Jaenisch ron - power trend investing with andrews pithfork

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TableofContentsAkindreviewisappreciated

PrefaceREQUIREDLEGALSTUFFWhat’sinitforyou?TheBasisofElliottWaveandAndrewsPivotTheoryTheElliottRuleofAlternationTheElliottThrustWaveRulesTheAndrewsMedianLineMakingCorrectionsEasiertoDealWithAndrewsRulesAndrewsRulesCombinedwithElliottWaveTheoryWhySelectivelyFocusUponAPartofElliottWaveTheory?LettingtheRulesWorkforYouUsingSoftwarethatCombinesAndrewsandElliottTakingittotheNextLevelEnteringtheTrade/InvestmentExitingtheTrade/InvestmentKeepingProfitsfromVanishingGettingstartedwithminimalrisk

TheThreeStepsImprovingPopularIndicatorsViewonRiskManagementResources

Akindreviewisappreciated

Ipurrforkindreviews.

Preface

Thisbookisthefirstintheseries.Eachbookintheserieshasauniquetechnique.

AlanAndrewslikedtoenterapositionatthestartofanewtrend,ideallyattheendofacorrection.WhatdidAndrewsusetodetermineifamovehadended?Itappearsthathewouldlookatachartandsimplyknow.Whentheauthoraskedhimtoexplainhowheknew,hedrewseverallinesandshowedhowthemarkethadsetthingsupforareversal.Heshowedhowhedidthiswithmultiplechartsand,inmostcases,thelogicforfindingthereversalpointsvariedslightly.

Doingthisonhistoricalchartswithperfect20/20hindsightiseasy,butwhataboutdoingthiswhilethemarketisreversing?Toconvincedoubters,hedemonstratedhisuncannyabilityeachyearcoveringaperiodofseveralmonths.Hisgoalwastoturn$5,000into$50,000bytradingfutures.

Toprovidethoseobservingwithamorehands-onexperience,hesentoutanewsletteronFridaycontainingascripttobereadtothebrokeronMonday(theordersindicatedsection).Inhisnewslettershealsoexplainedthesignalsusedandexactlywhatthelogicwasbehindtheorders.

Youcanclearlyseeintheexcerptsfromhisnewsletters(sectionscutoutbelow)thattheordersweregiveninadvanceandtheprofitsweresignificant.Theseexcerptsarefromthenearly1,000pageAndrewsExpandedCourse,whichcontainsyearsofnewslettersandallofthedocumentationthatthisauthorhasfromAlanAndrews.Itisonlyavailabletoalimitednumber.

Overtheperiodofafewmonthsinthisdemonstration,hewasupbymorethan400%.Therewereothertimeswhenhedidmuchbetter.

Thisbookisforthreedifferenttypesofinvestors:

1)ThosewhoknownothingaboutElliottWaveorAndrewstechniquesandwanttolearnaneasy-to-applymethodforpredictingfuturepricemovement.

2)TheinvestorwhohasabasicunderstandingofElliottWavebutwasfrustratedbyitbeingdifficulttoapply,andissearchingforawaytomakeiteasy.

3)TheinvestorwhohasfoundwaysofmakingElliottWavepracticalbycombiningitwithanotherindicatorandislookingtofurtherimprovehisworkingmodel.

AnexpertinElliottWavecanlookatachartandgivetwo,three,four,ormoreoutcomes.Byaddingthetechniquesinthisbook,thechartistwillhaveoneoutcome.Additionally,theprobabilityofsuccesswillbeincreaseddramatically.

Wheredothesetechniquescomefrom?

AlanAndrewsmadehisfirstmilliondollarstradingcotton.ThiswaswithinjusttwoyearsaftergraduatingwithadegreeinengineeringfromM.I.T.andHarvard.Thisaccomplishmentwasinpartwhat

motivatedmetotravelandflyacrossthecountrytohishomeinFloridaandattendhisprivatecourseandliveseminar.DuringtheprivatetimeIspentwithDr.Andrewssittingathiskitchentable,Iwasabletoaskhimmanyquestions.Oneofthemwas“Whicheasy-to-applycoursetechniquescanbecombinedwithElliottWavetofindfuturelongandstrongmovesforinvesting?”Dr.Andrews’answerwasthatElliottWavewasunnecessarilycomplicated,butheencouragedmetocombinesomeofhistechniqueswithspecificsubsetsoftheElliottWavetheory.

