Trading the DOW with Elliot Wave

[k3lly]

Hello all,

I've been studying the elliot wave principle for about a year and a half and so far I've had some success using it to trade the dow. The attached chart shows my wave count and prediction as to where I believe the dow will be heading over the next 3 - 4 weeks.

As you can see on the chart I believe that we have probably reached the top of wave 3 and therefore a wave 4 may be forming - if this is the case we can expect it track down to somewhere around the 0.5 to 0.618 fib which is around 13440 level.

I would appreciate any comments or discussion.

Regards
Kelly

 

[Trader333]

EW has always worked well in hindsight in my view. I have yet to meet anyone who has been able to consistently make profit by saying in advance where the market is heading but I would be very happy to be proved wrong.


Paul

 

[dick_dastardly]

Hi k3lly

I spent about a year studying EW but never had any success with it, although I am still very much interested in the subject.

I will keep an eye on this thread.

Good luck with it.

dd

 

[k3lly]

EW has always worked well in hindsight in my view. I have yet to meet anyone who has been able to consistently make profit by saying in advance where the market is heading but I would be very happy to be proved wrong.


Paul

Hi Paul

I think you could probably say that about any strategy – what I really like about Elliot Wave is that you don’t just blindly follow a market and enter trades when, for example, two moving averages cross. Instead it requires some real thought and market knowledge to apply the principles correctly – once you have got your head around the subject it is surprising how accurate your predictions can become, particularly in the medium/long term timeframes.

Lets see what happens with the dow…..

Cheers
Kelly

 

[catracho]

Hello all,

I've been studying the elliot wave principle for about a year and a half and so far I've had some success using it to trade the dow. The attached chart shows my wave count and prediction as to where I believe the dow will be heading over the next 3 - 4 weeks.

As you can see on the chart I believe that we have probably reached the top of wave 3 and therefore a wave 4 may be forming - if this is the case we can expect it track down to somewhere around the 0.5 to 0.618 fib which is around 13440 level.

I would appreciate any comments or discussion.

Regards
Kelly

Or could it be this? EW is interesting but not sure of it's value as a forecasting tool; there are always alternative wave counts, good to use other indicators as well...
Good trading!

 

[k3lly]

Or could it be this? EW is interesting but not sure of it's value as a forecasting tool; there are always alternative wave counts, good to use other indicators as well...
Good trading!

This wave count is not all that dissimilar to mine – you are suggesting that the impulse wave 3 has not yet completed and there may be still some upward movement, what both our charts agree on is that fact that the dow is heading for a correction [wave 4] to the downside which will be followed by a bull market [wave 5] probably in early 2008.

It will be interesting to see how it pans out……or maybe I need to get out more!!!

Good luck
Kelly

 

[Trader333]

Based on your analysis, what is the Dow going to do then and by how much ?


Paul

 

[k3lly]

Based on your analysis, what is the Dow going to do then and by how much ?


Paul

I reckon that the dow is now in the 4th wave of a cycle and is therefore heading to the down side. Within the next 3 - 4 weeks I see the dow trading as low as 13440 before starting the 5th wave which should see a bull market that is likely to last for the early part of the new year.

I personally don't day trade - there's too much noise in the shorter timeframes for me! Instead I trade using options and I have already purchased my put which is due to expire at the end of november.

Regards
Kelly

 

[TheBramble]

I I have already purchased my put which is due to expire at the end of november.

Kelly, just out of interest, why did you purchase a PUT rather than sell a CALL?

 

[TheBramble]

Because the i believe the dow is falling i want the right to sell - if i'd have purchased a call it would have given me the right to buy, which wouldn't be much use if the dow falls as i think it will.

Cheers
Kelly

No, I said why did you sell a CALL.

 

[k3lly]

No, I said why did you sell a CALL.

Sorry Bramble, i misread your question!

As I understand it - If you sell or write an option your profit is limited to the premium that you charge for the option - if you buy an option your potential profits are not limited but your risk is limited to the premium.

Kelly

 

[TheBramble]

As I understand it - If you sell or write an option your profit is limited to the premium that you charge for the option - if you buy an option your potential profits are not limited but your risk is limited to the premium.

Absolutely correct Kelly. My point, I guess, is twofold.

