SPY 5-min Exercise

This exercise was done today largely in real-time after noon (following a morning haircut). Readers can confirm this by reading the comments in the prior post. Please look over the count in detail. It is heavily annotated. This exercise was done to show the types of counting decisions that should be made by you in your real-time wave counting.

SPY Cash - 5 Min - Counting Exercise

Starting over on the left, there was this morning's gap up, then a decline that does not look like five-waves down, followed by waves up to 10:15 am that also do not look like five-waves-up. When I got back from the haircut, I was counting to see if we would get down to the 78.6% Fibonacci level. We did around 13:15, and I was able to count five-waves-down in that sequence including a contracting leading diagonal that started with a bearish engulfing candle. But, because of the only three-waves up to 10:15 I had my suspicions that those five waves would be the five waves that end the c-5 wave of a flat.

At about 13:15 there was an immediate bullish engulfing candle, and then a further diagonal which formed. At that point, I also sketched in the parallel trend lines. From the diagonal it was impossible to know if that would be a ① wave, an Ⓐ wave, or a Ⓒ wave if my down count was in error. So, I suspended judgement until the high of the diagonal was exceeded. When it was, the odds tilted very much in favor that the overall count would become a simple (a), (b), (c) up - even if the internals were tortured and twisted.

During the afternoon the 100% level of the formative wave sequences was passed, and this count seems relatively verified. There are a couple of other things not labeled you should try to find. Can you find the three bearish red crows in the down wave? Can you find the three bullish green soldiers in the up wave? These were also key aspects of following a count.

So what is the purpose of this post? The main purpose is not what you might think. The main purpose is this: you will note at one point during the count I was required to suspend judgement until I knew whether the second diagonal a) would be leading or ending, and b) if leading would it be a ①, or would it be an Ⓐ. So, these are the two questions I have for you.

Do you know the basic Elliott Wave patterns well enough so that you could complete this exercise? If you don't, you are encouraged to review them over & over & over until they are second nature. But second, and perhaps more importantly - can you suspend judgement simply and easily in portions of the count where the pattern is unclear because of a potential diagonal or a triangle or some other factor, rather than needing to know the count at every single stage of a rise or fall? 

I did not know certain things in this count, but I still made a few pennies off of doing what was most likely with appropriate stops around the uncertain items, even on a day when the volume is 'holiday light' and some people advise not trading. Can you do the same? Can you suspend judgement where you need to, and just accept that as part of the wave-counting experience? If you can't, you might have trouble with being a wave counter. For it is the nature of Elliott wave that there are some uncertainties. Elliott Wave can not reduce all trading uncertainty, or wave counting uncertainty. A heavy dose of patience, calm and flexibility is needed in counting waves. That's all there is to it.

Here is just one other observation to note. Look at how the bull (green) volume increased at the end of the trading day. So, here is the item to ask, "just why weren't those green people buying at the (b) wave low, after the bullish engulfing candle, rather than waiting until the end of the day and price had dragged them all upward?"

That is the key Elliott Wave question. Everyone (that is - the masses) gets bullish at the highs, and bearish at the lows. Try to use EW to try to help yourself from being in that position.

Have an excellent start to the evening.

TraderJoe