welcome to this video on Elliott wave
theory analysis versus objective trend
trading indicators I traded Elliot wave
theory for a while a couple of years
actually had a teacher who was very
successful consistently profitable so
I'm definitely not here to trash Elliot
wave theory my opinion on it is that it
started out with the observation on how
markets tend to move seeing repetitive
cycles of three impulse moves and or
five impulse moves and then three
corrective waves and I think that yes
the market does move that way a lot of
times but not all the time and so like a
lot of good things that start with some
good concepts then people turn them into
Dogma and impose that Dogma on reality
and that's where things get messed up
and in my opinion that that's where
Elliott Wave gets messed up people start
to make it into where where the markets
gotta always fit a certain rigid
structure and the market doesn't do that
you know the market is a wild animal
like a wild tiger not like a little tame
purse puppy that you can tame so the
markets are going to do what they're
going to do and they don't always follow
the same patterns and so the way that I
account waves or the way that I count
cycles the way that I measure trends is
really just a very mathematical and
certainly there's been people who have
attempted to create objective
measurements for Elliott Wave and I've
seen them but still the way that I do
this is the way that I prefer it after
experiencing many different types of
approaches so here it is in basic number
one when we define trend understand that
the word trend means the extended
general direction so very important to
understand that that is actually
literally what the word trend means is
the extended general direction that's
Webster's dictionary definition of the
term so for example you could have a
higher high and a higher low and some
people define this as a trend that is
not a trend
that is not a trend that breaks the deck
of the dictionary's definition of the
word trend because you could have the
market coming down before that in then
going down after that and this is simply
a complex retrace in an overall
downtrend the extended general direction
of this market would be down in this
case before the trend is down therefore
higher highs higher lows does not define
trend that is wrong
so we need a when we're going to use a
trend trading indicator we need
something that measures the long term
move of the market and there's many good
choices I don't think there's one that's
you know superior to all the rest so I
like to keep things simple I just use a
moving average the 50 period simple
moving average it fits the definition of
the term trend and number one and it
also is a very commonly used moving
average perhaps the most commonly moving
average that there is and therefore
there's a self-fulfilling prophecy to it
based on math psychology so especially
on daily and weekly charts in monthly
charts too so I Myers your trend so for
example sometimes the market will go
into a trend list cycle like this where
it's just not really going anywhere not
up not down and the 50 ma pretty much
goes flat and then fixed period simple
moving average we start to go down and
we see that starting to angle down and
then we count our cycles and our waves 1
2 and then we get this a similar to
Elliott Wave we'll get our little ABC
patterns here as the market puts in
cycles now this down here is my cycle
indicator so when you're measuring
cycles there's two different things
there cycles and there's waves so this
indicator measures cycles but you have
to measure cycles before you can measure
waves so I don't have time to go into
all of the details about my cycle
indicator but I do give this away for
free just send an email to be rehab
treating calm and I'll show you how to
get that for free this is actually just
part of it I just want to show you the
bird bones strut
to rub it here to give you the idea
right now because today we're not really
talking about cycles we're talking about
trend but they are related and so this
is the way that I count waves so here's
a wave 150 ma wave one is defined as the
first cycle low after the 50 ma turns
down so that's right count I start my
wave count so is that a little bit late
to the party it is trend is always a
lagging indicator and that's because you
have to wait for a certain amount of
data to be collected in order to measure
the extended general direction if you
start to really you're not measuring the
extended general direction so you have
to let some time go by and that's why
it's a lagging indicator alright we've
to here whoops with two now we don't get
a wave three here why because that is a
cycle low and that's a cycle high and
that's why we've won and that's a wave
to the reason this is not a wave 3 but
wave 3 occurs over here is because a
wave the way I define it is different
than a cycle has to make a lower low
another way to wave 3 is to make a lower
low than wave 1 and since this does not
therefore it is a cycle open out a wave
low that's the difference so every wave
is a cycle but not every cycle is a wave
so waves defined counting how and this
is my waves are so important in trends
it counts how far you are along in that
trend so I'm sure you've heard the term
that trend is your friend until the end
well what that's instructing us on is to
know how early or late you are in a
trend you only want to treat early in a
new trend because the later the trend
goes it's not your friend anymore
becomes your enemy actually that's when
we start looking for trend reversal
trades the trend is your friend early in
a new trend I would love to trade a wave
