Elliott Wave Counts

[goldpattern]

The ZigZag feature can be used to filter out small moves and make Elliott Wave counts more straightforward. The chart below shows the S&P 500 ETF with a 6% ZigZag to filter moves less than 6%. After a little trial and error, 6% was deemed the threshold of importance. An advance or decline greater than 6% was deemed significant enough to warrant a wave for an Elliott count. Keep in mind that this is just an example. The threshold and the wave count are subjective and dependent on individual preferences. Based on the 6% ZigZag, a complete cycle was identified from March 2009 until July 2010. A complete cycle consists of 8 waves, 5 up and 3 down.


Retracements and Projections

SharpCharts users can choose between the normal “ZigZag” and “ZigZag (Retrace.).” As shown in the examples above, the normal ZigZag shows lines that move at least a specific percentage. The ZigZag (Retrace.) connects the reaction highs and lows with labels that measure the prior move. The numbers on the dotted lines reflect the difference between the current ZigZag line and the ZigZag line immediately before it. For example, the chart below shows Altera (ALTR) with the 15% ZigZag (Retrace.) feature. Three ZigZag lines have been labeled (1, 2 and 3). The dotted line connecting the low of Line 1 with the low of Line 2 shows a box with 0.638. This means Line 2 is .638 (63.8%) of Line 1. A number below 1 means the line is shorter than the prior line. The dotted line connecting the high of Line 2 with the high of Line 3 shows a box with 1.646. This means Line 3 is 1.646 (164.6%) of Line 2. A number above 1 means the line is longer than the prior line.

As you may have guessed, seeing these lines as a percentage of the prior lines makes it possible to assess Fibonacci projections. The August decline (Line 2) retraced around 61.8% of the June-July advance (Line 1). This is a classic Fibonacci retracement. The advance from early September to early November was 1.646 times the August decline. In this sense, the ZigZag (Retrace.) can be used to project the length of an advance. Again, 1.646 is close to the Fibonacci 1.618, which is the Golden Ratio used in many projection estimates. See our ChartSchool article for more on Fibonacci retracements.

The ZigZag and ZigZag (Retrace.) filter price action and do not have any predictive power. The ZigZag lines simply react when prices move a certain percentage. Chartists can apply an array of technical analysis tools to the ZigZag. Chartists can perform basic trend analysis by comparing reaction highs and lows. Chartists can also overlay the ZigZag feature to look for price patterns that might not be as visible on a normal bar or line chart. The ZigZag has a way of highlighting the important movements and ignoring the noise. When using the ZigZag feature, don't forget to measure the last line to determine if it is temporary or permanent. This line is temporary if the current price change is less than the ZigZag parameter, but becomes permanent if the price change is greater than or equal to the ZigZag parameter.

 

[tech/a]

Another useless technical trading tool
Just another line on a chart.

 

[Greynomad99]

Hmm - a post here seems to suggest Elliot Wave isn't predictive. I'll disagree and say it is probably the most predictive theory I'm aware of and use on a daily basis. Sure, it is very subjective, takes years to learn properly, and while very easy to read with hindsight, trying to understande where you are currently on the price cycle can be challenging. I was taught that 80% of stocks follow the 5 wave up and 3 down structure. Take the chart below, which was the first one I found in a quick look at the ASX300 that showed an obvious EW pattern.

If you were looking to trade this stock close to the top of the rising waves near points 1, 3 & 5 wouldn't you like to know that just ahead there was a hungry bear in the woods? When prices started to rise out of point 2 wouldn't it be nice to know that EW says the rise to 3 is going to be the longest and strongest risce of the price cycle? When price started to rise from A knowing that the next rise into B will probably be a short-lived 'sucker' rally can save you entering a failing trade.
EW is not simple and while I studied it in depth as part of a share trading course years ago and have spent countless hours since considering wave counts, it still often challenges me. Simple at its basic structure but devilishly complex once you dig down.
It is amazing how many times and extension of 261.8% of the distance from C to 1 extended from 2 gives you the point Wave 3 will run out of puff. As I wrote this I thought I'd better check if it worked on the chart above. It does - exactly.

There are similar calculations that allow prediction of where the ABC fall will end. In this example price did fall in the predicted range.

As I started out saying - EW is one of the most reliable predictive theories chartists have.

 

[Greynomad99]

A postscript to my earlier post. The example I used does have one anomoly. EW predicts that usually the ABC fall will be about 75% of the rise from C (the first C that is) to 5 - ie each full price cycle takes prices a bit higher which is why markets grow over time. The example I used shows a fall over the cycle and that is unusual.