R.N.Elliottbasedhiswavetheoryonmarketpsychology,Fibonaccinumbers,the.618ratio,andreoccurringpatternsofthebehaviorofinvestors,resultinginpredictablefuturepatterns.

ProfessorAlanHallAndrewsbasedhistheoriesupontheenergyandlocationofpriceactionpatterns,Newton’slawsofmotion,andprobabilitytopinpointwhenthetrendhasreversedandpredictwhenitwillreverseinthefuture.

Asyouwilldiscover,thedifferencesbetweenthetwoarebothintheoryandpractice.Thisispartiallyduetovastdifferencesbetweentheselectionsofpivots.AfivewavecountinAndrewsisnotnecessarilyafivewavecountinElliottWave.

Thiswriter’scomputer-basedresearchincombiningtheBabson,Andrews,andElliotttechniquesresultedindeterminingtimeswhentheycanbecombined.Thisbookcoverstheeasy-to-learnmethodapprovedbyDr.Andrews.

Afterthefindingsweredocumented,theywereincludedin,whatwasatthetime,thenewAndrewsBabsoncoursemanual,whichthewriterdevelopedforteachingcoursemethodsonthewestcoast.Priortohispassing,Dr.Andrewsreviewedtheentirecoursemanualandwroteonthecover,“AnInspiringdigestofthecoursemethods.”

Thisbookanswersmanyquestions.Oneofthemis,“WhatportionoftheAndrewsAdvancedcoursetechniquescanbecombinedwithspecificElliottWavepatternstofindmanyfuturelongandstrongmovesforinvesting?”ItalsoservesasanintroductiontobothElliottWaveandAndrews’“pitchfork”techniques.ThefocusistofindagoodpercentageofthelongandstrongmovesinETF’s,Forex,futures,andstocks.Asaresult,thefocusislimitedtospecificpatterns.

TofullyunderstandElliottWaveinvolveselaboratecorrectionpatternsthatarefartoodifficultformosttraders.Thesesometimescomplexpatternsarebeyondthescopeofthiswork.Theyarewelldocumentedinbooksbymanyothers.

TofullyunderstandallofAndrews’techniqueswouldrequirethereadertobefamiliarwithhiswritingspriorto1975.AlanAndrews’bestworkwasintheearly1970swhenhewassendingoutanewsletterattheendofeveryweekwithadetailedscriptforhisstudentstoreadtothebrokeronthefollowingMondaymorning.Thenewslettercontainedthereasoningbehindthevarioustrades,alongwithextensiveinstructionsandillustrations.Andrewsisknownforthemedianline;however,muchofthefocusofhiswritingswasontheBabsonReactionlines.Thereactionlinethathewrotewasbestfordeterminingthelocationoftheendofatrend;hereferredtoitas“ORE.”Thiswassomethingthathedidnotincludeinthecoursethathesold.Itisonlyavailabletothosethatarefortunateenoughtohavehiswritingsfromtheearly1970s.

Atthepresenttime,thiswriterisinvolvedinthedevelopmentofsoftwarewiththelatesttechnologythatwilltakethistothenextlevel.

ToseetheoriginalAndrews’papersgoto:https://www.youtube.com/watch?v=MnrxXMCwhOI

ToseeDr.AndrewsandRonJaenischgoto:https://www.youtube.com/watch?v=wgRkVFb3iLU

SeethemassiveAndrewslibraryoftoday:https://www.youtube.com/watch?v=qbGbS49bn08

Ifyoulikewhatisinthisbook,gotooursiteformoreinformation.JointhefreeemailgroupbyclickingupontheNEW?linkattheAndrewscourse.comwebsite.

