How to Find Trading Opportunities in ANY Market
Senior Analyst Jeffrey Kennedy is the editor of our Elliott Wave Junctures trader education service and is one of our most popular instructors. Today, Jeffrey shares a video lesson about trading one of his favorite Elliott wave patterns, the diagonal.
You can apply these methods across any market and any time frame.
There are two major types of Elliott wave structures -- motive and corrective. Within these two categories, motive waves include impulse waves and ending diagonals. Zigzags, flats and triangles are all corrective wave patterns.
Today, we are going to examine an ending diagonal in Union Pacific (UNP).
An ending diagonal is an easily discernible wave pattern because it looks like a rising (or falling) wedge. Specifically, it is a five-wave overlapping pattern wherein each wave subdivides into three smaller waves. Also, trendlines connecting the extremes of waves one and three, and two and four, often converge.
Ending diagonals can form only in the fifth wave position of an impulse wave or the wave C position of an A-B-C formation.
Price behavior following an ending diagonal is quite impressive because it tends to be swift, retracing the entire length of the pattern.
The guideline covering the resolution of an ending diagonal tells us that it will be more than fully retraced in one-third to one-half the time it takes the pattern to form, just like it did in this case.
Watch this 4-minute video where I explain more:
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Jeffrey has taught thousands how to improve their trading through his online courses, his international speaking engagements, and in his trader education service Elliott Wave Junctures.
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Senior Analyst Jeffrey Kennedy is the editor of our Elliott Wave Junctures educational service and is one of our most popular instructors. Jeffrey's primary analytical method is the Elliott Wave Principle, but he also uses several other technical tools to supplement his analysis. In today's lesson, Jeffrey shows you how to use candlestick patterns to identify opportunities.
You can apply these methods across any market and any time frame.
If you think you need years of experience to identify a high probability trade setup -- you're wrong.
To prove my point, let's examine three price charts using only a few popular Japanese Candlestick patterns and a single simple moving average (SMA).
Japanese Candlestick analysis was introduced to the West by Steve Nison. The information contained in a candlestick chart is the same that is contained in an open-high-low-close chart, except that the data is presented differently using "shadows" and "real bodies."
Moreover, these candlesticks form patterns which are important to traders. If you would like to learn more about candlesticks, I highly recommend the book Japanese Candlestick Charting Techniques by Steve Nison.
How do two tools -- candlesticks and a 20-period SMA -- identify high probability trade setups?
The answer is simple in that you use the 20-period SMA to identify the trend and then focus your attention on the appropriate candlestick patterns. If the trend is up, as defined by the slope of the 20-period SMA, focus your attention on bullish engulfing patterns, piercing lines and morning stars. If the trend is down, as defined by the slope of the 20-period SMA, focus your attention on bearish engulfing patterns, dark cloud cover patterns and evening stars.
Watch this 4-minute video where I explain more:
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Get 10 additional free lessons just like this one to help you learn to apply powerful technical methods to your trading. In this 10-lesson series, EWI analyst Jeffrey Kennedy shows how to use Elliott Wave and supporting methods such as candlesticks, RSI and moving averages to improve your ability to spot and act on opportunities in your charts.
In this trading lesson, Elliott Wave International's Jeffrey Kennedy shows you how you can use Fibonacci to forecast potential turning points in your charts. You'll learn the most common Fibonacci retracements and where to expect them in your charts. At the end of the lesson, learn how you can get a 14-page Fibonacci eBook, free!
The primary Fibonacci ratios that I use in identifying wave retracements are .236, .382, .500, .618 and .786. Some of you might say that .500 and .786 are not Fibonacci ratios; well, it's all in the math. If you divide the second month of Leonardo's rabbit example by the third month, the answer is .500, 1 divided by 2; .786 is simply the square root of .618.
There are many different Fibonacci ratios used to determine retracement levels. The most common are .382 and .618.
The accompanying charts also demonstrate the relevance of .236, .382, .500 .618 and .786. It's worth noting that Fibonacci retracements can be used on any time frame to identify potential reversal points. An important aspect to remember is that a Fibonacci retracement of a previous wave on a weekly chart is more significant than what you would find on a 60-minute chart.
With five chances, there are not many things I couldn't accomplish. Likewise, with five retracement levels, there won't be many pullbacks that I'll miss. So how do you use Fibonacci retracements in the real world, when you're trading? Do you buy or sell a .382 retracement or wait for a test of the .618 level, only to realize that prices reversed at the .500 level?
The Elliott Wave Principle provides us with a framework that allows us to focus on certain levels at certain times. For example, the most common retracements for waves two, B and X are .500 or .618 of the previous wave. Wave four typically ends at or near a .382 retracement of the prior third wave that it is correcting.
In addition to the above guidelines, I have come up with a few of my own over the past 10 years.
The first is that the best third waves originate from deep second waves. In the wave two position, I like to see a test of the .618 retracement of wave one or even .786. Chances are that a shallower wave two is actually a B or an X wave. In the fourth-wave position, I find the most common Fibonacci retracements to be .382 or .500. On occasion, you will see wave four retrace .618 of wave three. However, when this occurs, it is often sharp and quickly reversed.
My rule of thumb for fourth waves is that whatever is done in price, won't be done in time. What I mean by this is that if wave four is time-consuming, the relevant Fibonacci retracement is usually shallow, .236 or .382. For example, in a contracting triangle where prices seem to chop around forever, wave e of the pattern will end at or near a .236 or .382 retracement of wave three. When wave four is proportional in time to the first three waves, I find the .500 retracement significant. A fourth wave that consumes less time than wave two will often test the .618 retracement of wave three and suggests that more players are entering the market, as evidenced by the price volatility. And finally, in a fast market, like a "third of a third wave," you'll find that retracements are shallow, .236 or .382.
