An Exacting Measurment

This is the second post this weekend. If you have not seen the first one, it might be helpful to review that one first. This post is based on potentially making a minute ((b)) wave up, to the 90% level of the prior high. The measurements are intriguing. The ES hourly chart is below. 

ES Futures - Hourly - (c) = (a) ?

The premise of this chart is that if we are making a flat wave, it 'should' reach the 90% level of the prior high. One way to do that is to have a zigzag, upward, in the form of a (c) = (a) wave as shown between the parallel channel guidelines.

You will note that (c) = (a) at 2,942 as shown by the middle colored Fibonacci ruler, and yet the 90% level is at 2,946. Further, if the five waves of the last (c) wave are labeled properly, then v = iii at 2,951. This is shown by the second colored Fibonacci ruler. The reason this is important is that it certainly looks like wave iii of (c) is shorter than wave i of (c). The exact measurements there depend on where i of (c) ended. Is that wave ii of (c) a sharp wave or a flat wave? Where did wave i end, exactly?  So, is i shorter or longer than iii? Also, where exactly did wave iv end? Is it on the low as we have indicated, or did it end a couple of bars later? 

These last four questions are very difficult ones to answer. However, the importance of this post is the following. Even on the surface - the way things look - it should be possible to make a minute ((b)) wave up to the 90% level or even slightly beyond. And - depending on where exactly you see the various wave terminals - it should be possible to construct scenarios where clear levels of invalidation occur.

In the example above, wave v of (c) should not go too far beyond 2,951. Keep in mind in the analysis of risk and reward, if the reward is back down to the 2,760 level or more, the upside risk can be limited to 20 to 40 points, or even less. So, from the 2,946 level that is a risk of (say) 40 points for a potential reward of about -180 points. That is a risk to reward of 1-to-4.5 or 1-to-9 or better. But, yes, because of some of the uncertainties, there is real risk, in such a calculation. It should not be taken lightly.

Nothing in this post is to be considered any kind of trading or investment recommendation.  This post is merely an example of a series of calculations that can be made when using Elliott Wave theory. Each person must make their own decisions regarding what to trade and when to trade it. And remember, futures are particularly risky and can cause a loss of some or all of your capital. Consult your financial adviser if you have questions regarding this information.

Have an excellent rest of the weekend.

TraderJoe