REQUIREDLEGALSTUFFGeneralTermsofUse

THEINFORMATIONPROVIDEDINTHISDOCUMENTISFOREDUCATIONALPURPOSESONLY.

ITISPROVIDEDASGENERALMARKETCOMMENTARYANDDOESNOTCONSTITUTEINVESTMENTADVICE.NEITHERTHEAUTHORNORASSOCIATES,DISTRIBUTORS,HEIRS,ORASSIGNSSHALLACCEPTLIABILITYFORANYLOSSORDAMAGE,INCLUDINGWITHOUTLIMITATION,ANYLOSSOFPROFIT,WHICHMAYARISEDIRECTLYORINDIRECTLYFROMUSEOFORRELIANCEONSUCHINFORMATION.THEREISNOWARRANTYOFANYKIND.

RequiredRiskDisclosure—theterm“securities”shallapplytoallfinancialinstruments.

SECURITIESTRADINGORINVESTINGCARRIESSIGNIFICANTRISKANDMAYNOTBESUITABLEFOREVERYONE.THEPOSSIBILITYEXISTSTHATYOUCOULDSUSTAINALOSSOFSOMEORALLOFYOURINITIALINVESTMENT;THEREFOREYOUSHOULDNOTINVESTMONEYTHATYOUCANNOTAFFORDTOLOSE.THETRADINGSTRATEGIESDISCUSSEDMAYNOTBESUITABLEFORALLINVESTORSDEPENDINGUPONTHEIRSPECIFICINVESTMENTOBJECTIVESANDFINANCIALPOSITION.INVESTORSMUSTMAKETHEIROWNINVESTMENTDECISIONSINLIGHTOFTHEIROWNINVESTMENTOBJECTIVES,RISKPROFILE,ANDCIRCUMSTANCESANDUSINGSUCHINDEPENDENTADVISORSASTHEYBELIEVENECESSARY.THEREFORE,THEINFORMATIONPROVIDEDHEREINISNOTINTENDEDTOGIVEINVESTORSSPECIFICADVICEASTOWHETHERTHEYSHOULDENGAGEINAPARTICULARTRADINGSTRATEGY.INADDITION,THEINFORMATIONPROVIDEDHEREINHASBEENPREPAREDFORINFORMATIONPURPOSESONLYANDISNOTANOFFERTOBUYORSELL,ORASOLICITATIONOFANOFFERTOBUYORSELLTHESECURITIESMENTIONEDORPARTICIPATEINANYPARTICULARTRADINGSTRATEGY.MARGINREQUIREMENTS,TAXCONSIDERATIONS,COMMISSIONS,ANDOTHERTRANSACTIONCOSTSMAYSIGNIFICANTLYAFFECTTHEECONOMICCONSEQUENCESOFTHETRADINGSTRATEGIESDISCUSSEDANDINVESTORSSHOULDREVIEWSUCHREQUIREMENTSWITHTHEIRLEGAL,TAXANDFINANCIALADVISORS.FURTHERMORE,SECURITIESTRADINGENTAILSANUMBEROFINHERENTRISKS;BEFOREENGAGINGINSUCHTRADINGACTIVITIES,INVESTORSSHOULDUNDERSTANDTHENATUREANDEXTENTOFTHEIRRIGHTSANDOBLIGATIONSANDBEAWAREOFTHERISKSINVOLVED.THEINFORMATIONORDATAPROVIDEDHEREINISBASEDONINFORMATIONGENERALLYAVAILABLETOTHEPUBLICFROMSOURCESBELIEVEDTOBE

RELIABLE.NOREPRESENTATIONISMADETHATITISACCURATE,COMPLETEORCURRENTORTHATANYRETURNSINDICATEDWILLBEACHIEVED.CERTAINASSUMPTIONSHAVEBEENMADEINTHISANALYSIS,WHICHMAYIMPLYPROJECTEDRETURNSWOULDBEACHIEVED.CHANGESTOTHEASSUMPTIONSMAYHAVEAPARTICULARIMPACTONANYRETURNS.