 

[tech/a]

Your not practicing E/W
To suggest you can pick a random zig zag % and call that an E/W count shows a severe lack of E/W understanding.

 

[Greynomad99]

Your not practicing E/W
To suggest you can pick a random zig zag % and call that an E/W count shows a severe lack of E/W understanding.

I'm not sure whose EW understanding is lacking - mine or yours?

 

[tech/a]

Used Advanced get for years and studied E/W along with Market Profile for many years.
As for a “Practical “ trading tool I found it a great deal more subjective than analysis like M/P and VSA.
All analysis even fundamental is subjective. The ability to apply analysis quickly and accurately while being able to verify any subjectivity quick enough to take advantage of OR take mitigating action is
to me the key in any sort of analysis you apply.

If you need weeks and at times months to verify a wave count for instance (or a company valuation to play out) which can change particularly in a corrective move your left with an abundance of hindsite analysis which you can only fit to a chart well after it’s happened.

You just can’t trade that.

 

[Porper]

Hmm - a post here seems to suggest Elliot Wave isn't predictive. I'll disagree and say it is probably the most predictive theory I'm aware of and use on a daily basis. Sure, it is very subjective, takes years to learn properly, and while very easy to read with hindsight, trying to understande where you are currently on the price cycle can be challenging. I was taught that 80% of stocks follow the 5 wave up and 3 down structure. Take the chart below, which was the first one I found in a quick look at the ASX300 that showed an obvious EW pattern.
View attachment 131238
If you were looking to trade this stock close to the top of the rising waves near points 1, 3 & 5 wouldn't you like to know that just ahead there was a hungry bear in the woods? When prices started to rise out of point 2 wouldn't it be nice to know that EW says the rise to 3 is going to be the longest and strongest risce of the price cycle? When price started to rise from A knowing that the next rise into B will probably be a short-lived 'sucker' rally can save you entering a failing trade.
EW is not simple and while I studied it in depth as part of a share trading course years ago and have spent countless hours since considering wave counts, it still often challenges me. Simple at its basic structure but devilishly complex once you dig down.
It is amazing how many times and extension of 261.8% of the distance from C to 1 extended from 2 gives you the point Wave 3 will run out of puff. As I wrote this I thought I'd better check if it worked on the chart above. It does - exactly.
View attachment 131239
There are similar calculations that allow prediction of where the ABC fall will end. In this example price did fall in the predicted range.

As I started out saying - EW is one of the most reliable predictive theories chartists have.

People have different perceptions on wave counts. There are rules/guidelines to adhere to though.

Most importantly, a retracement cannot head beneath the low of wave-1...which it does on the top chart. It strongly suggests the trend is down, and not a retracement at all. I know some people that use a zigzag setting to label the chart but that isn't using the Wave Theory in its true form. For one, it can't decipher the subdivisions within the trends. This is very important when projecting a potential turning point.

Out of interest how do you project a low within an A-B-C correction? What "other" forms of analysis do you use?

I use Elliott Wave a lot but it has its limitations like any form of T.A. We can all put up great charts with perfect patterns and Fib retracements. I could also put up charts that seemingly disprove the theory.

It's like any method...sometimes it works great and other times it's useless.

 

[Joules MM1]

I suggest you practise the simple form of speaking in the first person

that is, when speaking end your sentences with the words "for me"
- and - when using the word "you" ensure that the use is of the person youre speaking to
rather than in the 3rd person, this way we know when you (the reader) are being spoken to directly and not
as some circumspect "other person" especially when referring to oneself - "you" needs to be what it is, which is - "me"

i suggest rather than posting something as certainty (even tho it maybe so for yourself) consider posting it as a question

for example
here i have begun a basic nonmenclature, the context is that this stock has made a significant enough pullback that the old
structure is ended, empirically, based on the EWP, tihs is in a new trend (up)
(the instrument itself is irrelevant to this conversation as EWP is about application of risk based on structure, at least for me it is.....)

i suggest what is propositioned be inspected on the basis of interpretation, that is, you interpret based on the extent of your knowledge
because when you speak we see the extent of your knowledge within the post not within what exists in your head

to begin
please note this idea is to allow us to focus on risk not on prediction - it is vitally important to be clear that your post reveals your
approach to the utility of the EWP, that means, your employ of the principal reveals who you are and what drives you

poster beware, the EWP subsumes all opinions (including this one!)

there is one basic thing missing from this chart (there maybe others, if you say), see if you can point out what is missing
how would you enumerate this chart?

Chart Image

www.tradingview.com

 

[Greynomad99]

People have different perceptions on wave counts. There are rules/guidelines to adhere to though.

