<s> Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Practical Elliott Wave Trading StrategiesPart 1Robert Miner, Dynamic Traders Group, Inc.
This tutorial begins a series of how to apply Elliott wave analysis forpractical trading strategies. All subscribers have some Elliott wavebackground from my Dynamic Trading book. Because that book goesthrough the pattern structures in detail, there is no need to repeat thatinformation in this tutorial series.It is assumed for this series, that subscribers are familiar with Chapter3 of Dynamic Trading and how the most frequent pattern subdivide.Besides teaching you the practical application of Elliott wave tradingstrategies, an objective of this series will also be to dispel some Elliottwave myths and bad practices fostered by Elliott wave academics.Everything taught in this tutorial series will apply to any actively tradedmarket included futures, stocks, indexes and mutual funds and any timeframe whether five-minute or monthly.
What You Should Know Before Beginning This Tutorial SeriesFrom your study of Elliott wave in Chapter 3 of Dynamic Trading, youshould be familiar with these concepts.Impulse Trend – Usually unfolds in five-waves. Five-wave impulsetrends are usually made in the direction of the larger degree trend.Counter-Trend – Usually unfolds in three-waves. A counter-trend is acorrection to the prior impulse trend.Waves of Similar Degree – Also called swings of similar degree.Waves of similar degree represent the subdivisions that make up acompleted structure. In an impulse trend, waves one-five are the waves ofsimilar degree. The subdivisions of each wave are waves of a smallerdegree.Subdivisions of a Wave – Any given wave may subdivide into smallerdegree waves to complete the structure of the wave. For instance, Wave-1of a five-wave impulse trend usually subdivides into five waves of lesser
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
degree. You should be familiar with how each wave of a trend or countertrend usually subdivides.Multiple Time Frames - Multiple Time Frames has become a buzzphrase recently. It is nothing more than R.N. Elliott’s approach toconsidering multiple degrees of wave structure. When the subdivisions ofa wave are complete, the larger degree wave is compelte.
Trend or Counter-Trend?What is Elliott Wave Analysis?Elliott’s Wave Principle is a catalogue of defined chart patterns. Thesepatterns are helpful to indicate if the market is in a trend or counter-trend.Knowing the trend or counter-trend position, we also know the main trenddirection. Each pattern has implications regarding the position of themarket and the most likely outcome of the current position.Most pattern positions will have an outcome that will validate orinvalidate the assumed pattern position. This is extremely important. Italso helps us to determine the maximum distance away from the market toplace the protective stop-loss.Elliott Wave Pattern Basics – 5’s and 3’sThe basis of Elliott’s Wave Principle is that most trends unfold in fivewaves in the direction of the trend and three waves or combinations ofthree waves in the direction counter to the main trend. It’s that simple.Markets usually unfold in three’s and five’s. Five wave patterns areimpulsive or trend structures. Three wave patterns are corrective orcounter-trend structures.A five-wave impulse trend and three wave or more complex countertrend each has a characteristic structure which we will talk aboutcontinually throughout this tutorial series. One important objective of Elliottwave analysis is to recognize in the early stages of the wave structurewhether it is more likely to be an impulse or a counter-trend.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
The Three Elliott Wave RulesThese three rules are most relevant to daily closing data.1. Wave-2 should not exceed the beginning of Wave-1. In otherwords, Wave-2 should not make greater than a 100%retracement of Wave-1.2. Wave-3 should not be the shortest of the three impulsewaves in a five-wave impulse trend (waves 1, 3 and 5).3. Wave-4 should not make a daily close into the closing rangeof the Wave-1.These rules are extremely helpful to confirm or invalidate a potentialpattern. Even when using intraday data, be aware of the pattern andguidelines relative to the daily closing data.Why is pattern analysis an important part of the Dynamic Tradingapproach to technical analysis?1. Pattern analysis helps us to determine if a market is in a trend orcounter-trend.2. Pattern analysis helps us to determine the position of the marketwithin a trend or counter-trend.3. Pattern analysis helps us to project the time and price objectives of thecurrent trend or counter-trend.
Think PatternBelow we will go through several pattern examples. The objective is tolearn to think in terms of pattern position and what a market must do toconfirm or invalidate a particular pattern structure. Every potential patternposition cannot be illustrated, but if you keep the basic pattern conceptsand guidelines in mind, you will be able to identify the potential patternposition for most market situations.Here is a quick review of what we are trying to accomplish with patternanalysis.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
The Three Pattern Questions1. What is the most probable pattern position? Why? The answer tothis question may only be “impulsive” or “corrective.” The answermay also be, “don’t know.”2. What market activity will confirm the assumed pattern position?What is the pattern guideline that is relevant?3. What market activity will invalidate the assumed pattern position?What is the pattern guideline that is relevant?
The Three Important Pattern Considerations1. Be quick to admit when there is no discernable or relevantpattern! Do not force an Elliott Wave count when there is nocount that meets the guidelines or a clearly defined five or threewave structure.2. If there is no discernable wave count, does the pattern appearto be in an impulse or corrective structure?3. As new data is made, the market will continually confirm orinvalidate the pattern position assumption. Trade the market,not the forecast. Be quick to change your assumption of thepattern position if the market activity invalidates the currentassumption.
Continued on the next page.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
What’s Next?If a five-wave trend is complete as shown below, what is the minimumpattern we should expect?
Regardless of how this five-wave pattern fits into the larger degreepattern position, at least a three wave decline should be expected. Theminimum expectation is for a three-wave ABC correction. This may notunfold but if pattern is to be useful, we must begun with a high-probabilityassumption and let the market confirm or invalidate that assumption.If this five-wave trend completed a larger degree five-wave trend, afive-wave decline may follow but the minimum expectation would still be athree-wave.We always assume a correction will be a three-wave, ABC eventhough it may take many shapes.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Trend or Counter-Trend?What should we anticipate after the low in mid-March below – a countertrend rally or an impulse trend eventually to a new high?
There is not enough data to give a high-probability answer. The declineshown above is clearly an impulse trend. The position of that impulsetrend within the larger degree trend will help determine what next toexpect.If the decline is a W.1, A or 3, we would expect a counter-trend rally(W.2 or B or 4) followed by the continuation of the bear trend to a new low.If the decline is a W.C, we would expect a continuation of the bull trendto a new high.If the decline is a W.5, we would expect a larger degree counter-trendrally. The first rally would typically subdivide into five-waves since a W.A istypically five-waves.Whether the rally is a trend or a counter-trend, we would anticipate atleast a three-wave rally (ABC or 123). The position within the largerdegree trend will help to determine what to ultimately expect.
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Count BackwardsWhat’s the pattern of this advance? It definitely doesn’t fit a typical five orthree wave pattern. To help determine what a pattern may be, it is helpfulto have a firm idea of what is the pattern position of the last major pivot.
If the low in March is a Wave 1 or A, then the rally should be acorrection. We initially assume any correction is going to be an ABC untilproven otherwise. This data is up through the date of this tutorial.Nowhere along the way of this correction did it unfold as a typical ABC.Just today, bonds declined below the prior swing low which signaledthe impulsive part of the rally from the late March low (labeled W.B) shouldbe a completed pattern structure, probably a Wave-C that subdivided intofive-waves. If that is the case, count backward to see if any wave countwill fit. The one above is an acceptable fit within all of the guidelines ofElliott wave.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Wave-A is an impulse. Wave-B is three waves and the W.b:B is alsothree waves. Wave-C is five-waves. All the subdivisions fit well eventhough the Wave-C is out-of-balance (much greater in time and price) thanWave-A.Some times the pattern position does not clearly reveal itself until afterit has signaled that it should be complete. Then we need to countbackwards to see if the pieces seem to fit together within the rules andguidelines. If so, we have a basis to make an informed and highprobability trading decision with well defined and acceptable capitalexposure.
Trend or Counter-Trend?Is a 1-2-3 count the best potential for the data below? Why or why not?
The rule that was formed by for the stock indexes is Wave-4 should notmake a daily close into the closing range of the Wave-3. For the data
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above, the potential Wave-4 has made several daily closes into the Wave1 closing range although the decline below the Wave-1 high is small inprice. It is acceptable for a Wave-4 to close and trade slightly into therange of Wave-1 for commodities and individual stocks.A better wave count may at first seem to be the high on the chart is acompleted five-wave trend as shown below. The main drawback here isthe Wave-4 is much shorter in time and price than the Wave-2 – it is outof-balance with Wave-2. While this doesn’t rule out a five-wave count, thealternate wave count shown below where the high is a Wave-3 thatcleanly subdivided into five-waves is just as good a count.
At this point in time, neither of the two wave counts is overwhelminglyfavored. According to the rules and guidelines, either is acceptable. It willrequire more data to determine which may be best. The trader must alsolook to other factors such as the time, price or seasonal position to get abetter idea of which wave count may be more probable.If the five-wave count to the March high shown above is correct, beansshould continue the bull trend after completing a correction to the fivewave trend.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
If the alternate count is correct, beans should be in the process ofcompleting a Wave-4 low which should be followed by a continuedadvance to a new high.Which count becomes the most evident as more data is included willhelp to determine the extent of the next bull trend – A Wave-5 or entirelynew five-wave trend.
Lessons LearnedThe Three Elliott Wave RulesThese three rules are most relevant to daily closing data. They should becommitted to memory.1. Wave-2 should not exceed the beginning of Wave-1. In other words,Wave-2 should not make greater than a 100% retracement of Wave-1.2. Wave-3 should not be the shortest of the three impulse waves in a fivewave impulse trend (waves 1, 3 and 5).3. Wave-4 should not make a daily close into the closing range of theWave-1.
The Three Pattern QuestionsWhenever considering an Elliott wave pattern, you should ask yourselfthese three questions and not consider an Elliott wave count unless youcan answer all three.1. What is the most probable pattern position? Why? The answer tothis question may only be “impulsive” or “corrective.” The answermay also be, “don’t know.”2. What market activity will confirm the assumed pattern position?What is the pattern guideline that is relevant?3. What market activity will invalidate the assumed pattern position?What is the pattern guideline that is relevant?
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
The Three Important Pattern ConsiderationsIf you are using Elliott wave for practical and logical trading strategiesand decisions, these three considerations will always be in mind.1. Be quick to admit when there is no discernable or relevant pattern!Do not force an Elliott Wave count when there is no count thatmeets the guidelines or a clearly defined five or three wavestructure.2. If there is no discernable wave count, does the pattern appear to bein an impulse or corrective structure?3. As new data is made, the market will continually confirm orinvalidate the pattern position assumption. Trade the market, notthe forecast. Be quick to change your assumption of the patternposition if the market activity invalidates the current assumption.
More To ComeEach week, a new tutorial will build on what we have learned. Also, in theregular report, I will expand on the pattern comments to relate to what isbeing taught in the tutorials. The pattern descriptions in the report will helpyou to learn how pattern is considered to be part of a trading decision as amarket unfolds.Over the next few weeks, I believe you will have had the mostcomprehensive and practical Elliott wave pattern education available fromany source. You will clearly understand how pattern can be an importantfactor of your trading decisions. You will also understand and how to applyElliott wave pattern to make the high-probability time and price projectionsthat are a key to trend targets, reversals, continuations and other tradingstrategies.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Practical Elliott Wave Trading StrategiesPart 2Robert Miner, Dynamic Traders Group, Inc.
Part one of this tutorial series taught the most important question relatedto Elliott wave analysis – Is It An Impulse Trend Or A Correction? Theassumption for this tutorial series is that all subscribers have a basic Elliottwave background as taught in chapter three in the Dynamic Trading book.The next few tutorials will look at the recent and current position of anumber of markets to see what we can learn about the trend position andpotential reversals based on the pattern position.Each tutorial will dissect just one market and the recent data to seehow the pattern position has unfolded in recent weeks and days. The bestlearn experience is always with current examples as we can then see howthe market unfolds related to how we view the current pattern position andwhat should be the outcome.As you will see, the pattern and trend position is not always clearlydefined, but, we can usually use the EW pattern analysis to identify thespecific market activity that will confirm or invalidate the probable patternposition.
This Week’s Lesson
It’s Either One or the OtherThe pattern position is not always clearly defined. Sometimes a marketreaches a juncture where the sub-divisions of the pattern position indicateit is either a correction or an impulse. When this is the case, Elliott wavepattern analysis will usually provide the specific market action that willconfirm which of the potential patterns is most probable and how themarket should follow through.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
What’s Next?From the Nov. high, bonds clearly made an impulsive decline into the Dec.low. From the Dec. low, bonds clearly made a corrective rally into the Feb.high. From the Feb. high, the decline to the March low was clearlyimpulsive. What type of pattern should the rally from the March 21 low be?It depends.Impulse-correction-impulse could be an ABC correction or part of amore complex correction. It could also be waves 1-2-1:3 of a larger degreebearish impulse trend. It depends on what we would label the Nov. high.
If we considered the Nov. high the end of a multi-year bull trend, Marchshould not be the end of an ABC correction. If we though the Nov. highwas only temporary, March could be the completion of an ABC correction.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
If we have no strong opinion one way or the other about the Nov. high,how could the pattern of the advance from the March low help us toidentify the larger degree pattern/trend position?If the rally clearly unfolds in an ABC or other more complex correctivepattern, the larger degree trend is probably bearish and will eventuallymake new lows well below the March low.If the rally clearly unfolds in an impulse trend, March should be the endof an ABC corrective decline from the Nov. high or the impulse may be aWave-A which is part of a larger degree correction.Let’s take a look at the 60-minute data from the March low into midApril.
Is the pattern of the data above clearly impulsive or corrective? Frommy point of view, it is not clearly one or the other. Let’s put the most
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
obvious labels on, those that would meet all of the EW rules andguidelines and see what are the potentials.
Once bonds traded below the 99’31 swing low, we could assume theApril 15 high completed some section of the trend. If we count backwardsfrom the April 15 high, there is a clear five-wave impulse from the March28 low. The ABC from the March 19 high to the March 28 low meets all ofthe guidelines for an ABC. Waves A and C are clearly impulsive as theyshould be. Wave-B is an ABC itself.What could bonds do to signal if the April 15 high is a Wave 3 or aWave C? A Wave-4 should not trade into the range of the W.1. If bondstraded below 99’16, the potential W.1 high, we would assume April 15 is aW.C high. If this were to occur, bonds may still trade to a new high but thecontinued rally would have to be considered a complex correction, not an
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
impulse trend. Waves overlap in corrections, not in impulse trends exceptin a W.5 diagonal.So far, we have not even considered if March 15 is a Wave-C or W.1:3low. We have only considered the pattern possibilities of the data from theMarch 15 low. If we were confident the March 15 low was a W.1:3, wewould consider the April 15 high had probably completed an ABCcorrection (W.2:3) since bonds took out the probable W.4:C low.Let’s add more data. The chart below is the 60-minute data throughthis morning. I haven’t added any labels. What do you think is theprobable pattern position?
Should we now consider the rally from the March 15 low an impulsetrend or correction based solely on the pattern?
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
It is clearly an impulse trend. Bonds did not trade into the range ofWave-1 and the rally from the April 18 low is clearly impulsive whichshould be the Wave-5. The Wave-5 appears to have clearly subdividedinto five-waves which is typical of a Wave-5.
A trade below the W.4:5 low at 101’23 signals the W.5:5 high shouldbe complete.What would we anticipated once the W.5 high is complete? At aminimum, a correction that is greater in time and price than any of thecorrections within the five-wave trend.Another important question would be – how does the five-waveimpulse trend from the March 15 low to the May high fit into the largerpattern/trend position? We will consider that in the next tutorial.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
For now, the most important lesson from a pattern perspective is wehave identified the most probable pattern and its alternative as the marketprogressed and have used pattern to identify the signal that will indicatethe end of the trend. From a trading perspective, that is the criticalinformation.
Lessons LearnedThe pattern position is not always clearly defined. Even when it is not, wecan usually identify the market activity that will confirm or invalidate apotential position. We can also look to the larger or smaller degree to helpidentify the probable position. It is important to be sure that each of thesub-divisions of the pattern meet the basic Elliott Wave rules andguidelines described in lesson one before we consider assume to have aconfident opinion of the pattern/trend position.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Practical Elliott Wave Trading StrategiesPart 3Robert Miner, Dynamic Traders Group, Inc.
This Week’s Lesson
What Confirms A Trend Change?In this tutorial, we will look at the recent pattern of the S&P and bonds indetail to see what trading opportunities may be at hand and what thepattern may be revealing about the larger degree trend position.Since both of these markets may be near significant reversals, we willsee what the market can do to confirm a reversal is complete.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
BondsFrom the March 15 low to the May 1 high, there is only one logical way toview the Elliott wave pattern which is as a five-wave impulse. May 1 mayor may not be the completion of a W.5 high.What would be the initial signal W.5 is complete? A trade below theW.4:5 low. This is a reliable and consistent pattern strategy that should beused to make trading entry and protective stop decisions. A wave-5typically sub-divides into five-waves. This is not always clearly evident butwhen it is, a trade beyond the W.4 extreme is the signal the W.5 should becomplete.
Bonds have made five-distinct sections up since the March 15 low.None of them overlapped (W.4 did not trade into the range of W.1) whichimplies the five-waves are an impulse trend. What is the pattern signal aW.5 high complete? A trade beyond the W.4:5 extreme. What should weanticipate following the completion of a W.5? It depends on the how the
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
five-wave trend fits into the larger degree pattern position. The minimumexpectation is for a correction against the five-wave trend greater in timeand price than any correction within the five-wave trend. If the W.5 highcompleted a corrective high of larger degree, a new impulsive trend maybegin instead of just a correction to the five-wave trend.Which ever the case may be, the job of the trader is to identify thecompletion of the five-wave trend and prepare for a trend reversal tradefor either a correction or new impulse trend in the opposite direction.The smaller degree data may provide an earlier signal a W.5 high iscomplete. It depends on how clearly defined is the pattern. Let’s take alook at the 60-minute date from the April 18, W.4 low to see how it breaksdown.When we move down to a lower time frame with short-term data, it isusually only necessary to view the data from the last confirmed pivot. Inthis case, from the probable W.4 low on April 18.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
A five-wave rally from the April 18 low appears fairly distinct. If May 1 isthe W.5 high, we can assume May 2-3 completed the initial waves 1-2down. If this is the case, what would be the signal that confirms W.5 iscomplete? A trade below the W.1 low. Since the W.1 low is above theW.4:5 low, a trade below the W.1 low would be an earlier signal the W.5 iscomplete than a trade below the W.4 low.What would be the maximum protective stop against a short positiontaken one tick below the W.1 low? One tick above the W.2 high. It is thatsimple and logical. We may be able to break down the data into smallerdegrees for even more timely information and potentially a trade strategywith even less capital exposure.The next chart is the bond five-minute data from the May 3 high.
Five-wave trends should be in the direction of the larger degree trend,unless it is the last five-wave subdivision of the larger degree trend suchas the W.5 or W.C. Three wave trends should be corrections against the
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
larger degree trend which should be followed by the resumption of thelarger degree trend in the opposite direction to the correction.Very short-term 5 and 3 wave patterns will often help to identify thedirection of the larger degree trend and how the market fits into theimmediate position. These very minor subdivisions will often help identifytrading strategies with less capital exposure.In the 5-minute chart above, the market appears bearish since the fivewave trends are down and the three wave trends are up. If this is thecase, a trade below the potential W.b:2 low signals the W.2 high iscomplete.Let’s take a look at another current example to see how pattern mayhelp us determine the position of a market.S&PThe chart below is the June S&P from the March 19 high to today’s low,May 7. There are five-distinct sections. The fifth may not be complete.
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
Is this a five-wave impulse trend? Probably, but by no means clearlydefined. Typically the W.3 is the extended wave or the longest of waves 1,3 and 5. As shown above, the W.3 is shorter than the W.1. If the April 30low is a W.3 low, what is the rule concerning W.5?Since W.3 cannot be the shortest of waves 1, 3 or 5, the price range ofW.5 should be less than the price range of W.3 so W.3 will not be theshortest.If the data so far is not a 1-2-3-4 what may it be? It could be a 1-2-1-2which is a very bearish potential. I always prefer to stick with the simplestand most obvious potential wave count unless there is compellingevidence it is something more complicated or the market provesotherwise.Let’s see if the intraday data helps the on the 60-minute chart below.
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The intraday data fits the wave count fairly well but not perfectly. Thebest wave count for the data to date is shown on the chart above. At thevery least, the clearly defined ABC correction made into the May 2 highand the probable five-wave decline from the May 2 high is the most recentpattern information to work with. It clearly appears W.5 (of 5) is nearlycomplete.Now let’s break it down further and just look at the short term 15minute data from the last defined pivot, the May 2, W.4 high.
It appears this is an ideal five-wave trend from the May 2 high. If so,W.5:5 has already traded below the W.3:5 low which indicates the W.5:5is in a position to be complete. Could this be something other than a fivewave trend? Of course it could. We have to make decisions based on thebest available evidence. Unless the market proves otherwise, the
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Practical Elliott Wave Trading StrategiesA Special Tutorial Series For Subscribers To The Dynamic Trader Reports
assumption is the W.4:5 high is complete and a W.5:5 low is close athand.The completion of a W.5:5 low would also signal the completion of theentire five-wave decline from the March 19 high if May 2 is the W.4 highas shown on the charts above. How would a five-wave decline from theMarch 19 high fit into the larger degree pattern? That is a subject we willtake up in the regular reports this week.
Lessons LearnedElliott wave patterns are not always clearly defined. Only use them as partof your trading strategy if they are clearly defined.One way to help identify if a pattern is correct is if it subdivides as itshould. This usually requires a breakdown to the shorter term data.It is most important to identify if there are clearly defined fives andthrees and which direction they trend. This will help to identify the largerdegree trend. Unless a five-wave trend is the final trend of a larger degreepattern such as a W.5 or W.C, the assumption is it is in the direction of thelarger