We saw another mammoth move with DOW on Friday and eWavesHarmonics (eWH), along with some simple Fib' analysis, was very helpful in pointing the way.
We attempt to predict where DAX and DOW will go, at the start of the London and New York sessions and, for the most part, the forecasted moves work out pretty well. Friday's DOW prediction was nearly right and is a good topic to do a blog post about - I try to do at least one post a month but have been slack in January ... my bad!
This was the prediction posted in our Skype group - a fall, a correction, then another fall.
That wasn't really rocket-science. eWH had correctly identified the waves 3 and 4, then plotted target zones 1 and 2 for us .. that was enough by itself. For added confluence, I'd drawn the H1 demand zone, shown as the orange rectangle, then did a Fib' expansion of the waves 1 and 2, plus an extension of the last up wave, within the wave 4.. Given the strength of that move up, it was reasonable to expect a bounce off the 4 demand zone to test the week open, before continuing on down to the target zones. The red TZ2 was below our orange H1 demand zone, so the most probable target was between the 1-2 261.8 Fib' expansion and 161.8 Fib' extension of that last move up; the latter labelled as (V) for our fifth wave.
This is what followed ...(with the chart cleaned up a little)
Price fell over 500 points! It didn't correct, as expected, the bears were far too strong; but it hit our wave 5 target just lovely.
We trade the one minute charts in the Skype group and do an H1 analysis of DAX and DOW every day, to get some direction for the session, as well as likely targets and, using the clusters tool (shown below) to understand where price might stall and add further confluence to our targets. A regular higher timeframe analysis is an extremely important process, when trading the lower timeframes. To not do it, at the start of a trading session. is like trying to drive a car blindfolded, without a steering wheel and no idea where you're driving to.
If you had used the bearish clusters feature in eWH, with the click of a button when the top of the wave 4 had formed, it would have drawn these levels for you (I added the circles to highlight how price reacted) ...
Anyone who already has eWH can put it into 'test mode' and see for themselves how well the clusters worked.
I'm still expecting to see the red TZ2 hit, perhaps on Monday - I don't think the bears have finished with DOW yet.
Hopefully, this blog post helps to emphasise the importance and usefulness of a pre-session higher timeframe analysis; particularly for the M1 traders but also for higher timeframe traders. If you have a good idea as to where price is going, it's a lot easier - and more profitable - to look for great setups in the right direction on the lower timeframes.
To all my many trading friends around the world, whatever you celebrate at this time of year, I wish you and yours a very merry festive season.
Thank you very much for your support, kind words and success stories, throughout 2019. May 2020 bring you ever more success in your trading.
Impeachment is a statement of charges against a government official. In the USA, the official can remain in office during the trial and legislative votes are required for conviction, following the impeachment.
Trump is the 3rd president to face impeachment proceedings: Nixon quit (1974) before they began against him; Clinton (1998) and Johnson (1868) were the others – neither were forced from office as a result.
Trump is a Republican - they’re like the UK Conservative party (another reason for the Boris Johnson similarity). The Democrats have a substantial majority in the House of Representatives (like the UK’s House of Commons) and thus there is a lot of opposition to Trump there. However, in the Senate (sort of like the UK’s House of Lords but senators are elected) there is no such opposition with 53% being Republican.
Two-thirds of the Senate are required to vote against Trump, if he is to be forced from office by the impeachment proceedings – there is a greater chance of my cat becoming a brain surgeon.
So, the impeachment will most likely just be a black mark on Trump’s CV; nothing more. It’s unlikely to have any impact on the financial markets, in my very humble opinion, and just as unlikely to prevent Trump from standing for a second term.
What is a ‘trade setup’? It’s a point in time where price has done something, perhaps at some level, perhaps with a combination of indicators, that tells a trader it’s a good time to buy or sell an instrument. We’ll just call them setups, for the purpose of this article, regardless of how they were derived.
There are an infinite number of different setups and, in isolation, you might find that most of them work (lead to a profitable trade) at best, 50% of the time. Of course, the definition of ‘work’ will very much depend on the skill of the trader, in determining where to place a stop loss, how to manage the open trade and when to close it; and, deciding whether or not to trade it in the first place.