Most importantly, a retracement cannot head beneath the low of wave-1...which it does on the top chart. It strongly suggests the trend is down, and not a retracement at all. I know some people that use a zigzag setting to label the chart but that isn't using the Wave Theory in its true form. For one, it can't decipher the subdivisions within the trends. This is very important when projecting a potential turning point.

Out of interest how do you project a low within an A-B-C correction? What "other" forms of analysis do you use?

I use Elliott Wave a lot but it has its limitations like any form of T.A. We can all put up great charts with perfect patterns and Fib retracements. I could also put up charts that seemingly disprove the theory.

It's like any method...sometimes it works great and other times it's useless.

Hi - The problem was I didn't show the entire price cycle in my chart so in fact W4 doesn't fall into the range of W1. I guess that was what you meant by the retracement beneath the low of W1.


The low of the cycle (C) usually falls between a 61.8% extension of the length of WA measured down from the top of WB and 161.8% of the height of WB measured down from the top of WB. Sometimes the waves are exagerated and other variations of Fibonachi numbers might work better. Usually, you are doing this exercise when you think you are at point C and the percentages to use become more obvious. The chart becomes a bit messy with lines from the extensions but with NUF below you can see (maybe) that the low pretty much exactly coincided with the 161.8% extension of the length of B measured down from the top of B.

As for what other techniques I use, a lot revolve around support and resistance lines and price channels but too much detail to go into here.

 

[Sean K]

The problem with EW, that I have seen, is that it can only be traded retrospectively.

The challenge for EW practitioners is to post up trades in the moment, along the cycle, to show execution and profitability. No one has ever been able to do it.

 

[Porper]

No, what I meant was that your A-B-C corrections at both degrees of trend are far to deep. They nearly retrace the whole prior leg higher. Plus, each 5-wave move makes up a pattern at 1 larger degree...or it should.. Sorry, I just can't see how the analysis you have put forward helps making trading decisions. The labelling can only be made with hindsight.

Maybe put a live chart up and project where you think the A-B-C will terminate.

 

[tech/a]

The problem with EW, that I have seen, is that it can only be traded retrospectively.

The challenge for EW practitioners is to post up trades in the moment, along the cycle, to show execution and profitability. No one has ever been able to do it.

When you have to decipher what it is your deciphering I’m with you Kenna’s
And of course if it fails then the count alters to suit.

Dont know if you remember The McLAREN report.
followed it for year every week.
never on the money always a change of count and never a hint of practical application.

 

[Greynomad99]

No, what I meant was that your A-B-C corrections at both degrees of trend are far to deep. They nearly retrace the whole prior leg higher. Plus, each 5-wave move makes up a pattern at 1 larger degree...or it should.. Sorry, I just can't see how the analysis you have put forward helps making trading decisions. The labelling can only be made with hindsight.

Maybe put a live chart up and project where you think the A-B-C will terminate.

Hi again,
Do you mean the second Wave C shouldn't be lower than the first Wave C - ie the closing price of the price cycle is lower than the starting price of the price cycle. Normally, a price cycle will retrace 75% of its rise through W1 to W5 in the ABC decline. However, by chance the stock I used closed lower than it opened. From what I've read this is allowed by EW theory - but it is unusual.

I don't use EW for trading decisions other than to tell me where price is on the price cycle. If I think it is telling me we are on the start of W3 or W5 then I look for other entry signals. If it tells me price might be on WB (or ABC anywhere) then I look elsewhere as a trade there is probably a losing bet. EW can't tell you where to trade only provide indications that you need to be wary of where a rising wave might be ending (such as the top of W3 is often near 161.8% of the height of W1 measured up from the bottom of W2.

Forewarned is forearmed they say. EW is just part of the arsenal.

 

[Greynomad99]

I suggest you practise the simple form of speaking in the first person

that is, when speaking end your sentences with the words "for me"
- and - when using the word "you" ensure that the use is of the person youre speaking to
rather than in the 3rd person, this way we know when you (the reader) are being spoken to directly and not
as some circumspect "other person" especially when referring to oneself - "you" needs to be what it is, which is - "me"

i suggest rather than posting something as certainty (even tho it maybe so for yourself) consider posting it as a question

for example
here i have begun a basic nonmenclature, the context is that this stock has made a significant enough pullback that the old
structure is ended, empirically, based on the EWP, tihs is in a new trend (up)
(the instrument itself is irrelevant to this conversation as EWP is about application of risk based on structure, at least for me it is.....)

i suggest what is propositioned benspected on the basis of interpretation, that is, you interpret based on the extent of your knowledge
because when you speak we see the extent of your knowledge within the post not within what exists in your head

to begin
please note this idea is to allow us to focus on risk not on prediction - it is vitally important to be clear that your post reveals your
approach to the utility of the EWP, that means, your employ of the principal reveals who you are and what drives you

poster beware, the EWP subsumes all opinions (including this one!)

there is one basic thing missing from this chart (there maybe others, if you say), see if you can point out what is missing
how would you enumerate this chart?

