How To Identify High-Profit Elliott Wave Trades in Real Time Pinpointing Optimal Entry/Exit Points with the C Wave Method Myles Wilson Walker About the Author Myles Wilson Walker has been trading full time since 1986 for himself and others. Initially skeptical about the value of Elliott Wave Principles, Mr. Walker conducted an intense study of all available literature. His goal was to distill the essential elements of Elliott's wave theory, then structure a successful trading program around them that was tradable in real time.
Walker accomplished, initially using the 24-hour currency markets as his main trading medium, then expanding the analysis to incorporate virtually all major markets. The results of this research are presented here in Mr. Walker's first book. Walker was born in Auckland, New Zealand, where he currently resides.
vii Chapter 1 Basics of Counting Waves. 1 Midpoint Method of Wave Counting 6 Chapter 2 Elliott Wave Principles. 7 Impulse Waves 8 Corrective Waves 18 Chapter 3 Guidelines for Counting Waves. 35 Counting Waves 48 Detecting Elliott Wave Patterns and C Wave Patterns 51 Terms 51 Symbols of Wave Degree 53 Chapter 4 Logic of Counting Waves.
55 vi Contents Chapter 5 C Wave Patterns.f J Method Objective for Impulsive and Corrective Markets 82 Trade Strategy 83 C Wave Patterns and Trading Rules 84 Strong B Waves and Trading Rules 88 Five Wave Corrections and Trading Rules 94 List of C Wave Patterns 98 Chapter 6 How To Find C Wave Patterns. 103 Chapter 7 Profit Takes .111 Chapter 8 Alternate Counts and Recounts. 115 Trading Large C Waves 126 Chapter 9 C Wave Patterns on Daily and Intraday Charts. Silver 130 Deutschemark Spot 133 Chapter 10 C Wave Method in Action.
157 Entry 159 Managing the Trade 166 Conclusion 189 Summary .191 Appendix I Fibonacci in a Nutshell. 193 Appendix II Daily Worksheet. 207 Introduction As a novice student, you would not expect to grasp the difficult concepts of Elliott's Wave Principle instantly. Understanding and successfully using this methodology for analyzing market price movements takes practice and perseverance.
In essence, the Elliott Wave Principle maintains that markets advance or decline in a series of wave patterns—five waves in the direction of the major trend and three waves in the direction of the correction of the major trend. This book is structured to help you broaden your knowledge base of Elliott's wave analysis step-by-step. I suggest that your first reading be a quick scan of all the material to give you an initial overview. Then, as you go back and study the concepts, which are explained in numerous and subtly different ways, you will find an approach that makes sense to you.
This book is essentially different from previous books on Elliott Wave in that I have attempted to quantify aspects of the theory into practical and workable guidelines with specific Buy and Sell patterns. There is no vii viii Introduction longer any guesswork. You will be able to match the wave patterns as they are happening in real time and execute the trade according to established rules. One reason I wanted to publish this book was to pro vide other traders with reliable Elliott Wave-based strat egies rather than a rehash of Elliott Wave theory.
Thus I have kept certain aspects of the theory to a minimus and presented the material that I know from experi ence works. Until I can distill reliable rules, I feel that it would be unfair to present other information as the truth when in fact it still requires further research. The first chapters of this book, which deal with Elliott Wave basics, will teach you the concepts and help you understand the C wave patterns. These C wave patterns are complete within themselves and stand alone without any other technical indicators or other market inputs.
Chapter 1 Basics of Counting Waves Imagine a wave of water: It is made up of droplets. The I momentum of the water flow has picked up the droplets and unified them in the same direction. Between each wave is a trough of inactivity that sometimes runs counter as an undercurrent. Waves of market activity behave much the same as waves of water.
At one moment all is quiet; then some new information hits the market and everyone is active, the wave picks up and continues until it can no longer be sustained. Then the market goes sideways through lack of activity or countertrend (the wave trough) because of profit taking. This ebb and flow of market activity represents the price waves that Ralph Nelson Elliott categorized in his theory on market behavior during his pioneering work of the late 1920s through the 1940s. 1 2 How To Identify High-Profit Elliott Wave Trades in Real Time Simply, a wave is seen as one constant direction in price-until it either stops and goes sideways or the direction totally changes.
This wave (wave 1) is an upward moving wave. The next wave (wave 2) goes in the opposite direction. In this case, wave 2 is going down. If you could see more detail of wave 1, you would see that it is made up of smaller waves—in this case five.
1/ Basics of Counting Waves 3 Wave 2 consists of three smaller waves. When any wave is made up of three smaller waves, each wave is given a letter, in this case a = 1, b = 2, c = 3. Or wave 1 could be made up of only three smaller waves. If the wave consists of only three waves, it is marked as wave A or wave a.