to any new trend and that's what I do
that's the early trend trade that I can
get all right now we have trend reversal
trades you could
gotten in before this on the trend
reversal trade etc but these are very
very reliable so let's define where does
wave 3 come in now here's another thing
that people will tell you that I
disagree with and it goes back to the
higher high higher low higher high
higher low thing ok
higher highs are an oversimplification
so it's not necessarily important for
example facts it can be deceiving it can
be a bearish pattern so here we have
lower lows alright and the way I just
have to define a wave 3 is we take this
and we look at let me draw bring up my
drawing line here I'll take that low Oh
drop straight across in order for this
to be a wave 3 wherever a wave 3 is
going to come in the not only it doesn't
have to be a lower low but the open and
close of the bar have to be below wave 1
so here we have this as the start of
where we could start a wave 3 it ends up
putting in its low here notice the cycle
indicator stays down below the mid-range
of the indicator this whole time and
that's something to understand about
cycles cycles are not even they expand
and they contract and sometimes they
actually disappear if you've ever
understood or studied cycle theory in
detail then you understand what I'm
talking about
alright so again now here we put in a
wave 5 now counting waves this way your
average wave count is a wave 5 so that's
great all right but let me show you
something else so we get a higher high
here many lines just a little bit off
there but you get the idea so we get a
little higher high here but where does
it close it closes and opens oops not
closest biloba high of wave 1 therefore
we call that a failed 3 and it's called
a rejection of value and market profile
theory
saying that you know prices went up here
but it didn't close up there so
therefore it's really not a bullish yet
in fact the market rejected these higher
prices now that's just temporary can
turn around in fact it did turn around
here and another thing to look at is the
range of the bars all these range all
these bars here are very narrow range so
it really just means you know get a look
at all these things here so it really
just means markets really hesitating
here there's no strong movement to the
upside or the downside for that matter
it's just kind of going sideways so we
we don't impose any you know major
influence or structure on the market we
just understand that okay pretty much
going sideways then we start getting
some more wide range bars already and
there then it starts finally going up
and these wide range bars are more
significant then again it starts to put
in narrow range bars and we get some
sideways sideways movement so we put
away three here because this is the
highest high where we do get an easiest
way to think about it is just the real
body of the candlestick above what above
the high of wave one so that's a
significant higher high right this was
not significant that is now the markets
really trending now it's really making a
move up okay and then we get away five
so again that's a failed five this is
just now we acknowledge our cycles and
the cycles are just timing cycles doing
that penny how far the markets going to
move and so we get a little cycle low
here we get a little cycle high here a
little cycle low here but again overall
what's the market doing just kind of go
on sideways it's not really going
anywhere so time is going by and the
oscillations are happening and that's
purely with the cycle indicator measures
is time but then you need to coordinate
that with your trend for direction in
other words you don't want a short a
cycle high when the trend is going up
and again what else it's not late in a
trend we would only want to do that if
it got real late on the trend beyond an
extended trend so the average trend is
five waves still not going to short that
why wouldn't it because that is the
average trend I don't want to trade the
average I want to trade beyond the
statistical average all right and then
look at that we put in the wave seven
wait a minute I thought you're only
supposed to be able to put in five waves
no that's an Elliot wave rule but to me
again the markets are going to do what
they're going to do I'm not imposing an
outside expectation of how many waves
that has to put in so the way that I'm
doing this is mathematically objective
there's no guesswork there is no
absorptions there is no subjectivity to
it you've got a cycle indicator that's
mathematical you've got the rules based
on price structure that's mathematical
and everybody gets the exact same wave
count so this can actually be programmed
into software and look at that we put in
a field nine and we put in a real nine
and we put in an 11 so this time the
market said you know what I'm really
going to rock and roll here and that's
the way markets work in real life
sometimes they have go into big huge
trends that man you're gonna have to be
real creative to try to fit that into a
five wave pattern and it just doesn't in
my opinion make much sense to try to
impose or reduce a big trend down to
five waves and then expand little trends
into five waves and really those two
trends are very different things why not
number them for what they are either
long trends or short trends and to put
numbers on them so that we can identify
whether or early in a new trend late in
an old tram and make it all very
objective so that's where I'll see on
the same thing and there's really no
guesswork to it at all so if you like
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