Saturday, October 24, 2009

How to combine EW with macd

RENU asked about reading EW with macd:

Illustrated here with "IOC" & "Nifty" chart:-
(I have chosen IOC as it is not manipulated, nevertheless widely traded in its sector)
1. When the down trend is nearing its "oversold" &" public apathy" & "Panic" situation, you will notice a +ve div in the down move's 4th & 5th wave down OR in "b" & "c" down OR in "c4" & "c5", there by identifying the start of the 1 st wave.
2. First wave generally gets exhausted with the macd moving into +ve area and this can be fine tuned with the help of hour charts. In underperformers, macd may find it difficult to get into positive territory but moves closer to "0".
3. In the Second wave, macd moves back into negative once again. In outperformers, macd may stay above "0" but moves down closer to "0".
4. Third wave upmove takes macd strongly up to the extreme upsides. Then. in outperformers the macd may move down with prices continuing to move up and as the macd moves up again, prices move much higher. This is where the "novice" investors/ traders read the direction of the macd with prices quite literally and miss a huge upmove..Exhaustion in this uptrend can be gauged from the "gaps", "volume" as well as following the 3rd wave subdivisions in the "hourly charts".
5. Fourth wave moves become triangles to carry out time correction if the third wave was very steep and swift Or an alternation to the second wave(if 2nd is flat, then the 4th is zigzag and vice versa). In underperformers, the macd moves into negative while in outperformers it stays above "0" but comes well off its high reading to set itself for a negative divergence base.
6. Fifth wave or the "froth" or the "speculative move" will bring in mostly the retailers with a herd kind of move to new highs while the macd making a lower high thereby developing a negative divergence. In a strongly trending markets, the 5th wave gets extended with series of negative divergences frustrating the bears and confounding the bulls and the falls happen with a sudden reversal when complacency sets into bulls.
7. During the reversal, the first wave down takes the macd into negative territory and the second wave up into positive and the cycle repeats itself in the opposite direction.

Sounds simple..But as you watch the prices move on your monitor, you generally tend to forget all your lessons. Best EW practioners have "military discipline" in them..those who mean business ...be it in any phase/ aspect of life.
When a trading competition was held in the USA for EW practitioners, most of the toppers had military background which gave them the edge over others in carrying out the commands without questioning.
All the EW followers will admit that the most difficult part of EW practice is "to believe in what one sees" . Correct labeling of the charts once the moves are over for posterity is easy . Needless to say here that "you are right only when you make money" and that is "act when you should without questioning".

12 comments:

Renu said...

Dear ilango ji,

Thanks a million for answering my query with so much of patience.

Renu

ttthakur said...

Ilango Sir,
Namaskar.Thanks for your excellent expose on the topic of EW and Macd.
Sir, excuse me for digressing from the topic under discussion but still relevant to the financial markets nonetheless.
It is about what I observed in the election results of Maharashtra State Assembly declared a few days back.
I have observed the Fibonacci numbers sway in the elections:
a)Elections were held on 13th October 2009- 13is a fib number.
b)Congress NCP combine won 144 seats - 144 is a fib number.
c)144 seats are 50%of 288 seats of Assembly- 50% is again related to fibo series.
d)BJP Shiv Sena combine won 90 seats- 1 seat more than 89 fibo number.
e)Congress NCP combine has won for 3rd consecutive term- 3 is fibo number.
Lastly, i have observed these 5 fib in the elections - 5 is a fib number.
Sir, what is your reaction to all this fib power? I would also request you to explain in your inimitable style, how to apply fibonacci
in trading financial markets.
Thanks and Regards.
ttthakur

niftywave said...

Can I see weekly/monthly chart of sensex from birth.
Where it is available.

ravi said...

hello thakurji,idon't understand what fibonacci numbers have anything to with election results. I think you are doing too much research on these things which deviates us from true knowledge. There are `n' number of things all around us which seems to have some logic and relevance to stock markets like full moon/no moon, stars, etc. We need to take these things in a pinch of salt. Because these things hardly has any permanent impact on financial markets. Please don't take my words as criticism but please try to take it as somebody's point of view only. Regards,

Ilango said...

