Many Forex trading system sellers love to quote probabilities and statistics but there are usually two main problems: -
Here are some real statistics, from eWavesHarmonics (eWH), that I’ve just shared with my friends in the Skype Trading Group. It’s an exercise that I did a few years back that seemed worthy of being repeated with more recent data.
Before we get into the numbers, I’ll just define some key points.
eWH, like eWaves v1.0 shows: an impulsive wave labelled ‘3’; a corrective wave labelled ‘4’; another impulsive wave, with divergence, labelled ‘5’
The wave labels often align perfectly with Elliott Wave counts but not all the time – that’s an important point to note.
From the waves 3 and 4, eWH automatically projects target zones (TZ) 1 and 2, using Fibonacci expansion levels.
Now onto the statistics … the analysis, gleaned from several instruments over all available data with my broker, looks at how often TZ1 and TZ2 levels are hit, when a W5 has been identified. The W5 could be a truncated 5, where price has just corrected to the 3 level, long before TZ1 or TZ2 has been hit. I hope that makes sense.
We are particularly interested in the percentage of times the TZ levels are subsequently hit and how much the W4 needs to retrace the W3. As we’re not talking Elliott Wave definitions, all of the time, the depth of retrace could often be significantly more than what you’d expect from a regular wave 3 and 4.
This information is designed for traders with eWH but can also be used by those with eWaves v1.0; although it should be noted that eWH uses some different algorithms for defining the start of waves and thus the TZ levels – they will often be the same though.
Let’s start with Bitcoin 15-minute chart, from 31st May 2019 to 18th Oct 2019.
Anything with more than a 50% probability is a great thing, in trading, particularly where the R:R is greater than 2. So, the chances of a W5 going on to hit TZ1 is 52% - that should tell you that it’s a good thing to lock profits, when a 5 has been identified, after you’ve entered on the W4 – e.g. on a TLB, with a view to price going up to TZ1. Once price has hit the TZ1, you can lock profits again, knowing there is a 37% probability of price going on to hit TZ2.
The average max R:R of 1: 11.37 is fantastic but, I hope, you’ll be wanting to know how that is calculated. I’ve assumed a perfect W4 entry – getting in on the open of the bar after that which formed the W4 extremum. Seldom will traders be able to enter with such finesse but it’s certainly not impossible, e.g. a clear rejection candle at supply/demand or support/resistance. I’ve then looked at how far price travels, over the next 1000 bars, without breaking the extremum of the W4. For most traders, the average R:R will be significantly less than 11 but, of course, there will be trades that offer significantly more. The maximum that I found for Bitcoin was 142 – and much more on other instruments (spread not factored). Needless to say, you would need to be a bit of a trading wizard to get that but, again, it’s certainly not impossible.
Now, with the stats fully explained, let’s look at some other instruments and timeframes. Remember, anything over 50% is great but, for TZ2, the R:R will be much greater than TZ1s, so we can accept a lower percentage hit rate.
Gold M5 29/7/19 to 18/10/19
Number of W5s found: 174
Number of TZ1 hits: 88 (51%)
Number of TZ2 hits: 53 (30%)
Average Max RR (for 1000bars): 7.65
DOW M5 20/12/18 to 18/10/19
Number of W5s found: 603
Number of TZ1 hits: 381 (63%)
Number of TZ2 hits: 258 (43%)
Average Max RR (for 1000bars): 10.45
USDJPY H1 22/2/19 to 18/10/19
Number of W5s found: 47
Number of TZ1 hits: 31 (66%)
Number of TZ2 hits: 20 (43%)
Average Max RR (for 1000bars): 10.30
DAX M5 6/5/19 to 18/10/19
Number of W5s found: 329
Number of TZ1 hits: 198 (60%)
Number of TZ2 hits: 135 (41%)
Average Max RR (for 1000bars): 9.88
EURUSD H4 2/3/10 to 18/10/19
Number of W5s found: 117
Number of TZ1 hits: 74 (63%)
Number of TZ2 hits: 39 (33%)
Average Max RR (for 1000bars): 8.60
GBPUSD H1 20/9/17 to 18/10/19
Number of W5s found: 122
Number of TZ1 hits: 74 (61%)
Number of TZ2 hits: 47 (39%)
Average Max RR (for 1000bars): 7.01
What’s the most common percentage retrace, that W4 does of W3 before forming the W5, you might well be asking. I can answer that for you …
With all the data, from the above instruments and timeframes aggregated, the results are: -
W4% retrace Occurrence
Probably no surprises there: between 30 and 80% is a good W4 retrace of W3, with 50 to 60% being the higher probability.
You might well have a few more questions, if you’re still awake after reading this blog post, one of which is: how did you get these stats? That’s simple – I wrote an indicator that works with eWH in ‘test mode’ – whenever a W5 is identified, from the auto-scrolling, the code writes the values to a CSV file. I then created some pivot tables and extracted the data. It’s all above board and genuine, the original files have been shared with my friends in the Skype group.
I have also done an analysis of the best times to look for W5s on DAX and DOW, but that’s for another day.
Buy the dips and sell the rallies, is what we’re looking to do with eWH. When we do that, we target the 3 SD zones, first, then the TZ levels. When all is said and done, this is a very simple approach to trading, with – as the above results demonstrate – a reasonably high-probability of having a very successful trade.
The art is being able to identify the possible end of a W4 – that is covered in the trading course.
Bitcoin has been in a deep correction since the incredible bull run that ended on 26th June, up near 14k. The recent criminal investigations and realisation that transactions might not be as secret as some shady dark-web characters had hoped, has done nothing to help the BTC bulls' optimism.
Just for a change, I thought it would be good to see where it might head to next, using some of the features of eWavesHarmonics (eWH). The red 3 shows where the last impulsive bear move ended and subsequently corrected - giving us a mini demand zone, shown by the green rectangle. This is obviously a key support level for us now - you don't need to be a trading wizard to work that one out. The important thing is what price does next with that level. If it breaks, as I suspect it will, we'll be looking at the TZ1 and TZ2 levels, auto-plotted by eWH.
The Fibonacci cluster-clusters (purple horizontal lines) provided resistance yesterday and give price some direction below, should price break the support. Needless to say, these levels will be good to watch, above and below where price is currently at. Another level worth watching for is 6400-ish (thick magenta line) - the gap formed back in May that was never properly closed.
There aren't too many reasons to be bullish on BTC at the moment but let's see if the green 3 forms a strong base, or breaks, in the coming days.
It's been a crazy week on the markets, with Brexit and USA-China trade talks. We've seen incredible daily ranges across nearly all instruments: the DOW 5 day ADR is 425 as I type; the DAX gained over 2.5% today; GBPJPY did 392 pips ... fantastic for us traders.
Last trade of the week was really something special, as you can see in the picture: risk/reward of 5 to 1 in one minute !!! DOW had been very volatile since FOMC Member Rosengran starting speaking (watch out for those speeches) but this quick move certainly exceeded my expectations.
The point is, as the lottery slogan goes: you have to be in it to win it. When you see a really nice setup forming, with a very low pip risk and good R:R potential, you would be negligent to not place a trade. In this case, I had ATM on a default of 5:1 R:R, price had corrected and looked like it was forming a base for another move up. In the blink of an eye, the trade was entered and closed. A nice end to the week, with a helping hand from the Trading Gods and eWavesHarmonics..
More of the same next week, we hope.