Miner R. Practical Elliott Wave Trading Strategies Part 1 2002.pdf

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Practical Elliott Wave Trading Strategies A Special Tutorial Series For Subscribers To The Dynamic Trader Reports Practical Elliott Wave Trading Strategies Part 1 Robert Miner, Dynamic Traders Group, Inc. This tutorial begins a series of how to apply Elliott wave analysis for practical trading strategies. All subscribers have some Elliott wave background from my Dynamic Trading book. Because that book goes through the pattern structures in detail, there is no ne
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  Practical Elliott Wave Trading Strategies  A Special Tutorial Series For Subscribers To The Dynamic Trader Reports Copyright 2002, Dynamic Traders Group, Inc. – www.DynamicTraders.com Practical Elliott Wave Trading Strategies Part 1 Robert Miner, Dynamic Traders Group, Inc. This tutorial begins a series of how to apply Elliott wave analysis for practical trading strategies. All subscribers have some Elliott wave background from my Dynamic Trading book. Because that book goes through the pattern structures in detail, there is no need to repeat that information in this tutorial series. It is assumed for this series, that subscribers are familiar with Chapter 3 of Dynamic Trading and how the most frequent pattern subdivide. Besides teaching you the practical application of Elliott wave trading strategies, an objective of this series will also be to dispel some Elliott wave myths and bad practices fostered by Elliott wave academics. Everything taught in this tutorial series will apply to any actively traded market included futures, stocks, indexes and mutual funds and any time frame whether five-minute or monthly. What You Should Know Before Beginning This Tutorial Series From your study of Elliott wave in Chapter 3 of Dynamic Trading, you should be familiar with these concepts. Impulse Trend – Usually unfolds in five-waves. Five-wave impulse trends are usually made in the direction of the larger degree trend. Counter-Trend – Usually unfolds in three-waves. A counter-trend is a correction to the prior impulse trend. Waves of Similar Degree – Also called swings of similar degree. Waves of similar degree represent the subdivisions that make up a completed structure. In an impulse trend, waves one-five are the waves of similar degree. The subdivisions of each wave are waves of a smaller degree. Subdivisions of a Wave – Any given wave may subdivide into smaller degree waves to complete the structure of the wave. For instance, Wave-1 of a five-wave impulse trend usually subdivides into five waves of lesser  Practical Elliott Wave Trading Strategies  A Special Tutorial Series For Subscribers To The Dynamic Trader Reports Copyright 2002, Dynamic Traders Group, Inc. – www.DynamicTraders.com degree. You should be familiar with how each wave of a trend or counter-trend usually subdivides. Multiple Time Frames - Multiple Time Frames has become a buzz-phrase recently. It is nothing more than R.N. Elliott’s approach to considering multiple degrees of wave structure. When the subdivisions of a wave are complete, the larger degree wave is compelte. Trend or Counter-Trend? What is Elliott Wave Analysis? Elliott’s Wave Principle is a catalogue of defined chart patterns. These patterns are helpful to indicate if the market is in a trend or counter-trend. Knowing the trend or counter-trend position, we also know the main trend direction. Each pattern has implications regarding the position of the market and the most likely outcome of the current position. Most pattern positions will have an outcome that will validate or invalidate the assumed pattern position. This is extremely important. It also helps us to determine the maximum distance away from the market to place the protective stop-loss. Elliott Wave Pattern Basics – 5’s and 3’s The basis of Elliott’s Wave Principle is that most trends unfold in five waves  in the direction of the trend and three waves  or combinations of three waves in the direction counter to the main trend. It’s that simple. Markets usually unfold in three’s and five’s. Five wave patterns are impulsive  or trend structures. Three wave patterns are corrective  or counter-trend structures.  A five-wave impulse trend and three wave or more complex counter-trend each has a characteristic structure which we will talk about continually throughout this tutorial series. One important objective of Elliott wave analysis is to recognize in the early stages of the wave structure whether it is more likely to be an impulse or a counter-trend.  Practical Elliott Wave Trading Strategies  A Special Tutorial Series For Subscribers To The Dynamic Trader Reports Copyright 2002, Dynamic Traders Group, Inc. – www.DynamicTraders.com The Three Elliott Wave Rules These three rules are most relevant to daily closing data. 1. Wave-2 should not exceed the beginning of Wave-1. In other words, Wave-2 should not make greater than a 100% retracement of Wave-1. 2. Wave-3 should not be the shortest of the three impulse waves in a five-wave impulse trend (waves 1, 3 and 5). 3. Wave-4 should not make a daily close into the closing range of the Wave-1. These rules are extremely helpful to confirm or invalidate a potential pattern. Even when using intraday data, be aware of the pattern and guidelines relative to the daily closing data. Why is pattern analysis an important part of the Dynamic Trading approach to technical analysis? 1. Pattern analysis helps us to determine if a market is in a trend or counter-trend. 2. Pattern analysis helps us to determine the position of the market within a trend or counter-trend. 3. Pattern analysis helps us to project the time and price objectives of the current trend or counter-trend. Think Pattern Below we will go through several pattern examples. The objective is to learn to think in terms of pattern position and what a market must do to confirm or invalidate a particular pattern structure. Every potential pattern position cannot be illustrated, but if you keep the basic pattern concepts and guidelines in mind, you will be able to identify the potential pattern position for most market situations. Here is a quick review of what we are trying to accomplish with pattern analysis.  Practical Elliott Wave Trading Strategies  A Special Tutorial Series For Subscribers To The Dynamic Trader Reports Copyright 2002, Dynamic Traders Group, Inc. – www.DynamicTraders.com The Three Pattern Questions 1. What is the most probable pattern position? Why? The answer to this question may only be “impulsive” or “corrective.” The answer may also be, “don’t know.” 2. What market activity will confirm the assumed pattern position? What is the pattern guideline that is relevant? 3. What market activity will invalidate the assumed pattern position? What is the pattern guideline that is relevant? The Three Important Pattern Considerations 1. Be quick to admit when there is no discernable or relevant pattern! Do not force an Elliott Wave count when there is no count that meets the guidelines or a clearly defined five or three wave structure. 2. If there is no discernable wave count, does the pattern appear to be in an impulse or corrective structure? 3. As new data is made, the market will continually confirm or invalidate the pattern position assumption. Trade the market, not the forecast  . Be quick to change your assumption of the pattern position if the market activity invalidates the current assumption. Continued on the next page.
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