Chart Image

www.tradingview.com

Re yout chart query you have a peak in W2 that is higher than the point marked '1' - that is invalid in EW. The higher point is 1.

 

[Greynomad99]

The problem with EW, that I have seen, is that it can only be traded retrospectively.

The challenge for EW practitioners is to post up trades in the moment, along the cycle, to show execution and profitability. No one has ever been able to do it.

See my reply to Porper. You can't trade using EW alone as it only tells you where you might be on the price cycle. Well, I guess if you were taking a long enough view and only bought on W1 and got out when W5 was rolling over you owuld make money. But some price cycles can run for several years and that's not trading - it's investing. I'm strictly short - medium term and for that EW is just one of many things I look at.

 

[Greynomad99]

Used Advanced get for years and studied E/W along with Market Profile for many years.
As for a “Practical “ trading tool I found it a great deal more subjective than analysis like M/P and VSA.
All analysis even fundamental is subjective. The ability to apply analysis quickly and accurately while being able to verify any subjectivity quick enough to take advantage of OR take mitigating action is
to me the key in any sort of analysis you apply.

If you need weeks and at times months to verify a wave count for instance (or a company valuation to play out) which can change particularly in a corrective move your left with an abundance of hindsite analysis which you can only fit to a chart well after it’s happened.

You just can’t trade that.

You are right - all analysis is subjective but unless you are Nostradamus you can only trade by making value judgements based on technical or fundamental theories. And you are right again that hindsight analysis (something my dog excels at by the way) and making patterns fit the theory won't make you money. However, charting patterns do repeat and in that respect thinks like backtrading (aka hindsight) can be quite valuable.

 

[Joules MM1]

Re yout chart query you have a peak in W2 that is higher than the point marked '1' - that is invalid in EW. The higher point is 1.

expanded flat

when price has rotated to a new trend or in a counter-trend bounce (when that bounce is part of a must-have bargain hunt and there's fast short-covering, you have buy to open and buy to close)

price makes its first leg, its a genuine buying spree, however price ascends enough on a % basis that manager now stop chasing the bargain, based on the prior severe downtrend holders who felt trapped by the down trend now take their medicine and exit as price rises
after the initial leg up you have an interruption to the (new?) trend, the ascension runs out of fuel in both direction, but there must be a direction in the nearterm so just enough buying takes price to higher highs in the ABC, this is often referred to as an expanded flat

in my estimation it is a very good sign of significant directional trend (although not enough context has printed to know for sure, I would not
bet in the opposite direction, going back to my initial comment about defining risk

typically this is a bullish signal

when the C completes at a higher level and a new impulse kicks off managers and deep pockets may have to purchase for balancing, or at least close out open sells, an ah-ha moment makes people chase and given the extreme discount (on the probability of a new baby trend)
it is a very attractive auction for day traders .....so all these things in context


even reversion ideas etc are subsumed by the EWP principal
the main reason that EWP "fails" on most stocks is because the person employing the EWP principal has failed
to notice the stocks is simply not liquid enough to print a clear signal - that is different to the signals not being there !

also, working against use of the EWP on local stocks is the distortion of the SPA ...hence my proviso about using the TradingView platform for Aus stocks (diff thread)

 

[Joules MM1]

Re yout chart query you have a peak in W2 that is higher than the point marked '1' - that is invalid in EW. The higher point is 1.

part ii

in conjunction, as i do with all my cfd trades, i want to see context to the ABC itself, to give context within context, that mean it must makes sense on an empiric level, a concise-ness

for example, after an impulse leg i would like to see the ABC have its own equality, for example C is 100% of A
or B is 127.2% of A inverted

these are building blocks, i am trading the right hand side of the chart

i do this in realtime

 

[tech/a]

in conjunction, as i do with all my cfd trades, i want to see context to the ABC itself, to give context within context, that mean it must makes sense on an empiric level, a concise-ness

for example, after an impulse leg i would like to see the ABC have its own equality, for example C is 100% of A
or B is 127.2% of A inverted

these are building blocks, i am trading the right hand side of the chart

i do this in real-tim

Would you mind posting a few trades real-time a few of us haven’t seen real-time use of EW