RequiredDisclaimerCFTCRule4.41

HYPOTHETICALORSIMULATEDPERFORMANCERESULTSHAVECERTAININHERENTLIMITATIONS.UNLIKEANACTUALPERFORMANCERECORD,SIMULATEDRESULTSDONOTREPRESENTACTUALTRADING.ALSO,SINCETHETRADESHAVENOTBEENACTUALLYEXECUTED,THERESULTSMAYHAVEUNDER-OROVERCOMPENSATEDFORTHEIMPACT,IFANY,OFCERTAINMARKETFACTORS,SUCHASLACKOFLIQUIDITY.SIMULATEDTRADING

PROGRAMSINGENERALAREALSOSUBJECTTOTHEFACTTHATTHEYAREDESIGNEDWITHTHEBENEFITOFHINDSIGHT.NOREPRESENTATIONISBEINGMADETHATANYACCOUNTWILLORISLIKELYTOACHIEVEPROFITSORLOSSESSIMILARTOTHOSESHOWN.

What’sinitforyou?

Thequestionmayappeartobeselfish,butwhenyourmoneyisontheline,itisaquestionthatisimportant.Theanswerisverysimpleandstraightforward.Byhavingaprofitablemethodfordeterminingwhentobelong,short,orout,onecantakeadvantageoftheupanddownswings.

Foralongonlyaccount,goingshortisnowpossibleonalimitedbasisbytradingselectETFS.Eventhoughthismethodofinvestingwillresultinmanyfast,furious,andprofitabletrades,muchofthetimeitwillalsonothavealongorshortposition.Thisisduetothefactthatitreliesuponspecificpatternstobeinplaceinordertoconsiderputtingonatrade.

Abenefitofthisapproachisthatittendstobeoutofalongorshortpositionduringtimeswhenthemarketappearstobegoingmostlysideways.

Intheabovechart,alongpositionatthe#2andanexitatthe#5wouldhaveyieldedover30%inaboutsixmonths.However,accordingtotheconceptssuggestedinthisbook,duringthetimeprior,andmostthetimethereafter,thereisnoreasontobelongorshort.Theexceptionbeingwhenthetraderisusingtime

framesshorterthanweekly.Inthatcase,othertradescouldhavebeenidentifiedwiththistechnique.

Thistechniquehasmarketforecastingcapabilities.Asthestockmarketwascomingdownattheendof2012duetofiscalcliffworries,thismodel’sportfoliohadnoshortpositionsandaveryhighnumberoflongpositions.Thisforetoldthe2-3%adayralliesintheS&Pnearyear’sendandthenewhighsin2013.

Anotherbenefitofthisapproachisthatadiversifiedportfoliocanhavestockswhichareindifferentstagesofacycle.Thisenablesthechartisttospreadoutriskandpotentialreward.

TheBasisofElliottWaveandAndrewsPivotTheory

R.NElliottdevelopedauniquewayoflookingatchartsofETF’s,Stocks,Forex,andCommodities.Itisamethodofpredictingthefuturebasedonwhatoccurredinthepast.Heaccomplishedthisbyfirsthavingamentalpictureofwhattheidealpricechartlookslike,thenlabelingtheactualchartsuptothatpoint,asiftheyfittheidealpattern.Hebelievedthatwhentheinvestorcorrectlyinterpretedthepriorpricechartthenhewasabletoforecastthefuturewithgreaterease.Today,therearemanybooksthatcoverElliottWaveTheory.

OneoftheconceptsfromElliottWaveisthattheendofwavetwoisanimportantpsychologicalpoint.Thisisapointwhenmanyinvestorsareconvincedthatthemovewillgoalotfurther,butitdoesn’t.

Asaresult,theythrowinthetowelandmissoutonhugeprofits.Thisisbecausetheyareconvincedattheendofwavetwothatpriceswillnotreversebutkeepongoing.Itistheendofwavetwoandthestartofwavethreethatisthefocusofthisbook.

