System Messages

This forum is for members of the Apiary Investment Fund. To learn more about how to get involved,
sign up now for a 14 day free trial or fill out the form below and preview the training right now!

Can ANYONE answer this?!

 
Back to Forum
 
 
chrismorris87_1
chrismorris87_1's picture

Can ANYONE answer this?!

Hello everyone

I have a question that i cannot for the life of me find an answer to. We all know about Elliott Wave and the generally accepted idea that trends usually have 5 distinct sections, or waves. The problem i have is knowing when a trend is exhausted and there is too little momentum left to carry it any further. If the trend has 5 waves, then it becomes relatively easy; simply compare the peaks of a momentum indicator, such as MACD, with the peaks of waves 3 and 5 to see if there is divergence. If there is, it signifies a final wave on depleted momentum forewarning of a reversal. However, the really tricky part is trying to figure out if there is enough momentum left for a 5th wave in the first place, when only 3 have been completed. The reason for this is that there is no relevant peak in order to compare momentum. 

In the first of the two images i have attached, you can see how the MACD warned of a decline as the second peak was forming. In the second picture however, there is no warning that the move is over (aside from the distance travelled in such a short period of time, i admit). Has anyone devised a reliable way of identifying such scenarios? It is the final part missing from my strategy and i would be hugely grateful to anyone who can provide an answer. 

Thankyou for your time.

AttachmentSize
image.jpg131.77 KB
image.jpg92.67 KB
Thu, 01/24/2013 - 12:15am
 
chrismorris87_1
chrismorris87_1's picture

This third image shows why traditional overbought/sold indicators do not provide the solution. They are far too inconsistant.

image.jpg
 
amaechi
amaechi's picture

Chris, sorry i didnt get you all along but this is my take and this is how i manage such situations. First of all, trying to determine if a trend is exhausted is pretty difficult, though we can use indicators to help us and also the underlying market conditions, however we have to know that we are dealing with human behaviour. We cant predict human behaviour all the time.

A good example is the USDJPy a few days back. Some people thought it was way overbought and began shorting, including top professional traders. They based on what MACD and other indicators was telling them plus other factors, but the pair kept creeping up and up. We cant alwys predict what humans can do next.

The one thing i do is to not hold a positon over night when i sense a pair might reverse or is over bought or over sold. Each day, i place a pending sell or buy above resistance/above the high of the day before and vice versa. If the pair can break through the previous days high or low (support and resistance) then i know at least it will move 3-5 pips atleast before i close one of my two contracts, leaving the other to run. I also use smaller lots in this situation of pending reversal.

My main point here is that its hard to consistently spot when a trending pair is about to reverse. However we do know when its over bought and over sold. In such case, dont hold your trade over night or unattended. I have traded like this with over 90% win rate. Best of luck

 
amaechi
amaechi's picture

Feel free to call trader support. Thats what they are there for to help traders with bugging problems like yours.

 
chrismorris87_1
chrismorris87_1's picture

Thanks amaechi, seems like there may not be an answer to it after all. I will get in touch with trader suppost though as you suggested. If anyone knows, it should be them. Best of luck with your trading :)

 
amaechi
amaechi's picture

Yeah, i think thats the best thing to do. Good luck cracking the code.

 
mlydon4
mlydon4's picture

Isn't PART of the answer the duration (i.e. length) of wave 4 ( the corrective wave)?
Somewhere there must be a discussion about the relative length of each EW, certainly everyone knows wave three is the "money" wave and that it's typically the longest. Also wave 5 CAN be as long as 3, but usually isn't
Isn't there a "rule of thumb" that says a wave 4 is " X% of wave 2".
My VERY limited understanding of EW is that it's 5 or 7 waves are either followed by an ABC waveset and then another EW.
Good Luck on finding the answer, they're lots of Forum readers interested in your quest.

 
PA
PA's picture

Just a basic (very basic) statement, for which I apologize in advance, as I am sure you already know. The EW 1 to 5 are related to period where price action has momentum. There is a clear trend, and identifying the waves is pretty easy, most of the time. However, a first complication there is that price action is fractal in nature, so, EW are like Russian dolls, waves is a wave, etc. The most frustrating part of EW for me is related to yours, i.e., dealing with consolidation periods. There are so many ways to count so as to accommodate any situations there that it becomes less useful, as far as I am concerned, while also showing that EW have not resolved this problem neatly. In short, ot sure the EW theory will give you a solution, and definitely curious to know if this were to be the case!

 
chrismorris87_1
chrismorris87_1's picture

I may have solved the problem!! Killed two birds with one stone so to speak as i have worked out the prime opportunity for a mean reversion trade also :D

Thankyou all for taking the time to post on here and i am sorry if i was rude and impatient at times. Once i have the new filters integrated and tested, i will give you the system for you to evaluate yourselves. I'll probs try to lock-down the code though as i don't feel too comfortable in revealing the secrets it took me three years to figure out! lol Intellectual property n'all.

Best of luck to all of you with your own projects. If anyone needs any assistance, then i will do what i can to help. Just private message me so i'm sure to read it :)

 
PA
PA's picture

Glad to see it is resolved. Let us know your test results / statistics!

 
constantins
constantins's picture

Hi All,

Elliot waves needs a lot of self education. There are books, there is software for EW (expensive), there are good instructors, but beyond all of this is how you build, and see EW system. When it is very well applied, it gives us about 65% success. There are main waves, secondary waves, inside the main waves, etc. I have not tried it for Forex by now. It looks that it works. And with this volatile periodes of the day (news for ex) the system could give false signal. But in several situations, like this Sunday, the gap down was predicted like a 5 wave sel, for many instruments and at least for 2 time frames.

Not always we will see all the 5 waves. This is why, any system based on EW has its own confirmations.

I do not have the patience to do the full calculus like Layne or John Tomas.

good luck

 
Gerald
Gerald's picture

Hi, in traditional indicators there are none that indicate the termination of a wave, they are all thumb sucks. Price action and 123 system and the breakout will confirm a higher 5th, but nothing will tell you if the 5th truncates and this hampers a correct count because you get a 3 up and a 5 down scenario. 1,3,7,11 are corrective and 1,5,9,13 are impulsive. bars in consolidation are generally seen as corrective creating flags and pennants. Triangles are mostly 4th waves or Bees. the EW oscillator is quite useful together with the RSI