I don’t know how much experience you have trading or how much time you have under your belt but personally, I’d always go for a finite and lower value, higher probability win than a potentially larger, but lower probability win. Might just be my thing though…

The other issue is that regardless of which method you choose to use to establish basic trade setups (so not exotics or spreads or volatility etc.), there are two components: Direction and Time. Getting either right is a task on its own. When trading the underlying you can afford to forget the time element to a large extent unless it’s part of your strategy of course. You don’t have that luxury with options – the time element is critical.

So you might be right with your analysis in terms of the downtrend AND the 3-4 weeks you mention. But the time decay value is exponential as you get toward the last 30 days of an option. And you’ve bought a NOV expiry. You need to be VERY right in both dimensions and still you’ll possibly find your profits aren’t quite on the Delta you’re currently calculating.

Worst case (apart from an outright loss of course) is getting the direction right but the momentum wrong. If your line doesn’t squiggle down as quickly as you’d like, you’re going to end up very close to the line.

Selling CALL premium works in your favour in most circumstances where you are sold on a fall. Reverse for a climb.

 

[2468steve]

Sorry Bramble, i misread your question!

As I understand it - If you sell or write an option your profit is limited to the premium that you charge for the option - if you buy an option your potential profits are not limited but your risk is limited to the premium.

Kelly

As I've said before.."options are like fish,the longer you hold them the more they stink"..

 

[catracho]

This wave count is not all that dissimilar to mine – you are suggesting that the impulse wave 3 has not yet completed and there may be still some upward movement, what both our charts agree on is that fact that the dow is heading for a correction [wave 4] to the downside which will be followed by a bull market [wave 5] probably in early 2008.

It will be interesting to see how it pans out……or maybe I need to get out more!!!

Good luck
Kelly

yes agree wave counts are similar.. however I would say we look likely to complete 5 waves soon; if that is the 5 of a larger wave 1, then we may be in for a rocky ride down in a wave 2 till Xmas/New year and the BULL market really takes off after that, with wave 3 (usually the longest)..
all just speculation of course..but with mkts looking a little overextended and yesterdays test of new highs meeting with some pretty decent selling, makes me think we will see a "good" retracement of the move from Aug lows..Wave 2's are usually quite deep retracements, and will reduce bullish sentiment to levels for a sustained strong rally

 

[k3lly]

View attachment 29960Morning all,

I have just done a little analysis on the 60min chart and if i'm right the wave iv is now underway. It may not reach the lows as I previously mentioned of 13440 but i can see it hitting the 13850 mark which would equal wave A - there is also support at 13750. Have a look and let me have any comments

Many thanks
kelly

 

[Trader333]

Based on this then if we Short the Dow where do you suggest a stop should be placed ?


Paul

 

[k3lly]

Based on this then if we Short the Dow where do you suggest a stop should be placed ?


Paul

To be 100% honest Paul, I couldn't tell you. I suppose it depends on your money management strategy and the timeframe you're trading. As i think i may have mentioned earlier in the thread I don't trade intraday i just use these short timeframe charts to help confirm my wave counts.

Good luck
Kelly

 

[k3lly]

As an update it looks like we can confirm that wave iv is now underway and will complete within the next few days – so far this morning (afternoon here in the uk) the dow has opening and is heading in the right direction. I have updated the chart to show how I believe the wave count is structured within wave iv.

As always, comments and suggestions would be appreciated.

Thanks
Kelly

 

[catracho]

As an update it looks like we can confirm that wave iv is now underway and will complete within the next few days – so far this morning (afternoon here in the uk) the dow has opening and is heading in the right direction. I have updated the chart to show how I believe the wave count is structured within wave iv.

As always, comments and suggestions would be appreciated.

Thanks
Kelly

yes your count seems on track...if I remember rightly (with my limited EW knowledge) wave 4's tend to be the trickiest waves to trade - lots of whipsaws...what would your chart level be for a confirmed start of wave 5 (if any)?

 

[k3lly]

yes your count seems on track...if I remember rightly (with my limited EW knowledge) wave 4's tend to be the trickiest waves to trade - lots of whipsaws...what would your chart level be for a confirmed start of wave 5 (if any)?

Yes wave 4 is the most difficult to fathom in my experience too, although the dow seems to be playing ball at the moment - hope i haven't spoke too soon! I would be looking for the price to head down towards 13800 mark (possibly lower - but there is local resistance in that neck of the woods) then I'd be looking for the price to retrace to the 0.382 fib of wave iv - at this point i would consider buying my call.

Kelly