Asyouwillseeinthisbookandinotherpublications,theuseofAndrewsandBabsontechniquesinconjunctionwithElliottWaveTheorymakesforecastingmucheasier.WhenDr.AlanAndrewsgaveseminars,hediscussedhowtoutilizehispivottheory,whichismuchlesscomplicatedthanElliottWave.Heencouragedstudentstoavoidthemanycomplicatedlevelsofothertechniques,includingElliottWaveTheory.

Still,therearemanythathavetakentheAdvancedAndrewsCoursewhoarewavetheoryenthusiasts.Withtheirunderstandingofboth,theycombinethemanddoextremelywellintheirforecastsandinvesting.

AnimportantdifferencebetweenAndrewsandElliottWaveisthebasisoftheunderlyingtheory.ElliottWaveisbaseduponmarketpsychologyandspecific,reoccurringnaturalpatterns.Andrews’stheoryandtechniquesarebaseduponthelawsofmotionandthetheorythatenergyisproducedduringtrading.Theenergypatternscanberecognizedandusedbyachartisttogenerateprofits.ItisthesechartpatternsthatprovidethefoundationtoapplyAndrews’conceptsandforecastthefuture.

Andrewswantedtoknowhowthemarketbehavesatspecificpivotpointstobeabletoforecastfuturepricemovement.WithElliottWaveTheoryalone,itisnotpossibletodeterminetheprobablelocationoffuturepivotpoints.ElliottWavetheoriststypicallycomeupwiththreetofivepossibleprojectedoutcomesforachartpattern.Thisisbecauseofthevariabilityofthemanycorrectiveandthrustpatterns.WithAndrewsandBabsontoolsandtechniques,thisisnotthecase.Thelocationoffuturepivotsiseasiertoforecast.Withsophisticatedsoftware,onecanpredictthetimeandlocationofmostpivotsusingthreetofivepriorpivotpoints.TheES60minutechartbelowillustratesthisconcept.

InFigure#7,aspricesaremakingpivot#2,theequidistantlinesaredeterminedtobetheonestopickmanyofthefuturepivotpoints.Thelinesinthechartaredrawnandtheprobablepivotpointsareforecastedtobenearthelines.Ascanbeclearlyseen,pivot#(1),(4),4,and(5)wereontheforecastedlines.Thisisinadditiontoothertechniquesthatareemployedtodeterminethelocationofmostofthepivots.Coincidently,withthepricesreactingproperlyonthelinepoints,theElliottWavecountisdeemedtobeaccurate.

Thiswillappeartobesomewhatpuzzlingtothenoviceatfirst.WithproperuseoftheBabsonandAndrewslines,theareaofthevariouspivotsorwaveendingpointsaremucheasiertoforecast.Thechallengethenbecomestoknowaheadoftimewhichtypeoflinetouse.

ThesilverchartlabeledFigure#1isaperfectexampleofwhataperfectElliottWavemightlooklike.InFigure#1thereisthestandardfivewavethrustpatternandthecorrectionpatternof3waves,whicharelabeledABC.Thewaves1,3,and5arecalledimpulsewaves(inthiscase,upwardmovements),waves2and4arecorrectivewaves(inthiscase,downwardsmovement).

AnimportantpartofElliottWaveTheoryisthatafterafivewavethrustpattern,itisfollowedbyacorrectivepattern.Incertaincases,thecorrectivepatternisasimplezigzag,threewaveABCpattern.Inothers,itisadifferentpattern.

Aswillbeseeninthenextillustration,whenlookingatthebiggerpicturefromthestart,onecouldsaythatthewavethatwentfromthelowto5iscorrectedbythea-b-cpattern.Then,bylookingatamoredetailedbiggertheoreticalpicture,wecanseethattheshorterwavesareusedaspartofapatternofsimilarbiggerwaves.

