Elliot's Impulse waves.(Part-5)

IMPULSE WAVES :- The Basics

Waves that move the market in the direction of its main trend either up or down are called Impulse waves.

1. Impulsive waves are made up of 5 waves which themselves are made up of 5 waves. This is called the fractal nature of waves. This fractal nature of waves can be carried down to the smallest time frames. You may hear that we are in W5 of W5 of W5 of daily W5. Fractals within fractals within fractals ... This is important to a trader when he/she is trying to catch the end of a move while waiting for all patterns to be complete. Trading a reversal as it is completing its final wave into a strong resistance or support, is a very high probability trade.

2. Within a 5 wave pattern, Waves 1, 3, & 5 are themselves impulsive.

Below is an illustration of impulsive waves that move the market in its trending direction.

3. Within this 5 wave impulsive pattern depicted above, Waves 2 and 4 are corrective. We will cover corrective waves later. These corrective waves can be either simple or complex and one finds the lower the timeframe, the more complex these corrections become. Simple corrections are 3 waves (ABC or Zig Zag) and complex corrections are combinations of 3 and 5 wave structures.

4. In a 5 wave impulsive pattern, one of the impulsive waves (W1, 3, or 5) will generally extend and be longer than the other two. In the case of ES, Wave 3 is usually the extended wave. (Commodities, it is often Wave 5).

5. Truncation: Sometimes when the market is weak, we see a different reaction from Wave 5. We see a failed W5. A hint that W5 might fail is a 5 wave pattern that is completing below the level of W3. When we see a W5 failure (truncation), we can expect a deeper than normal correction.
6.An ending diagonal is a special type of wave that occurs in the 5th wave position when the preceding 3rd wave has gone "too far too fast". Ending diagonals can also be seen, sometimes, in the c wave of an "ABC". In all cases they are found at the termination of larger patterns suggesting exhaustion of the trend. Ending diagonals take a wedge shape with a sub waves of 3-3-3-3-3. A rising diaganl is bearish followed by a sharp decline and a falling diagonal id followed by an upward thrust. EW study helped to identify the "ending diagonal" possibility when Nifty made its low @ 2539 in Mar.09. Wave Personality: First waves are part of basing formations and "sell on rise" continues, though breadth and volumes tend to rise with prices retrecing the previous decline in shorter time. Second waves retraces much of the first wave convincing the bears that the downtrend is still on and the sell on rise has yielded good results and is followed with declining volumes. Third waves are strong and broad and the trend is unmistakable. They generative highest volumes and tend to be extended with many gaps in them. Fourth waves are predictable in both depth and form because of alternation as well as their tendency to terminate near the 4th of the previous time cycle and also a small break of the trendline.Lagging stocks build their tops. Fifth waves can be explosive and quite sharp if third wave has extended as it did in 2007-2008. And if 3rd wave was quite powerful, 5th can be an ending diagonal as it happened during the decline in year 2008-2009(A wave down).
The following is a summary of points that help to project price targets based on wave relationships:




The best approach is "Whatever Elliott rule will not allow, you can deduce that whatever remains is the proper perspective, no matter how improbable it may seem".
Wave Principle trains the trader/ investor to discern what the market is likely to do next before it does it. Wave principle limits the possibilities and then orders the relative probabilities of possible future market paths.
When you have conquered the essential task of applying a method expertly, you have done little more than gather the tools for the job. When you act on that method, you encounter the real work: Battling your own emotions. Thus it makes it clear that "Analysis" and "Making money" are two different skills and there is no way to understand that battle off the field....Only speculating in the real markets can prepare you for "Speculation in Markets". And you must do it yourself. Choose the wave principle..It will start you thinking properly and that is a first step on the path to trading successfully.
Get Rich Slowly.

Retracement strategy, a must for traders.

 Trading strategy that works wonders besides the supports & Resistance is "Retracement strategy":

The strategy that has worked consistently well with low risk-high reward ratio is:

"Initiating a trade at 50%-61.8% retrace with 80% as SL".

Understand its workings.

A trade is not complete once an opportunity is spotted & it is initiated.

A trade needs managing, monitoring.

a. After a trade is initiated at the key retrace point, you keep SL around 80%.

b. Once the prices start to move from your trading point generating profits, you monitor
the "key retrace of that rise, if up move OR the key retrace of that fall, if down move" and

trail your position.