Hi..Renu,

You are welcome. Questions have made me delve deeper into years of experience.

Hi..ttthakur,

I remember reading about "Fibonacci" chapter in "Elliott wave Explained" by Robert beckman and amazed by the fibonacci sequences in flower petals, tree leaves, human body parts, sea shells, etc., etc. It is a subject that can keep a person occupied for a life time. And your observation is one such example.

When my critic read the EW Book while he was convalesing, he applied the golden ratio retracement (61.82%) during the market fall and sell into each retracement and was rewarded quite handsomely. He would place his orders with the exact golden ratio retracement levels for many stocks and would not bother about any lesser retracements or a bit higher retracement but in the end he was comfortable holding his shorts.

Fib.. can be used to project targets, retracement levels to buy & sell. Like any method, it may not work at times. So you combine it with other methods and take a balanced strategy..

Hi..Niftywave,

Vivek Patil's weekly posts has Sensex yearly charts..You will find them at VFM forum.

Hi..Ravi,

"Take it with a pinch of salt" is the way to approach events to financial markets..

Best regards.

ilango

ttthakur said...

Ilango Sir,
Thanks for your precious guidance.
If Ravi permits, I can add one more fibo observation from Maharashtra Elections- MNS party of Raj Thackeray won 13 seats- 13 is a fibo number.

Thanks and Regards.
ttthakur

Yoda said...

This was indeed a wonderful explanation of EW on MACD - you're such a good patient teacher. I still remember with gratitude the hours you spent explaining EW to me.:)

Ilango said...

Hi..Yoda,

Thank you. You would agree with me on "the threat to EW following is our own disbelief in what we see"..

The story that moves me the most in the "Life line" weekend post is "Rebuilding the House".

It is wonderful to have you here..

Best regards.

ilango

jpj said...

Sir,
Will you pleae send me the excel sheet.I am a beginner and learning from your blog.Thank you
my email ID:joyaai@gmail.com
joy,Madurai

Prithvi said...

Sir,

Thanks for sharing your knowledge with us.
In my life i had spend my 6 year in stock market and
loss of my lots of money which i had made with lots
of hard work, than i m nurvous and finally think that
forget stock market, but when i m reached your blog and
read your technical charts than i feel, no, don't become a
loser, Use these tools to make your trade, u must get
reward,finally i decide that make a trade with your
guideline/direction , i will be sure that i become
a success/winner trader/investor in this market.
Thanks a lot sir,

Your new student
Prithvi
that i m sure get
without any knowledge

Aditya Jain said...

Dear Illango SIr,
This is my first post, I am a regular follower since one and half years reading everything in your blog and reading others too. I am fascinated with the fact that how the table and everything works in the market. I am a beginer in this market keen to learn lot of things from you and passion to do something in the market. I have several question where I need some light on those.
1. What are the settings of RSI,MACD and Stoch according to you which we should use.
2. When trading stock sir how we can interpret the emas and how to take trades based on ema rule if trading stock. I would be very happy to brush my skills sir and would be very happy to receive from you, my email address is adityajainjbp@gmail.com and my number is 8109000170 if you add me up as your another student.

Aditya Jain said...

Dear Illango SIr,
This is my first post, I am a regular follower since one and half years reading everything in your blog and reading others too. I am fascinated with the fact that how the table and everything works in the market. I am a beginer in this market keen to learn lot of things from you and passion to do something in the market. I have several question where I need some light on those.
1. What are the settings of RSI,MACD and Stoch according to you which we should use.
2. When trading stock sir how we can interpret the emas and how to take trades based on ema rule if trading stock. I would be very happy to brush my skills sir and would be very happy to receive from you, my email address is adityajainjbp@gmail.com and my number is 8109000170 if you add me up as your another student.

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