Saturday, October 10, 2015

A Hitch-Hiker's Guide to the EW Galaxy

Because some people keep posting the same information in chat rooms, repeatedly, and because others think I am some kind of Elliott Wave monster - out to seek and destroy other chat rooms - or that I claim that my counts are 'always correct', or others say I am here to promote myself, I want to use that energy to update with this post.

With apologies to 'A Hitch-Hiker's guide to the Galaxy', I am going to offer you these six realistic Elliott Wave scenarios, any of which 'could' occur without any breaking of the Elliott Wave rules. There may be others I have missed. If there are, let me know.

Clearly because they are offered for free, and also because I am not selling anything (check my web site- any and all 'Products' for sale have been removed), I hope it reduces the perception of any pandering or self-interest, other than that people actually learn to count Elliott Waves, as they are described in the texts. Why am I doing this now? First, because this is the most difficult time in history to make good Elliott wave predictions. The market will lurch & jolt; it will cause gains and losses, it will cause people to have a surge in optimism of new highs, and then it will disappoint with overlaps of some kind. If you can learn to survive in this environment, then counting impulse waves higher or lower, will seem like a walk in the park at some later point in future.

The second reason I am posting this, now, is people almost always drag out the very tired comparison to Robert Prechter. Saying, "you know he thought he was always right, too" or some other such nonsense. The fact is Prechter's organization has almost always posted alternate counts, whether you want to acknowledge that or not, or whether you wanted to use them or not! So, please take that argument and use it on someone else.

The third reason is that people keep telling me that because, somehow, a wave did not conform to my expectations that it means that you can't possibly trade using it! Bingo! I agree with that statement to some - even a large - degree. I have made an entire video, posted on YouTube, about "A Critique of Using Elliott Wave for Trading", particularly if it is used alone or in isolation. If you haven't watched it, you should! We are in that period now called "The Fourth Wave Conundrum" in that video: many, many options. And I maintain, that when a wave label invalidates it provides a lot of information for the future.

So, without further delay, here are six plausible scenarios for the future. You will have to decide what you like and what you don't like, and let the market decide the outcome.

Scenario 1 - P5 Failure

Clearly for this scenario, you have to think there have been three Primary waves of a Cycle Impulse upward to at or beyond P3 = 1.618 x P1. That's fine it might work that way in the U.S. It's just not working that way for the London FTSE. One reason to question this scenario is how short P5 would be in relation to P1. It's not a 'deal-breaker' though. It could happen. It just needs five waves up from P4. Other comments are on the chart.

Scenario 2 - Regular P5

This chart has many of the same features as the prior one - just that P5 is allowed to take on a more reasonable length in relationship to P1. Who knows, perhaps P5 would produce a "throw-over" of the channel that would end the move - like the Gold market did. It's plausible. The one thing about this chart is it ignores the overhead supply of the seven month diagonal from last November to this May.

Scenario 3 - Triangle
One advantage to this chart is that P4 is allowed to consume more time in relationship to P2, and price is allowed to contact the lower channel line, and perhaps make a 'false breakout below it' while still producing acceptable alternation in the count.

Scenario 4 : Double Zigzag or Flat-X-Zigzag
This scenario allows price not only to contact the lower channel line, but also re-define it. In other words, we would re-draw the P2 to P4 trend line, when we 'know' where the new P4 is. Then P5 could head upward, and make a wave that is more like P5 = P1. It might also allow a 38.2% retrace of P3 in the U.S., but it might mean more ugliness in foreign markets.

Sceanrio 5 : Leading Diagonal Downward
This scenario would be ugly, indeed, because a deep retrace for a second wave (ii) of a diagonal would have most convinced that new highs are in the offing - yet this scenario would both recognize the overhead supply created, and allow the S&P500 to validate it's ending diagonal triangle - that formed in May, 2015 - like many other stock indexes have done. It would also recognize the extreme leverage and number of people that participate in the market via the ES futures rather than buying traditional stocks, for example. In this scenario, wave (ii), to follow the rules, must now form with a similar structure as wave (B) of the triangle, start with a Leading Diagonal, A, then retrace for a B, then make a C wave up to form a legitimate zigzag.

