The Bailout WAS The Lie
Matt Taibbi On Bailout
Taibbi And Barofsky On Obama's Failed Financial Legacy
Matt Taibbi on The Dan Patrick Show 4/24/13
Wall Street Manipulation
Trading with Elliott wave analysis
November 21, 2012
By Elliott Wave International
(Here are Part 1 and Part 2 of this article.)
Think of Investing as a Trip
Here's my advice: View the Elliott wave Principle as your road map to the market and your investment idea as a trip.
You start the trip with a specific plan in mind, but conditions along the way may force you to alter course. Alternate counts are simply side roads that sometimes end up being the best path.
Elliott's highly specific rules keep the number of valid interpretations to a minimum. The analyst usually considers the "preferred count" to be the one that satisfies the largest number of guidelines. The top "alternate" is the one that satisfies the next largest number of guidelines, and so on.
There are only three hard-and-fast rules with the Wave Principle:
1. Wave two cannot retrace more than 100% of wave one.
2. Typically wave four does not end within the price territory of wave one but may do so from time to time in highly leveraged markets.
3. Wave three is never the shortest wave of an impulse.
Elliott's rules give specific "make-or-break" levels for a given interpretation. In Figure 2, for example, if the move labeled (2) continues below the level of the beginning of wave (1), then the originally preferred interpretation would be instantly invalidated.
By eliminating subjectivity, the rules help you firm up your investment strategy -- and reduce your risk.
"Are We There Yet?"
You've heard that irritating question, "Are we there yet?," from the back seat just about a million times. Every map has a scale, and it's the scale that helps me determine how many miles I have to travel before I reach my destination. When using the Wave Principle, Fibonacci relationships are the scale.
Many investors today know that Fibonacci ratios are used for market forecasting. But few realize that Fibonacci analysis of the markets was pioneered by R.N. Elliott. The use of Fibonacci ratios requires a valid Elliott wave interpretation as a starting point. Unfortunately, many non-Elliott analysts try to find Fibonacci proportions between market moves that are not related to each other in any way. This has made the approach appear to be far less valuable than it is.
Elliott wave analysis has two chief insights concerning Fibonacci relationships within waves. First, corrective waves tend to retrace prior impulse waves of the same degree in Fibonacci proportion. For example, wave (2) in Figure 2 retraces 38% of wave (1). That's a common relationship. Other frequent wave relationships are 50% and 62%. Second, impulse waves of the same degree within a larger impulse sequence tend to be related to one another in Fibonacci proportion. For example, common relationships include wave three traveling 1.62 times the distance traveled by wave one of the same degree. When that occurs, wave five often tends toward equality with wave one of the same degree.
Planning the Trip
Just as I sit down and plan my trips before shoving off, I rely on wave interpretations and Fibonacci relationships to help establish investment strategies and reduce risk exposure when I analyze the markets for our clients. Investors use these same wave analysis methods to help decide where to get into a market, where to get out and at what point to give up on a strategy. The Wave Principle lets you identify the highest probability direction for the market, as you also adopt an optimum position to take advantage of it -- all while protecting yourself against lower probability outcomes. You couldn't ask more from your own GPS.
By the way, we did make it to Cades Cove on our way back across Smoky Mountain National Park. I turned off my GPS and consulted my map. The old tried and true worked like a charm.
Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.
Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.
Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"
Here's some of what you'll learn:
Which Elliott waves to trade
Which Elliott waves set up your forex trade
When your analysis is wrong
Guidelines for projecting price targets
How to evaluate an Elliott wave structure
How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
All you need is a free Club EWI profile to download this FREE 14-page eBook now!
This article was syndicated by Elliott Wave International and was originally published under the headline Which Works Best -- GPS or Road Map? (Part 3). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Trading with Elliott wave analysis
November 16, 2012
By Elliott Wave International
(Part 1 of this article is posted here.)
A Quick Road Map of Wave Analysis
For this overview of wave analysis, I have borrowed from the "Cliffs Notes" version that we provide for free to anyone interested in learning about wave analysis. It's called Discovering How To Use the Elliott Wave Principle.
Elliott's road map, or basic wave pattern, consists of "impulsive waves" and "corrective waves." An impulsive wave is composed of five subwaves and moves in the same direction as the larger trend -- or the wave's next larger size. A corrective wave is divided into three subwaves, and it moves against the trend of the next larger degree. As you can see in Figure 1, there are plenty of right and left turns -- or up and down moves on a price chart.