This important part helps you "lock-in the profits as well as points to your new exit points in case of adverse reversals".

c. You manage your trade by part booking and holding the rest with the trailing number that keeps changing based on the price advances or declines.

Follow prices using HH & HL or LH & LL. Do not look for perfections.
Trendline helps to identify end of a move so that you can choose a "retracement".
Ideal is 61.8%; but 50%-61.8% is the zone; 80% is the SL

Do these above and see how your trading results improve substantially during every month.

Elliot wave "Principle" , "Rules & Guidelines".(Part-3)

What is the Elliott Wave Principle? In its simplest form, it is that most market trends unfold in 5 waves in the direction of the trend, and in 3 waves in the direction counter to the main trend. Simple! 5's and 3's. The 5 wave patterns are impulsive waves that cause the market to trend. The 3 wave patterns are corrective, and can be thought of as the market taking a breath so it can continue the trend. EW believes that these patterns are caused by group psychology and the interplay of fear and greed. A complete Elliott Wave pattern has 8 waves: 5 during the “impulse” phase and 3 during the “corrective” phase. EW is a fractal concept, so look closely at Wave (1) and Wave (2). The entire 8-wave structure that comprises the first and second wave is exactly the same as the complete 8-wave structure that completes the whole chart, which itself might be a larger Wave 1 and Wave 2 of a higher time frame. It is important to understand that Elliott Wave is fractal. In an impulse (an uptrend, for simplicity), Waves 1, 3, and 5 will ’subdivide’ into their own smaller 5-wave affairs. Waves 2 and 4, which move against the larger trend, have a 3-wave structure. EW principle is fractal, meaning a complete five-wave impulse up might just simply be part of Wave 1 or Wave 3 (or Wave 5) of a larger complete wave structure, which itself might be part of an even larger wave structure.This is how to understand Elliott Wave Fractal ‘waves within waves.’ Here are the ‘ideal’ correction types: It may take few sessions to elaborate on these corrections which make up 85% of market moves. Efficient trading requires mastering of these. We will take it up later. Rules:- Keep these three "Hard rules" (Unbreakable) always in mind while assessing/ counting/ labeling the price moves to help you arrive at a correct count which can result in a unbelievable forecast & stupendous trades. - An impulsive wave always subdivides into five waves (1-2-3-4-5). - Wave 1 usually subdivides into an impulse or seldom into a leading diagonal. - Wave 2 subidivides into a zigzag, flat or combination. - Wave 2 never moves beyond the start of wave 1 (Rule-1). - Wave 3 always moves beyond the end of wave 1 and is never the shortest (Rule-2). - Wave 5 subidivides into an impulse or an ending diagonal. - Wave 4 subidivides into a zigzag, flat, triangle or combination. - Wave 4 never moves into the territory of wave 1 (Rule-3). Below is an illustration of these rules. Guidelines:- These are flexible rules but quite useful in identifying/ recognising a wave and its likely type or pattern. - Wave 1, 3 or 5 is usually extended, while wave 1 is the least commonly extended wave. - If wave 3 is extended, it’s common for sub wave 3 of 3 to extend as well (the same applies for wave 1 and 5). - Subwave 3 of 3 almost always has the steepest slope within the parent impulse. - Wave 5 often ends when hitting a line drawn from the end of wave 1 or 3 that is parallel to a line drawn between the ends of waves 2 and 4. - Wave 5 normally ends beyond the end of wave 3, if not it’s called a truncation. - If wave 2 was a sharp correction, wave 4 will almost always be a sideways correction and vice versa (Alternation). - Wave 2 is usually a zigzag or zigzag combination. - Wave 4 is ususally a flat, triangle or combination thereof. - Wave 4 usually ends within the price territory of the fourth wave of wave 3. - Wave 4 usually breaks the trendline . The most difficult part of Elliott Wave analysis is correctly labeling and counting the waves. A correct count can lead the analyst to amazing accuracy in forecasting the market. Applying what is learnt: Learning can go on for eternity but practice must start immediately to develop the "Intuitive capability" to understand and apply this knowledge for profitable trades. EW knowledge helped us to close the shorts @ 4960 and create longs too. A move past the "i" wave of the 1st wave and a faster retracement gave another entry point. Expanded flat of 2nd wave hinted at underlying bullishness and thus a shallow 2nd wave to hold on for the 3rd wave. The 5-sub waves of 3rd wave alerted us to book profits at 5300+. Shallow 2nd wave revealed an "alternation" in 4th wave to be steeper to play "Selling". An "abc" correction helped us to initiate a long near the lows. 1st wave is 4944 - 5197 = 253; 3rd wave is 5161 - 5310 = 149. 3rd wave cannot be shortest(Rule-2) and hence the 5th can not be more than 148. So if 5235 is the end of 4th, then 5th can not move past 5383. If it does, then the count is wrong and we should revisit the same. If 4th continues further down, it should not enter the 1st wave territory of 5197(Rule-3), and 5th measurement should start from that new low between 5200-5235. An alternative scenario suggests of an ending diagonal possibility in the daily time frame. In such a case, the hourly should sub divide into "ABC" as shown below. Use Elliott Wave however you see fit and however it works for you - just like any of the hundreds of technical indicators out there. Read the previous posts Part-1 and Part-2 here. Get 10 Lessons on The Elliott Wave Principle that Will Change the Way You Invest Forever from Elliott wave International by registering as a member (Free). We will discuss the impulse waves in detail including the ending diagonal in the next week. Until then keep counting the waves and money. Get rich slowly.

