For Serious Elliotticians

If you are already, or intend to become, a serious Elliott wave analyst there are some lessons you have either seen already or may wish to learn below. We post the chart below primarily on behalf of the latter.

Objective: to demonstrate where diagonals form after triangles.

This is the daily chart of the July 2018 Crude Oil Futures contract.

CL July 2018 Futures - Daily

The first item to note since we were following this chart is that the peak of momentum, based on the daily Elliott Oscillator, was back in February of this year. That was the peak of wave Minor 3. Then there was a very clear minute degree triangle, labeled above as a - e, which we called out in real time on this blog, and said it would lead to higher highs. It did.

As we watched this triangle form, we noted that the b wave was not higher than wave 3, and, thus, it was a regular symmetrical triangle, and not a "running triangle". With a higher b wave, a "running triangle" would have been a more structure bullish. Without the higher b wave, this one was signalling to beware. Further signs of caution were that none of the new highs were confirmed to have higher momentum by the Elliott Oscillator.

This was, none-the-less, a daily triangle, and it's waves were and are clearly visible on the daily chart. This most usually means that the triangle immediately precedes the last five waves on exit from the triangle. You can then see the five non-overlapping minute waves labeled i - v that make up Minor wave 5.

Clearly, wave v of 5, was a contracting wedge, a tweezers's top, or a structure that serious Elliott analysts call an ending contracting diagonal. Note that all of the waves within the structure can be delineated as three-wave zigzags. Space permits only the labeling of the first zigzag for wave (i).

Once the tiny throw-over of the diagonal completes, then it can clearly be seen that the entire diagonal wave is completely and entirely retraced - back to its starting point in wave iv, in less time than the diagonal took to build. This is a key confirmatory step to noting that an ending contracting diagonal has actually occurred. It did. The diagonal took about fifteen daily bars to build. The down wave exceeded the low of wave iv in five bars.

But, note too, just how the diagonal forms. Wave (i) of the diagonal is not formed until it has exceeded the prior wave minute iii high. And wave (iii) exceeds (i). This is most often the case. Waves (i), (iii), and (v) of a contracting diagonal are motive waves (not corrective waves), even though they are three-wave structures, and so they most often form above their prior peaks. Too often analysts try to put the diagonal inside of prior highs - that should be a red flag that the count might not work out.

Further, note that the diagonal does not immediately follow the triangle. The triangle, and the diagonal are cousins. They are not the same pattern, but they are related. While each has five three-wave sequences, the triangle always travels sideways along the price pattern. It does not slant with the trend as the diagonal does.

But, because they are cousins, it would be rare to see an entire diagonal immediately follow a triangle. That would be poor alternation. It would be two triangle-type patterns in a row. Said differently, if all of the triangle is Minor wave 4, then one would not, by the principle of alternation, expect Minor wave 5 to be entirely a diagonal. And, in this chart you see that it is not.

No, rather, exiting the triangle are the four waves of an impulse pattern at Minute degree (i - iv) and the diagonal comprises Minute v. In other words, if the triangle is a minor wave, this diagonal is a minute wave - fully one degree lower than the triangle. So now, following the triangle is an impulse wave, and only wave v of that impulse wave is a diagonal. This is acceptable alternation because the wave degrees are different.

Paying this type of attention to alternation and the meaning of wave degrees is another way you can distinguish yourself in the category of Elliott analysts who practice this craft from those who don't wish to understand the true nature of wave counting, or those who think they have some much better method, usually for a lot more money. No better method is needed. It's simply here in black and white for people to notice - if they will.

Will you be among those who learn the skill properly; will you invite your friends and relatives to try to learn along also? We hope so.

And we hope you have an excellent weekend.
TraderJoe

P.S. There was a post on Friday, too, if you missed it.