Itisthesmallwavemovementsthatcombinetocreateabigwave,whichhastheoverallappearanceofthebasictheoreticalElliottWavestructure.Eventhoughthesmallwavescombine,abigwavechartisuniversallyusedtoteachwavetheory.

WavesonmarketchartsaretypicallynotasperfectasseeninthesampleElliottWavechartandtendtobeverydifferentinappearance.Thisisduetovariousfactors,includingtheruleofalternationandthefactthatthereareoverfiveverydifferentcorrectivepatterns.ItisforthisreasonthatAndrews’techniquesaresoughtafterbytradersformakingElliottWaveaviabletheory.

TheAndrewspivottheoryacknowledgesthatsomecorrectionsaresimplethreepivotwaves,astheElliottWavesuggests.Itisthesecorrectionsthataresignificantinthepowerwavethreestepmethod.

Thetypesofcorrectionwavesthatapplyinlookingforwhathappenspriortolongandpowerfulwavesareoftenzigzag,doublezigzag,andflat.Theothercorrectivepatternsareirregular,running,doublethree,triplethree,andtriangles.Someofthetypesoftrianglesareascending,descending,contracting,symmetrical,expanding,andreversesymmetrical.Whenconsideredasawhole,itisenoughtomakeyourheadspin.

ItisthisincrediblecomplexitythatAlanAndrewssoughttohavehisstudentsavoid.Afterall,ifhecanmakemillionswithhismuchlesscomplicatedtechniques,thenotherscantoo.

Typically,thereisanextendedwaveinafivewavepattern.Extensionscomeinvariouslocations.Intheperfectwavechartspreviouslyshownhere,theywerethelongerwavesthatwentfromthewavepointmarked2tothewavepointmarked3.Factis,theseextendedwavepatternsoccurinallthreeofthethrustwavesandalsohaveatendencytoalternate.

Itisverycommonforoneofthethreethrustwavestobemuchlongerthantheothertwothrustwaves.Itisthelongeronethatisconsideredtheextendedwave,andinthepreviouschartlabeledfigure#1youcanseethesubwaveslabeledas(1),(2),(3)etc.Manybelievethatthethirdwaveismostoftenthelongestofthethreethrustwavesandthatitisalsothemostlikelytobetheextendedwaveofthethreethrustwaves.Thepowertrendinvestingthreesteptechniqueisdesignedtotakeadvantageofthethirdwavebeingthelongest.

Infigure#3,onecanseeanexampleofwave4-5beingtheextendedwave,whichcaneasilybebrokendownintoseveralsubwaves.

OneofthemanyadvantagesofAndrewsandElliottWaveisthatthesamerulesthatapplytoETFS,stocks,andcommoditiesinabullmarketalsoapplyinabearmarket.

Thisiswhywhenmarketsareinabear(downtrend)mode,theyarelabeledwithlettersandnumbersinasimilarfashiontothebullish(uptrend)mode.

IfonetakesthedistancefrompointCtopoint1andthencalculatesthepullbacktopivot#2inpercentageterms,itis50%ormoreinmostcases.Manybelievethatthemarketwillactuallyfindimportantsupportatvariousspecificpullbackpoints.Theyare38%,50%,62%,and78%.

Infigure#4,thecountisinthedownwarddirectionandonceagaintheextendedwaveisthe2-3wave.Thisisverycommon.Whenmyfriend,AlanAndrews,taughthisseminarsinFlorida,hementionedtheElliottWaveasarathercomplexmethodologyandsuggestedhispivottheoryasbeingaloteasiertoapply.However,sinceAndrewsdidnotunderstandsomeoftheeasy-to-applyconceptsofElliottWaveTheory,hemayhavemissedoutonsomeeasywaystocombineElliottWavewithhisowntechniques.Ifoneistobecomeanexpert,thereismuchmoretolearnaboutElliottWavethaniscoveredinthiswork.Here,asyouwillseebyaddingmarketgeometrydevelopedbyDr.AlanHallAndrews,onecanmoreeasilyutilizeElliottWaveTheoryasaninvestmenttimingtool.