If wave 1 were made up of only three waves, then wave 2 would always be marked as wave B or wave b. 4 How To Identify High-Profit Elliott Wave Trades in Real Time In this instance, the second wave is going sideways. A sideways price area is a wave and must be counted. If you could see more detail of the sideways price movement, you could see that it is made up of smaller waves.
Wave 3 is made up of five smaller waves. 1 / Basics of Counting Waves 5 Wave B ends, and wave C follows! Wave C usually consists of five waves. Wave 4 is made up of three waves (the same as wave 2). When wave 5 ends, the waves are then counted as one wave.
At this stage, a movement (market correction) opposite the trend is expected. 6 How To identify High-Profit Elliott Wave Trades in Real Time Midpoint Method of Wave Counting Another way of counting waves, called the midpoint method, is to smooth the daily data by using only the middle of the day's range. This method gives only one point of data a day, which makes it easier to see possible waves. The main drawback of the midpoint method is that it is not sensitive enough to detect all the details of a C wave.
However, when used in combination with detailed daily charts, this method can be useful in offering fresh insight to a muddled trading situation. A single line connects the middle of each day's range. Chapter ________________________________ 2 ______ Elliott Wave Principles A ccording to Elliott Wave Theory, the market unfolds according to a basic pattern of five waves up and three waves down to form a complete cycle of eight waves. The five waves up, called impulsive waves, occur in the direction of the trend.
The three waves down, called corrective waves, are a price reaction against the trend. A sideways market is also considered corrective. Most market analysis is concerned with the 80 percent of the time that the market is in a corrective state. 7 8 How To Identify High-Profit Elliott Wave Trades in Real Time Impulse Waves An impulse wave is a movement in the direction of the major trend.
An impulse wave must obey all the rules listed below (if it does not, the wave in question must be classified as a correction even if it is also moving in the direction of the major trend). Although this seems illogical at first, by applying the rules you will not mis- take a running correction for an impulse. Impulse Rules The following rules apply to impulse waves: • Wave 1, wave 3 and wave 5 are trending. • Wave 2 and wave 4 are corrections.
• Of wave 1, wave 3 and wave 5, wave 3 must not be the shortest. • Wave 2 can retrace up to 99 percent of wave 1. • Wave 4 may not retrace all of wave 3. • Wave 4 should not go into the price area of wave 2.
(Sometimes it will pull back to the top of wave 1.) • Wave 2 and wave 4 must display alternation in as many ways as possible. 2 / Elliott Wave Principles 9 10 How To Identify High-Profit Elliott Wave Trades in Real Time The structure of an impulse wave is illustrated here. • Wave 1, wave 3 and wave 5 are trending. • Wave 2 and wave 4 are corrections.
• Wave 4 does not go into the price area of wave 2. • Of wave 1, wave 3 and wave 5, wave 3 is not the shortest. • Wave 2 and wave 4 display alternation. 2 / Elliott Wave Principles 11 Counting Waves When deciding if a wave fits into either an impulse or corrective framework, look for some basic visual things that will instantly show you the right category.
These are illustrated by the following two diagrams. Correct Count Incorrect Count (Wave 3 is too small) Incorrect Count (Wave 4 and wave 1 overlap) Correct Count 12 How To Identify High-Profit Elliott Wave Trades in Real Time Alternation In an impulse move, alternation must occur between wave 2 and wave 4. That is, wave 2 and wave 4 must be different in as many ways as possible, or at a minimum in at least one way. Alternation occurs between wave 2 and wave 4 as either price, time or pattern type.
• Price: Wave 2 when compared to wave 4 may be obviously smaller/larger in price. • Time: Wave 2 when compared to wave 4 may take much more/less time. • Pattern: Wave 2 may be a simple ABC. Wave 4 could be a more complex A B C or even a fourth wave triangle.
Wave 2 could be a flat. Wave 4 could be a zigzag or vice versa. The following diagrams illustrate various forms of alternation. In this diagram, there is alternation between wave 2 and wave 4 in both price and pattern.
Wave 2 retraces more of wave 1 than wave 4 2 / Elliott Wave Principles 13 In this diagram, wave 2 and wave 4 display alternation in price, pattern and time. For a pattern to be impulsive, wave 2 and wave 4 must be noticeably different. 14 How To Identify High-Profit Elliott Wave Trades in Real Time Wave 2 and wave 4 are too similar and show no alternation. The complete wave sequence is corrective.
Degree The waves on a monthly chart are much larger than those found on an intraday chart comprised of two-hour time frames. If you study a price chart, the degree of each wave is easily recognized. You can easily see that some waves consume more time and price than others. When dealing with small time frames, it is essential to group all the smaller waves into bigger ones.
The waves on a five-minute chart are grouped to make up an hourly chart. The hourly chart is then grouped to make up a daily chart. The daily is then grouped to make up a monthly chart and so on. The data on a five-minute chart is of minor importance when viewed historically as compared to the data on a monthly chart, thus the five-minute chart is said to be of much smaller degree than the monthly.