigzag.
I take your word for it Ian, and I'm going to keep an eye on this. Just noticed you have a truckload of experience in applying this theory and even have written books about it. So when you see a flaw/blunder don't hesitate to "shoot" because these "little" things (which actually are big things) can make all the difference.

And also, the second triangle is rather a descending triangle so I'm going with WaysID's count for now. Which suggests first more corrective downside, then a rally and probably new highs. But let's not jump the gun, cheers.
  • #6,856
  • Jul 17, 2014 1:13pm Jul 17, 2014 1:13pm
GBPJPY is breaking back down through channel line on the Wave C of the larger irregular correction.
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Elliott Wave for optimum entry, exit and risk management of trades
  • #6,857
  • Jul 17, 2014 1:37pm Jul 17, 2014 1:37pm
EURJPY is already way down on it's Wave C.
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Elliott Wave for optimum entry, exit and risk management of trades
  • #6,858
  • Jul 17, 2014 1:53pm Jul 17, 2014 1:53pm
CHFJPY is in consolidation before the push down. While the impulse waves down in both EURJPY and CHFJPY confirmed the completion of wave Bs in each case.
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Elliott Wave for optimum entry, exit and risk management of trades
  • #6,859
  • Jul 17, 2014 1:59pm Jul 17, 2014 1:59pm
The chart below shows an Elliott Wave analysis on the daily chart

http://www.dukascopy.com/imageserver...2/image570.jpgThe above chart shows the second leg up in the pair on the daily chart. The starting point for this wave is 1.2758. We can see the (A), (B), (C) structure taking form and ending at 1.3967. For ease of viewing, the 3 wave move has been marked by the green dotted line. The wave indicates the high in place at 1.3967 to have occurred on March 13.

The marginal peak above the 1.3967 on May 8 at 1.3993, is consider to be part of an irregular expanded flat correction which has finished at 1.3503.

At this point as the flat correction has finished, we can either resume the uptrend or continue lower for the formation to turn into a double correction.

http://www.dukascopy.com/imageserver...2/image393.jpgFigure 3.2 - Retracement levels and targets
So far we have retraced to the 38.2% Fib level. This is a quite shallow retracement reserved for only the most bullish scenarios. Although the there is no guarantee a second leg could emerge to take the pair lower, the probability is favored.

At this point, we look for the completion of (B) to initiate the next wave to the downside, wave (C). The targets for wave (C) at this moment will be the 61.8% retracement, which comes in at 1.3218.

http://www.dukascopy.com/imageserver...2/image863.jpgFigure 3.3 - EURUSD Daily preferred path

The above chart indicates the most preferred wave structured. At the present moment we can already see (B) subdividing into a three wave structure as marked on the chart. The 61.8% retracement would give symmetry of the first leg up in the (B) wave and is a highly respected Fib level.

http://www.dukascopy.com/imageserver...2/image206.jpg
Figure 3.4 - EURUSD Daily 3800/3810 Resistance Area

Aside from a 61.8%, the above chart clearly shows the significance of the 3800/3810 area. Giving more conviction for the completion of the (B) wave in that area.

The daily wave count has remained unchanged since published to my Dukascopy blog on April 16. Targets at that time was the 50% retracement at 1.3361 which is the only aspect of the view that has been changed. However, Elliott Wave is quite subjective, wave counts can change, and can differ from one analyst to another.

Conclusion

The Technical outlook supports a temporary bottom with a Wave count indicating an irregular expanded flat structure has completed. The Wave structure calls for a connector wave (B wave) of bullishness before the next leg of downside. The current retracement is quite shallow supporting a second leg to the downside.

Alternate scenario's

  1. The wave count can potentially show the (B) as completed, with (C) on it's way. The retracement has been shallow but with the bearish nature of the pair, this view cannot be ruled out. A break of 1.3525 (88.8% of 3503 to 3700) would confirm that the (C) wave has begun
  2. A retest of the 1.3525 area can setup a flat (B) wave to end at the 50% retracement at 1.373

s
  • #6,860
  • Edited 8:04pm Jul 17, 2014 7:47pm | Edited 8:04pm
Quoting shahidfx
The chart below shows an Elliott Wave analysis on the daily chart {image}The above chart shows the second leg up in the pair on the daily chart. The starting point for this wave is 1.2758. We can see the (A), (B), (C) structure taking form and ending at 1.3967. For ease of viewing, the 3 wave move has been marked by the green dotted line. The wave indicates the high in place at 1.3967 to have occurred on March 13. The marginal peak above the 1.3967 on May 8 at 1.3993, is consider to be part of an irregular expanded flat correction which has finished...

From your charts and analysis, seems like you have done them about 8 days ago. The market has moved on and is the analysis still hold or needs updating?
Elliott Wave for optimum entry, exit and risk management of trades
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