Nifty Pre-Market View.

Please guide me about using 34hrsma as a sar.
1. Entry/exit rule. Whether to trade on crossing it or wait for hrly close?
2. Imp one..how to decide SL. Suppose 34hrsma is 8000 and nifty trading below it. Now when nifty cross it should we enter entra hour or wait for hrly candle close? If we take as it croas it and close above it but in next hr if again it crosses from above to below it? How much to keep sl( fixed 20 points) in case of sudden reversal?
Suggestion: Your question starts with the answer - i.e: Use it as a SAR. However, I suggest you to use it as a reference pointer-Look at the Hour chart with the 34 hrSma in "Red" colour. It breaks down first but there was a recent low at 7856 and it holds at 7862 & reverses-the recent low helped; the 2nd break down happens and another recent low at 8061 provides support with a low at 8050;

Nifty, from overbought zone, broke below key retrace level-7625 to close below DLEma..

We discussed "Macd turning down in extreme point"; here, it is.

NIfty generates "noise" in Hour T/F while its all other higher T/F Technicals are intact..

As the "Title" says, this is the "Trend indicator"; Ideal long entries, especially for deliveries are when it turns up deep in the negative zone. Also, when it corrects in positive territory & comes close to "0" line and turns up. Similarly, for profit booking and selling, the reverse may be applied. And when you read it along with weekly "Macd chart", the performance improves.

Applied & Objective Technical Analysis - the Basics-II.

Having followed the prices travelling thru' the  Trendlines /  Trend Following  and seeing them break down too, it is time to look at certain other technical studies which help in
understanding the "tiredness/ exhaustion" in the prices with "divergences" besides
their main purpose of "trend Indicator", namely
MACD, the lagging indicator. However, 50% or more of the lag is managed with the use of "Fast Macd". We have shown you here the macd of "Hour Time frame", though the Day/ week/ month are in uptrend.
Correction that unfolds below 5400 should limit itself above 5294, the last pivot low.
FII's have continued their "Buying". But the OI table shows a ST hurdle @ 5400.

Applied & Objective Technical Analysis - the Basics.

Dear Gauresh Panchal....Many, many happy returns of the day.
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Beginners as well as the drifters would do well to focus on these two studies to make their trading life rewarding as well as satisfying. The intention here is to demonstrate that the basics are good enough to deal with the markets efficiently.
Trendlines: Read here
Follow this simple strategy in all your trading/ investing strategies and let it be part of your plan. The tendency to ignore is strong here as it is the "simplest one". One should call it the "supply-demand equilibrium Line". After all, our, traders' job is to exploit the imbalances in demand & supply.
Trend Following: Read Here
This is the oft-repeated statement of most experts in stock market field and oft-ignored by the "hurrying-kind" who outnumbers the disciplined. Change your side soon to become a habituated winner.
How could you have applied these two basic, simple to comprehend strategies in recent times.. and in the coming days? There are minor trends and major trends. For the "glued to the screen trader", even an hour would look like a major trend unfolding.
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Major trend(UP) indicating channel support is @ 5305 while the minor trend (Up by channel/Down by avgs) struggling below 21 & 34 Hr sma.
We'll focus on the Day and Hour to make it simple and easy to follow to
get rich slowly and quietly.

Get to Know your Technical indicators to use & keep aside....

