Perfect Wave - 2012-2/2
- Thread starter snowrider
- Start date
http://perfectew.blogspot.com/2012/08/kiss-principle.html
When we deal with something very complex, a good idea is to simplify the process. Keep it simple and stupid (KISS Principle). How to? We first look at the chart and make a guess (with some imagination) about what the wave structure the market is forming most likely. With a scenario in our mind, we then *peg* an existing wave by assuming that wave is something. For example, we make an assertion that the stock market is going to surge tomorrow because the market has finished wave-2 today. With that assertion, we will need to find out two things:
1. what a correct movement (in favor of us) is, and
2. what market movement will invalidate our assertion
For example, if the market does surge, then our preferred wave count is correct; if the market goes below yesterday's low, then the wave-2 has not finished yet.
About the second question, we need to understand what purpose each wave segment serves:
wave-1: recover after panic or climax
wave-2: accumulation
wave-3: moving the price
wave-4: distribution
wave-5: panic or climax (false break)
So my answer to your second question is that I trade wave-3 only most of the time.
When we deal with something very complex, a good idea is to simplify the process. Keep it simple and stupid (KISS Principle). How to? We first look at the chart and make a guess (with some imagination) about what the wave structure the market is forming most likely. With a scenario in our mind, we then *peg* an existing wave by assuming that wave is something. For example, we make an assertion that the stock market is going to surge tomorrow because the market has finished wave-2 today. With that assertion, we will need to find out two things:
1. what a correct movement (in favor of us) is, and
2. what market movement will invalidate our assertion
For example, if the market does surge, then our preferred wave count is correct; if the market goes below yesterday's low, then the wave-2 has not finished yet.
About the second question, we need to understand what purpose each wave segment serves:
wave-1: recover after panic or climax
wave-2: accumulation
wave-3: moving the price
wave-4: distribution
wave-5: panic or climax (false break)
So my answer to your second question is that I trade wave-3 only most of the time.
OCO Order and Trading Wave-3
Ideally, it's true to stay away corrections in order to make life easier and to make the best use of the trading money to trade only the fastest movements. However, it is not that easy to clearly identify a corrective wave. Also, if you are managing a large fund, wave-2 is where you use for accumulating and wave-4 for distributing because it is not possible to get fully loaded at the very moment when wave-3 is confirmed. Most of the time the confirmation is coming from the penetration of some key area, and it's very hard to load much when the market moves very fast at that moment.
About the idea to "trade only wave 3 (and 5) of wave C", it is essentially trading the impulsive wave of a lower timeframe. (Remember that we talked about to trade the timeframe that we count the wave? in http://perfectew.blogspot.com/2012/08/from-arthur-snowrider-i-have-been.html)
Ideally, it's true to stay away corrections in order to make life easier and to make the best use of the trading money to trade only the fastest movements. However, it is not that easy to clearly identify a corrective wave. Also, if you are managing a large fund, wave-2 is where you use for accumulating and wave-4 for distributing because it is not possible to get fully loaded at the very moment when wave-3 is confirmed. Most of the time the confirmation is coming from the penetration of some key area, and it's very hard to load much when the market moves very fast at that moment.
About the idea to "trade only wave 3 (and 5) of wave C", it is essentially trading the impulsive wave of a lower timeframe. (Remember that we talked about to trade the timeframe that we count the wave? in http://perfectew.blogspot.com/2012/08/from-arthur-snowrider-i-have-been.html)
I did started from using TA indicators, and I have played all indicators inside out before throwing them away. I understand and know them too well so that I won't use them. Given a TA indicator, you can ask yourself some simple questions about that indicator:
1. Do you know how to use it?
2. Do you know the formula (how it is calculated)?
3. Do you know the idea behind the formula (why it is designed that way)?
4. Do you know what timeframes that indicator work best with what parameter values?
Once you know the formula, have you thought about tweaking it a little bit or create your own formula? Once you create your own formular (your own TA indicator), you might be wondering what the optimal parameter values for your indicator are? At that moment, you might want to start playing system trading. You will then write you own systems and start back-testing historical data. In the end, you might succeed on that route - system trading. However, I did not, so I threw away everything and went back to price action/behavior. Please read more:
System Trading vs Elliott Wave (I, II, and III)
About the question of identifying divergence ... EW has some very good patterns for you to identify the end of a wave. For example, the Ending Diagonal Triangle pattern will bring your TA indicators to divergence. You don't need an indicator to tell you that because the chart already told you.