Figure 1 reveals the general roadmap that markets follow during bull markets. Notice the building-block process. The completion of an initial impulsive wave (waves 1-5, up-down-up-down-up) sets the stage for a corrective phase (waves A-B-C, down-up-down). Combined, those waves represent the first two legs of a larger "degree" advance. In this illustration, waves 1, 2, 3, 4 and 5 together complete a larger impulsive wave, labeled as wave (1).
A five-wave rally from a significant low tells us that the movement at the next larger degree of trend is also upward. It also warns us to expect a three-wave correction -- in this case, a downtrend. That correction, wave (2), is followed by waves (3), (4) and (5) to complete an impulsive sequence of the next larger degree. At that point, again, a three-wave correction of the same degree occurs.
Note that, regardless of the size of the wave, each impulsive wave peak leads to the same result -- a correction.
If we isolate the corrective waves, the subwaves A and C move in the direction of the larger trend and usually unfold in an impulsive manner. Referring to Figure 1, the (A)-(B)-(C) decline that follows the (1)-to-(5) sequence illustrates this structure. Waves labeled with a B, however, are corrective waves; they move opposite to the trend of the next larger degree. In this case, they move upward against the downtrend. Notice that these corrective waves are themselves made up of three subwaves.
Reading the Wave Analysis Map
So now that you have a wave road map in hand, let's talk about how to apply it to the actual terrain of financial markets. When I look at a price chart for the first time, my first task is to identify any completed five-wave and three-wave structures. Once I do that, then I can interpret where the market is along the pre-defined path and, from there, where it's likely to go.
Say we're studying a market that has reached the point shown in Figure 2. So far we've seen a five-wave move up, followed by a three-wave move down.
But this is not the only possible interpretation. It's sort of like having a GPS that tells you that you've arrived, when you've actually got miles to go. In this example, it is also possible that wave (2) hasn't ended yet; it could develop into a more complex three-wave structure before wave (3) gets under way. Another possibility is that the waves labeled (1) and (2) are actually waves (A) and (B) of a developing three-wave upward correction within a larger impulsive downtrend, as shown in the "Alternate" interpretation at the bottom of the chart. According to each of these interpretations, though, the next imminent movement is likely to be upward. That tells you more than most technical analysis systems do.
Alternate counts are an essential part of using the Wave Principle. They are neither "bad" nor "rejected" wave interpretations. Rather, they are valid interpretations that are given a lower probability while the count works itself out. If the market doesn't follow the original preferred scenario, the top alternate usually becomes the preferred count.
I consider alternate counts to be similar to detours -- just a different way for the market to get to where it's going. How many times do you actually go from point A to point B non-stop in your travels? Admit it, you have to stop to grab a bite to eat or ask for directions once you realize you're lost. After consulting the map, you get back on track toward your intended destination. The new path represents an alternate count.
This seeming ambiguity about a wave structure illustrates an important point about the Wave Principle that, in my opinion, is often misunderstood. The Wave Principle does not provide certainty about any one market outcome. Instead, it gives you an objective means of determining the probability of a future direction for the market. At any time, two or more valid wave interpretations usually exist. Unlike actual physical roads that exist, price movements in financial markets are always changing, and the best you can do is be somewhat confident of whether they are moving up or down. That's the kind of confidence that the Wave Principle provides.
(Come back soon for part 3 of this series.)
Who is Jim Martens?
Jim is one of the very few forex Elliott wave instructors in the world, and a long-time editor of EWI's Currency Specialty Service. A sought-after speaker, Jim has been successfully applying Elliott since the mid-1980s, including 2 years at the George Soros-affiliated hedge fund, Nexus Capital, Ltd.
Catch up on Jim's latest thoughts about FX markets and the business of trading them at his Twitter feed.
Download Your Free 14-page eBook: "Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success"
Here's some of what you'll learn:
Which Elliott waves to trade
Which Elliott waves set up your forex trade
When your analysis is wrong
Guidelines for projecting price targets
How to evaluate an Elliott wave structure
How to use the bigger picture to give you perspective on the market's next major move
Jim also takes you through two real-world trading examples to reinforce what you've learned and apply it to your own trading.
All you need is a free Club EWI profile to download this FREE 14-page eBook now!
This article was syndicated by Elliott Wave International and was originally published under the headline Which Works Best -- GPS or Road Map? (Part 2). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