From what I know of most traders, they seek trades with a very one-dimensional view – staring at a chart on one timeframe and waiting for the setup to tell them to trade. Pop-up alert, place trade, pray for a favourable outcome. That might work for some lucky traders but, going by the percentage of retail traders who fail, it’s clearly not a good approach for the majority.
The thing about most buy-sell indicators is that they are usually even more one-dimensional than the rookie trader. They don’t consider how price got to where it did: the path it took; the time it took; how the price bars looked before the setup; key support & resistance levels; supply and demand; etc. etc. A buy setup might actually be a good sell setup, when the many factors are considered, instead of the singular thing.
Take this candle, for example: -
However, when you look at it in context, it’s really telling you that now might be a good time to sell; in fact, there were four good reasons why it was a good time to sell, just from the one timeframe, can you see them?
One of our favourite so-called setups, using eWavesHarmonics, is the W4 TLB – a way of identifying the possible end of a corrective move. However, as I was discussing with one of my trading friends, in our Skype Trading Group, a W4 TLB isn’t a buy/sell signal on its own. There are other things to consider: -
You should be using setups as a means to get into a trade, with sufficient R:R, in the direction you had already discerned as being favourable, towards a target price that you had already determined to be most likely. You don’t want to be using setups to randomly trade in any direction without a price target already in mind.
It’s not as complicated as it sounds – our brains can look at these things in microseconds and draw the right conclusions. All is covered in the Free Trader Training Course, if you have no idea what I’m talking about .
It has been another great week on the indices with DOW again at all-time highs. The harmonic pattern traders will have probably done some projections and not been surprised by where price got to. DOW didn't surprise us in the Skype Trading Group - we'd been looking for TZ2 on D1 all week.
TheHarmonicIndi has, for quite some time, had the capability of doing D point projections from partial harmonic patterns. I had included the code into eWavesHarmonics (eWH) a couple of years ago but never got around to finishing it. I'm happy to say that I've made some progress with that recently and it now appears to be functioning well; and better than in THI.
Using the new 'D Pro' feature on DAX D1, back on 14th October (as in the above left picture) two possible patterns were projected: Butterfly and Deep Crab. This week, a month after the projection, price did indeed climb to complete the Butterfly pattern: about 800 points up from the 14th.
Projecting harmonic patterns can be a great way to add confluence to your targets for taking profits. The upgrade is now available as a Beta version from the eWH installation page, if you would like to try it out; I might make some further improvements to this feature in the coming weeks.
On the subject of eWH ... Michael in our Skype Trading Group (a super nice chap and terrific trader) asked me how the wave count could be restricted to bullish or bearish. I didn't think it could be done but he discovered a way that I really should have known about. Press the Bu0 and Be0 buttons then delete the start of the bearish or bullish count (the target symbol). Le voila! ... you have one or the other counts - simple!
Trading the lower timeframes is great fun, particularly the one minute chart, but over-trading it can often be the thing that kills a trader's account.
Have you experienced those days when the trading demons take control, and every price move seems like a good setup worth trading, or there is a need to keep moving stop losses in too tight?. In the space of a few hours, an entire week's profits have been wiped out, or worse. It's easily done and I know plenty of traders who suffer from this affliction. See this blog post, for more about trading demons.
To help control those demons, I've made some changes to the 'Trade Levels Indi' - the free add-on for the Advanced Trade Manager - that was originally created to show risk:reward levels. We call this upgrade the 'sleeping policeman' (speed bumps in the road) because it's intended to slow traders down and prevent over-trading. The new features include parameters for: -
In addition to the above, there is an option to limit the pip-risk on your trades, using the ATM swing lines, so you look for the best R:R opportunities.
And ... there is a summary of trades for the day and personalised messages, that you define, to remind you, at regular frequencies, of good trade practices, as in the picture.
It's available for download now - completely free if you have a valid ATM licence.
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.
And that's pretty much what we do all day every day, with eWavesHarmonics. Trading really doesn't have to be any more complicated.than that but thousands of traders make it horrifically complicated; and there are countless scammers telling you it is very complicated.
Does it look complicated to you?.
Want to know how to easily identify impulsive waves and find the likely end of the corrective waves (sometimes well-before price gets there)? It's all in the Trader Training Course.