Most would like to look at their technical indicators everyday for clues to "future price behaviour" which is like going to the doctor everyday to look at your future health problems based on ECG/ BP, etc..
Just as you go to a doctor when you are exhausted or your body gives out certain warning signals, go to "TA indicators" when markets look exhausted either during uptrend or in downtrend. For day to day monitoring the prices, trendlines/ channels as well as ability of the prices to stay above certain key averages/ emas would do.

May Year 2012 brings all your dreams come true..

How do we know overbought and oversold...?

If I want to create any setup then what is my preferences for the setups or what the route should be taken by me?

How do I understand this market?

How do I make a trading plan & execute?

First know the trending & sideways market.

There are two contexts wherein OB & OS emerges.

a) Trending periods: In uptrend, the technical oscillators reach the OB zone soon but they tend to stay there for long periods and traders often miss the big part of the move by exiting their trades the moment oscillators reach "OB" zone. Identifying a trending move is important and there are many ways to know a trending market.. Price making higher high & higher low..TT-Tech table-prices closing above DHEma while higher T/F TA too in upmode, and so on. Apply the same to downtrends too.

b) Sideways periods: During uptrend or downtrend, markets tend to pause for some time after a sustained price rise/ fall. Prices tend to move in a sideways mode in a channel which may be a horizontal type(Flat correction), in a converging/ diverging channel(Triangle) or in an upward or downward sloping channel (Zigzag). This may be identified best with a close below DHEma during uptrend or a close above DLEma during downtrend. Oscillators tend to move from one extreme to the other and once they reach OB or OS zone, they promptly reverse.

Since the markets spend most part of their time in a "Corrective mode", oscillators work well most part of the time. However, this also leads to complacency on the part of the trader and they fail to see the different acts of this oscillator once the trend emerges or resumes. Thus they either miss on the "biggest moves" or "find themselves holding hugely loss making position, unable to accept the change in time, not applying stop loss strategy.

Knowing that there are many technicals working at all time...month/ week/ Day and Hour, etc.. will help you to be prepared for the most important aspect of "Technical Analysis" which is "Trend asserts itself when it matters most which is - at the close period of month/ week/ day & Hour, etc". This is the reason why prices may behave contra to the trend most part of the hour but go back towards the trending side at the closing of the hour. Similarly for day, week and month. Intra week upmoves get fully retraced on the last day of the week. Intra month rallies are retraced towards the last part of the month. Intra settlement moves are well settled in favour of the trend at the close of the settlement.

Believe in this most important characteristic of technical analysis, the most practical one. The prices will make you most uncomfortable with their counter trend moves during the "intra period but within the permissible levels" but will go back to their trending direction when the said period (Month or week or Day or Hour) comes to a close.

If you can believe in this, and make it a part of your strategy, you'll then look at the counter trend moves as opportunities to initiate the most rewarding trades and if you are already in the trending trade, you will learn to "sit through the counter trend moves with amusement".

Remember also that some of these counter trend moves tend to be "reversals" and thus you may get stopped out of few of those trades. Some of these could be overcome, if you keenly observe the "changing dynamics of the market by observing the changing momentum of the market" using "Divergences" as well as learn to "play the counter trend moves" using:

1. Pivot trading with Support and resistances.

2. Intraday trading

3. Tech.Table reading.

Market, most often, makes its intention clear by way of certain "developing patterns" such as continuation patterns and reversal patterns. Your ability to spot them and merge them with your other studies such as classic TA, EW, Gartley patterns, Market profile, Open Interest analysis, SAR study, etc. will make you arrive at a "trading plan which has good risk-reward ratio". The next step is to identify the tools of execution:

1. Buy/ sell futures.

2. Write option.

3. Buy Option.

The degree of your comfort level with the above tools besides the type of market - trending or sideways and the time remaining in a series would decide the tool of execution.

In a trending market, option gives you unlimited profit irrespective of the time of the series. However, if the comfort level is less, writing gives easy gains provided you choose a better strike price.

In a sideways market, writing PE near the support level and writing CE near the resistance works OR simply write both CE & PE at the pivot point. Remember to take those profits once the option gets to 5 to 10 while leaving some on the table & freeing the margin money.

Armed with the most basic knowledge, arriving at trading plans based on the most objective, honest observations, executing such plans in a detached manner, you’ll gain experience slowly and steadily. This experience will turn to intuitive power which will lay the foundation for Getting Rich Slowly and Quietly.

We wish you a very Happy and Prosperous New year in which you’ll grow in all the aspects of your life and be a lighthouse for all around you.