I have been on a mission for the past year to show the power of EW for analysis and trading. Hopefully, I am making a dent in the poor reputation that EW has had on the internet. I knew that I couldn’t attempt any rehabilitation of EW’s reputation with cheap talk. If I were an EW skeptic, I would have two words ~ “Show Me!” IMO, there is not better way to do that than post my EW analysis every night. I add other ingredients to the pot when I analyze, but primarily I use EW. I’ve tried everything, and I can’t imaging trading without EW analysis.
For this taste of Elliott Wave analysis, I want to re-post my analyses that were published after regular trading hours on 28 October 2009. These posts are especially instructive for me because I lost faith in my primary scenario which was based on EW, and got burned on Friday. My weekend analysis will be announced with a different Tweet. For weeks I have been able to say every night, “Mortie nails ES!” This weekend it will read for the first time, “ES nails Mortie!” If I had followed my analysis without bias, I would have nailed Friday also. But, because we often learn more from our mistakes, I’ll share mine, because it shows the validity of EW analysis.
I can’t give a course in EW, with all the fibonacci relationships between the waves, but maybe this taste of EW will serve as an introduction for those who are not familiar with it, and be of interest to wavers. What is the greatest criticism I hear about EW analysis? I hear all the time, that if you get two wavers in a room analyzing a chart, you’ll get at least three counts. And those counts will change. Well, there is some truth to that, but not the whole truth. In fairness to all methods of analysis, everyone is dealing with probability. That means that everyone has a hierarchy of scenarios that he or she considers possible for any market. Every night, I post my top scenario for the next day. As you will see in the post below, the analysis was not the problem, the analyst was. I strayed from what I was seeing on the chart from an EW perspective, and allowed my analysis to be overruled by my gut, and two trendlines.
A little background on this first chart. I had been having a long string of accurate calls. Not only the direction, but the target levels. Because of my long-term analysis of ES, I do have a bullish bias, but I switch sides as needed as ES continues to “ratchet” itself upward against all odds. I am not a perma-bear or perma-bull, I’m a perma-trader ~ going with the flow. The arrows on the chart are linear, and I always point out to my subscribers that I understand that the market doesn’t move in a linear fashion. Everyone will have to trade their way from point A to point B, and ES will try to throw as many traders off its back as it can along the way. I also acknowledge that analysis is easy, trading is hard.
The commentary on the chart above, in the blue box, is a great example of the proper use of Elliott Analysis. It’s a little technical, but the most significant thing I noticed about the move down on this chart was that because of the fibonacci relationships that had developed between the waves, I had to consider this to be an impulsive wave. I note on one up arrow the possibility of a channel run, but my primary scenario is given as the move up and then down to new lows.So, what did the market do? The next day, in a strong move, ES rallied to 1064.25. I had 1065.25 as the maximum typical retracement of W3, and a primary target level for W4. I apologize to the purists, but I call that nailing it. In my post that night, I strayed from Elliott Analysis. Rather than calling for a W5 down as indicated on this chart, I got infatuated with the channels on the charts below, and based my primary scenario on the channels. Fortunately, my subscribers are forgiving, as my percentage of correct calls is high, and no-one is right all the time. I was glad that I did a sticky post on money management last weekend. One of my rules is that we trade the market and not our opinions. EW analysis is not the Holy Grail, but it does give those who want to strive to master it an edge. Below are the channels I fell in love with.
There are a lot of possibilities I will be looking at this weekend for ES next week. I let my analysis evolve as ES unfolds its wave counts, and reveals its intent. In EW analysis, it is not only important to consider what levels are attained by the market, but how the market gets there. The difference between an impulsive (5 wave) move and a corrective (3 wave of sometimes complex) is significant when analyzing the future direction of the market. For those interested in EW, I am constructing a free classroom at http://www.bostonwealth.net/mortiesclass/ . The site is under construction so don’t go there yet ~ bookmark it and hopefully I will be adding lessons on Elliott Wave Analysis soon. My goal is to demystify EW and present it in an EW for Dummy’s format. I am not an Elliott purist, and am not as concerned with the esoteric side of EW analysis. I use EW for trading ~ specifically trading the next session.
Channels everywhere! It surprised me that EW trumped this channel setup. Some might notice that I have the move from 6Mar (666) labeled as impulsive (5 waves), rather than corrective (ABC). I’m not rigid on this count and have labeled it at times as corrective also. Fortunately, the fibonacci relationships of both are basically the same.
Go ahead give it a try!
Check out my track record as well
http://www.bostonwealth.net/2009/10/04/morties-track-record/
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MortiES’ Track Record ~ Week of November 16, 2009
Written by MortieNovember 22nd, 2009 at 4:38 pm
Here is the post I published to my subscribers at the EOD on 16Nov.
The chart below shows how we did with the projected path of ES. The projected path is depicted with the red translucent arrows. Two things are of particular interest in the market’s action. First, it is noted that Wave C down demonstrated an ending diagonal pattern. ED’s often fail to make a target level as much of their correction is done horizontally rather than vertically. This W4 missed our target by 3 ticks. Secondly, the expected Wave 5 turned out to be a failed W5. By being correct on the direction of the market, I had some great trades as I sold the rallies in Wave C, and bought the dips in W5. That is the edge that EW analysis can give your trading.
My Most Recent Post on My Premium Site: This weekend’s post has my outlook for the near-term, and the rest of 2009. The subscription fee is $50 per month, and can be canceled after 1 month if it is not meeting your expectations and needs.
Charts, Commentary, Elliott Wave, Markets | No Comments