Count Backwards
What’s the pattern of this advance? It definitely doesn’t fit a typical five or
three wave pattern. To help determine what a pattern may be, it is helpful
to have a firm idea of what is the pattern position of the last major pivot.
If the low in March is a Wave 1 or A, then the rally should be a
correction. We initially assume any correction is going to be an ABC until
proven otherwise. This data is up through the date of this tutorial.
Nowhere along the way of this correction did it unfold as a typical ABC.
Just today, bonds declined below the prior swing low which signaled
the impulsive part of the rally from the late March low (labeled W.B) should
be a completed pattern structure, probably a Wave-C that subdivided into
five-waves. If that is the case, count backward to see if any wave count
will fit. The one above is an acceptable fit within all of the guidelines of
Elliott wave.
Wave-A is an impulse. Wave-B is three waves and the W.b:B is also
three waves. Wave-C is five-waves. All the subdivisions fit well even
though the Wave-C is out-of-balance (much greater in time and price) than
Wave-A.
Some times the pattern position does not clearly reveal itself until after
it has signaled that it should be complete. Then we need to count
backwards to see if the pieces seem to fit together within the rules and
guidelines. If so, we have a basis to make an informed and highprobability
trading decision with well defined and acceptable capital
exposure.
Trend or Counter-Trend?
Is a 1-2-3 count the best potential for the data below? Why or why not?
The rule that was formed by for the stock indexes is Wave-4 should not
make a daily close into the closing range of the Wave-3. For the data
above, the potential Wave-4 has made several daily closes into the Wave-
1 closing range although the decline below the Wave-1 high is small in
price. It is acceptable for a Wave-4 to close and trade slightly into the
range of Wave-1 for commodities and individual stocks.
A better wave count may at first seem to be the high on the chart is a
completed five-wave trend as shown below. The main drawback here is
the Wave-4 is much shorter in time and price than the Wave-2 – it is outof-
balance with Wave-2. While this doesn’t rule out a five-wave count, the
alternate wave count shown below where the high is a Wave-3 that
cleanly subdivided into five-waves is just as good a count.
At this point in time, neither of the two wave counts is overwhelmingly
favored. According to the rules and guidelines, either is acceptable. It will
require more data to determine which may be best. The trader must also
look to other factors such as the time, price or seasonal position to get a
better idea of which wave count may be more probable.
If the five-wave count to the March high shown above is correct, beans
should continue the bull trend after completing a correction to the fivewave
trend.
If the alternate count is correct, beans should be in the process of
completing a Wave-4 low which should be followed by a continued
advance to a new high.
Which count becomes the most evident as more data is included will
help to determine the extent of the next bull trend – A Wave-5 or entirely
new five-wave trend.
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