Scenario 6 - Regular Impulse

 It's funny, but the wave iv of a simple impulse downward has 'not yet invalidated'. Certainly, it has a high risk of doing so - which is why it is presented last. But, still, we can not rule it out just yet. The Dow is only points away. If we can rule it out, we get to take one scenario "off the table". If not, that will tell us something, too.

So, here are six scenarios. And you might ask, "what's the point"? The point is that based on Elliott Wave theory it is 'very to hard say' where exactly one is in the wave count. But it is 'largely' because the down movement consisted of, or started with, three waves down. That very same 'conundrum' happens on all degrees of wave counting - whether you want to accept it or not. That's why Bill Williams developed some indicators that can help in that decision and why they are incorporated into some products like Advanced GET, E-Signal or Motivewave (I have no business relationship with any of them).

Yes, as of Friday momentum looks up. Want to fight that? That's up to you. So, if it's hard to tell where one is, one might want to at least remain flexible, do the best job of short-term wave counting possible, and, if possible, let the market clear up some of the confusion.!

Cheers and the best to you always!


  1. I appreciate your setting up your blog. I don't doubt that people want to see your thoughts. We all want as much information and opposing viewpoints as possible. I for one take the time to evaluate alternative viewpoints and not try to call people out if their views differ than mine. That often, if not always, backfires.

    My criticism is this: On page 1, chapter 1 of the Elliott Wave Principle, it states ." (EW) is the best forecasting tool in existence..,. "

    But as formatted above, you have a number of possible outcomes. And your counts change often, sometimes hourly. You take no risk as others do by making specific calls. Some of us do put out our market calls and trades and open ourselves up to ridicule. But it's only through showing the ability to make correct calls that one gains credibility.

    OK, thank you for allowing the opportunity to voice my thoughts.

    1. You're welcome for setting up the blog. Yes, the EWP says what it say on Page 1, Chapter 1, and that may have been true at the time. Let me say it again, it may have been true at the time. But, things also 'come into existence' over and above one person's work. At the time, John Bollinger had not invented Bollinger Bands, Glenn Neely had not more accurately described some of the existing wave pictures and measurements, Steven Poser had not written his work about how to use the principle for trading, and, more importantly, Bill Williams had not described how best to trade the Elliott Wave given the underlying structure of the markets. But markets have changed too. Many fewer are the human 'market makers' who - because they are human - couldn't instantaneously read the whole "order book" and best position the market to run the most number of stops, instantly figure the number of retail traders in the market to pick them off, or figure the average price excursion that would cause the average retailer to have to exit - just because such a move would almost wipe out their account. (If you have any questions that this is being done, just Google the term "market making algorithm"). Further, we know that the EWP was written well-before the advent of stock-index futures and electronic news trading programs that both receive the news before the human eye can see it, interpret it, and trade off of it before any human can even press a button.

      So, once again, you are - to some degree - doing the same thing to me that everyone else is. You are holding me to one standard, of one person's work, and I categorically reject that.

      Please, get over it. I have written over and over that Elliott Wave has surpassed where EWI was able to get it. They may be still be following the older models. That's up to them, not me. Still I agree with them in principle in many aspects - lopsided sentiment, as shown by lop-sided positions, will call an end to the basic wave patterns. And I can't argue with the basic difficulty in calling a wave 4, or a wave after a third wave "of some type", even if it's a C wave, when you only get three waves down.

      Still, I respect your viewpoint if you are "making calls". Again, I am not a registered investment adviser, so I can not, legally, and will not do that. But to be cognizant of your post, and to help increase the credibility of using Elliott Wave tools to trade with - tomorrow I will publish an example of a real Elliott Wave trade that can be taken, with a full explanation as to "the exact mechanics" and the "reasons". Let's see if that gets you any closer to a more full understanding.

  2. Excellent. Thank you for taking the time.

  3. Excellent. Thank you for taking the time.

  4. Awesome post Joe! Always learning something new and always getting a refresher course - all at the same time! Love this blog!


  5. Great works, thanks for big efforts

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  7. Just what I've been hoping for from you---clearly laying out all the possibilities. Wow.

  8. Excellent viewpoint and analysis Joe!!