In closing, there are two things I would like to mention. First, in each of the accompanying examples, you'll notice that retracement levels repeat. Within the decline from the high in July Sugar (first chart), each countertrend move was a .618 retracement of the previous wave. The second chart demonstrates the same tendency with the .786 retracement. This event is common and is caused by the fractal nature of the markets.
Second, Fibonacci retracements identify high probability targets for the termination of a wave; they do not represent an absolute must-hold level. So when using Fibonacci retracements, don't be surprised to see prices reverse a few ticks above or below a Fibonacci target. This occurs because other traders are viewing the same levels and trade accordingly. Fibonacci retracements help to focus your attention on a specific price level at a specific time; how prices react at that point determines the significance of the level.
Learn How You Can Use Fibonacci to Improve Your Trading
If you'd like to learn more about Fibonacci and how to apply it to your trading strategy, download the 14-page free eBook, How You Can Use Fibonacci to Improve Your Trading.
EWI Senior Tutorial Instructor Wayne Gorman explains:
- The Golden Spiral, the Golden Ratio, and the Golden Section
- How to use Fibonacci Ratios/Multiples in forecasting
- How to identify market targets and turning points in the markets you trade
- And more!
See how easy it is to use Fibonacci in your trading. Download your free eBook today >>
This article was syndicated by Elliott Wave International and was originally published under the headline How to Identify Turning Points in Your Charts Using Fibonacci. 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.
In this video clip from Steve Hochberg's "Don't Get Caught Holding the Bag" presentation, recorded at the San Francisco MoneyShow, Elliott Wave International's Chief Market Analyst addresses a popular question we get at EWI. Enjoy this insight from Hochberg, then take a few minutes to learn how you can get Elliott Wave International's newest free report: How to Protect Your Money When the U.S. Debt Bill Comes Due.
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This article was syndicated by Elliott Wave International and was originally published under the headline (VIDEO) What Is the Debt Situation in Europe and the U.S.?. 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.
A Trading Lesson from Elliott Wave International's Jeffrey Kennedy
Senior Analyst Jeffrey Kennedy is the editor of our Elliott Wave Junctures trader education service and one of our most popular instructors. Jeffrey's primary analytical method is the Elliott Wave Principle, but he also uses several other technical tools to supplement his analysis.
You can apply these methods across any market and any timeframe. Enjoy this lesson and then find out how you can get additional trading lessons from Elliott Wave International.
My primary tool as a technical analyst is, of course, the Wave Principle. Even so, I find great value in other forms of technical analysis, such as candlesticks and indicators. With this in mind, let's review one of my favorite old-school chart patterns -- Head-and-Shoulders.
Spotting a Head & Shoulders Pattern
This formation was popularized by Edwards and Magee in their seminal work Technical Analysis of Stock Trends. It is a reversal pattern and consists of a left shoulder, a head and a right shoulder.
A trendline drawn between the price extremes of the left shoulder and head and head and right shoulder is referred to as the neckline. The neckline is important for two reasons -- the first being that a parallel of the neckline drawn against the extreme of the left shoulder can identify the extent of the formation of the right shoulder.
The second important aspect of the neckline is that it can provide a high probability target for the subsequent breakout. If prices decisively penetrate the neckline, the distance between that point and the head is often a reliable objective for the ensuing price move. Watch this 4-minute video where I explain more:
Learn How Technical Indicators Can Give Your Trading The Edge
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In this free report, you will learn some of the most effective tools of the trade from analysts at Elliott Wave International. Find out which technical indicators are best for analyzing chart patterns, which are best for anticipating price action, even which are best for spotting high-confidence trade setups -- plus how they all complement Elliott wave analysis.
This Q&A gives you a glimpse into how market chart patterns can help your trading and investing
If you're like many traders and investors, you may not be particularly familiar with price charts. Sure, you see them flash onscreen as financial media announce market moves -- but you likely pay more attention to the fundamentals (financial statements, economic news, P/E ratios, etc.) than you do to the technical data.
Are you interested in learning why so many successful traders and investors incorporate technical analysis -- and the Elliott Wave Principle -- into their approach? Consider signing up for our FREE webinar to be held on Wednesday, August 14, at 11 a.m. Eastern time: Uncover Hidden Trading Opportunities Using the Wave Principle >>
A record of spotting major market turns most investors miss.
Elliott Wave International is dedicated to helping subscribers anticipate the next major market turn. No, we don't always "get it right" - yet the examples below speak for themselves.
1. In 2005, EWI called the 2006 real estate turn.
Some say real estate can't go down because far too many people are concerned about a real estate bubble, a worry that is now even greater than it was for stocks at the March 2000 NASDAQ peak ... it is actually another sign of a top when participants are dismissive of the warnings.
The Elliott Wave Financial Forecast, July 2005
House prices peaked in July 2006. By April 2012, the Associated Press reported, "Home prices have fallen 35% since the housing bust."
2. In 2007, EWI called the stock market turn.
Aggressive speculators should return to a fully leveraged short position now. We may be early by a couple of weeks, but the market has traced out the minimum expected rise, and that's enough to act upon.
The Elliott Wave Theorist, Interim Report, July 17, 2007
The Daily Show with Jon Stewart: John Oliver's Arcane Details of Boron-Group Metals Pricing: