Extended Wave 5 =
either 0.62 x length of
(beginning of Wave 1 to top of Wave 3)
or =
length of
(beginning of Wave 1 to top of Wave 3)
5
or =
1.62 x length of
(beginning of Wave 1 to top of Wave 3)
3
5 = based on
1
3
4
length of 1
3
2
1
T-35
GET
Applying Technical Analysis
Elliott Channels For Top Of A Wave Five
Once the 5th Wave starts, the Elliott Channel Technique can be used to project the end of the 5th Wave.
Once Wave 4 has been completed, draw a straight line between Waves 2 and 4.
3
4
1
Lower
2
Channel Line
Now, draw two lines parallel to the lower channel line connecting the tops of Waves 1 and 3.
5
Wave 1 Upper
Channel Line
5
3
4
1
Lower
2
Channel Line
Expect Wave 5 to end on one of the two upper channel lines. Usually, if Wave 3 was a normal wave, Wave 5 tends to end on the channel drawn from the Wave 3 top. If Wave 3 was extended and a runaway type of wave, Wave 5 tends to end on the channel drawn from the top of Wave 1.
T-36
GET
Applying Technical Analysis
Statistical Analysis of Wave Two
Ratios
Only 12% held within a
38%
38% retracement of Wave
One
73% Retraced between
50%
50% and 60%
62%
15% Retraced below the
62% level
62%
T-37
GET
Applying Technical Analysis
Statistical Analysis of Wave Three
Ratios
1.60 X 1 }
1 X 1
Less than 3 = 1 only 2%
15% of the time
of the time
2.62 X 1
}
1.75 X 1
1.75 X 1 }
1.6 X 1
30% of the time
45% of the time
2.62 X 1
Greater than 2.62 X 1
8% of the time
T-38
GET
Applying Technical Analysis
Wave Three Ratios
4.25 X Length of
2.62 X Length of
1.62 X Length of
Length of
T-39
GET
Applying Technical Analysis
Statistical Analysis of Wave Four
Ratios
Retrace 24-30% of Wave 3
only 15% of the time
30%
} Retrace between 30-50%
of Wave 3 60% of the time
50%
50%
} Retrace between 50-62%
62%
of Wave 3 15% of the time
Under 62% retracement of Wave 3 = 10% of the time
T-40
GET
Applying Technical Analysis
Wave Four Ratios
Ç
Retracements of
Length of
Retracements of
Ç
Length of
T-41
GET
Applying Technical Analysis
Elliott / Fibonacci Ratios
Wave Five
(Extended if Wave Three is less than 1.62 X Wave One)
= .62 X Length of 0 to 3
= 1 X Length of 0 to 3
= 1.62 X Length of 0 to 3
3
3
?
4
1
28400
2
0
2
28300
8200
28100
28000
T-42
GET
Applying Technical Analysis
Elliott / Fibonacci Ratios For Wave 5
(0-3) 100%
(0-3) 62%
(2-3)
Length of 0 – 3
0 = Beginning of Wave 1
Even when Wave 3 is extended, our research has found that the Wave
5 sequence will often end inside the ratios calculated form 0 -3 where
‘0’ (Zero) is the start of Wave One. This is the start of the new Five Wave sequence. The length of 0 – 3 is extended from the end of Wave
4.
Wave 5 usually ends inside the windows of 62% of 0 – 3 and equal to
0 – 3 added to the end of Wave 4.
T-43
GET
Applying Technical Analysis
Rules: Type 1 Trade
(Buying at the end of a Fourth Wave retracement)
Once the software confirms a Wave Three rally, look for the following conditions: A. Look for the Elliott Oscillator to pull back to the zero
(Projection for Fifth Wave)
(base) line.
—5—
B. Once the oscillator pulls back to zero, check to see if the
3
prices have retraced at least to the 38% level of the proceed-
ing Wave Three.
48
C. At this time, the Profit Taking Index should be above
Profit
35 (preferred). The Profit Taking Index is a propri-
Taking Index
etary indicator that aids in determining the prob-
ability for a Wave Five. When the Profit Taking
Retracements
○ ○ ○ ○
Index drops below 35, the statistical odds for
38%
○ ○ ○ ○
○
○
○
○
○
○
○
a Wave Five rally is greatly reduced. In
○
4
○
○
○
○
addition, it also increases the odds
○
○
○
50%
○
○
○
○
○
○
○
for Fifth Wave failures.
○
○
○
○
○
62%
1
Wave Four
Channels
Oscillator to pull
2
back to the zero
( base) line.
Elliott Wave
Oscillator
D. Retracements should hold above the Wave Four channels. Wave Four channels are proprietary channels that provides the much needed timing element for Elliott Wave analysis. An ideal Wave Four should complete above these channels. Containment of the retracement levels above the top two channels provide a higher probability for a stronger rally in Wave Five. This step is not as critical as the Profit Taking Index in Step C.
E. Calculate the stop two Fibonacci levels under the entry level. For example: if your entry is at the 38% level, the stop should be placed two levels under (which is below the 62% retracement area).
F. Look for the fifth wave projection target given by the software. Calculate the potential profit/stop ratio. If this ratio is greater than 1.5, the trade is worth considering.
The Reverse Logic Applies For A Declining Five Wave Sequence.
T-44
GET
Applying Technical Analysis
Rules: Type 2 Trade
(Selling at the end of a Fifth Wave rally)
Once the software confirms a Wave Five rally, look for the following conditions: A. Look for prices to be near the Fifth Wave projection.
5
B. Make sure the Elliott Oscillator confirms a
—5—
Fifth Wave by providing clear divergence
3
(Fifth Wave
and the Oscillator pulling back to zero
Projection)
(base-line) in between.
DMA
4
1
Divergence in peaks
compared to
new highs in price
confirms Fifth Wave.
2
Elliott Wave
Oscillator
Pulled back to zero (base-line) in between peaks
C. Use a DMA (Displaced Moving Average) to sell on a crossover. The DMA is a simple moving average displaced or shifted to the right. As long as the momentum in the market continues, the DMA stays out of the way. When the price tops out in Wave Five, it eventu-ally breaks (crosses) the DMA. This provides a confirmation to enter a position. This also provides a defined stop above the highs.
D. Place stop above previous high.
(DMA) stands for Displaced Moving Average. Our software automatically calculates this for you.
The Reverse Logic Applies For A Declining Five Wave Sequence.
T-45
GET
Applying Technical Analysis
EXAMPLES OF
TYPE ONE
AND
TYPE TWO
TRADES
The hypothetical computer simulated performance results provided are believed to be accurately presented.
However, it is not guaranteed as to accuracy or completeness and is subject to change without any notice.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed, the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.
© Trading Techniques, Inc.
677 W. Turkeyfoot Lake Road
Akron, Ohio 44319 U.S.A
Telephone # (330) 645 – 0077
All Rights Reserved. Printed in the U.S.A.
T-46
GET
Applying Technical Analysis
AMR (Weekly)
TYPE ONE BUY SETUP
Wave Five
Projections
Profit Taking
Index
Wave Four
Channels
Break of a Trend line can
also be used as a technique for
entering the trade.
Elliott Oscillator
to zero
TYPE ONE BUY SETUP
STEP A – The Elliott Oscillator has pulled
RESULT
back to zero.
Using the
DMA as a
STEP B – Trend line entry technique. The
Prices rallying
stop kept you
idea is to use the break of the trend
to projection.
long at the
line for entering the trade. This
first price
technique reduces the risk of pre-
projection.
mature entries.
STEP C – Profit Taking Index is at 46 which
is above the minimum required
level.
LONG
STEP D – The retracement has broken the
Buy on the break
Wave Four Channels. The Wave
of the trend line
Four channels however, are not as
critical as the Profit Taking Index.
STEP E – There are two projections: one at