TheobjectofthisworkistointroducethereadertoElliottWaveandAndrews’techniquesinamannerthatwillimmediatelybeperceivedaspractical.

TheElliottRuleofAlternation

TheElliottWavehasfewrulesandlotsofpatterns.Arulethatisspecifictopatternsisanimportantaidinselectingwavesforthewavecount.Theruleofalternationsuggeststhatthe1-2correctivepatternwillnotbethesameasthe3-4correctivepattern.

ThiscanbeseenintheApplechartlabeledfigure#5.Therearethreenumericalcorrectionsinthischart:3-4,(1)–(2),and(3)-(4).

Theruleofalternationwouldbeappliedheretothelasttwocorrectionpatterns.Notethattheydiffergreatlyinpattern,time,andpercenttothe1-2wave.

Figure#7isaneminisixtyminutechart;ithasitsvariouslabelsonitspivotpoints.Therearewaveswithinwavesinthischart.Thatiswhysomewavetipsarelabelednormallyandsomehaveanadded().Notethatthe(1)-(2)waveisverydifferentfromthe(3)–(4)wave.Moreover,the1-2waveisalsoverydifferentinpatternandtimethanthe3-4correctionwave.

Theseareexcellentexamplesoftheruleofalternation;theydifferintermsofduration,pattern,andpercentofthemovecorrection.

ThereareagoodnumberofdifferenttypesofcorrectionpatternsinwavetheoryandmostofthemarenotthesimpleABC.Inactualmarketconditionsyouwillseemany,withtheexceptionofstep1;theentireElliottWavepartofthisprocessissimplytofindABCcorrectionwaves.

TheElliottThrustWaveRules

WhenreadingthemanybooksabouttheElliottWave,itiscommontorunacrossvariousadditionalrules.Theseruleswillhelpyouidentifythrustwavesandareonlyappliedtothosetypesofwaves.

Theruleswillaidyouinidentifyingthrustpatterns.Thethrustwaveisusuallyeasytoidentify.Thecorrectionpatterncanbeextremelymorecomplextoidentify.

Thrustrule#1:Thethirdwaveisnevertheshortestthrustwaveinafive-wavestructure.IhaveseenthisrulemanytimesandIwouldadd“exceptwhenthewavestructureisnotidentified.”Typically,thisiswhenamoveisninewaves,anditisimpossibletoidentifyafive-wavestructure.

Figure#8showsninewavesupinapatterninwhichselectingthewavepointsisimpossible.Notethatwave6-7isthelongestand4-5isprobablytheshortest.Ifoneweretolabelthewavecountdifferently,asinfigure#9,thenitwouldbeinviolationofElliottWaverules.

Anotherthrustpatternruleiswhenpivot4occursattheendofthe4thwaveandisnotlowerthantheendofwave2,exceptwithinadiagonaltriangle.Thiscanbeseenclearlyineveryexamplepostedsofar.Whatcanalsobeseenineverythrustwaveexamplesofaristhatpivot#2isnotbeyondthelowpivotif,asinfigure#9,alowisbeingmadeorbeyondthepriorhighpivotwhenpivot#2isahighpivot.

Waveequalityissortofaruleinthatthetwonon-extendedwavesareclosetoequaleitherintimeand/ordistanceorhave.618relationshipstoeachother.

OriginalElliottWaveTheoryhasmanymoreconceptsthatarenothardandfastrules,suchaswaveequality,volume,andthe“rightlook.”Theseconceptsarecoveredindetailbyexpertsinwavetheoryinotherbooks.

Inthisbook,thefocuswillbeprimarilyononesetupthatiseasyforthenovicetoAndrewsorElliottWavetograspandapply.ThisonesetupistofindtheABCcorrectionpattern.Inorderforittobevalid,thepivotCmaynotbeexceededbyprice.IftheABCpatternisvalid,itwillbefollowedbyafiveormorethrustwavepattern.Inmanycases,anextendedwaveoccursaftertheABCpattern.

TheAndrewsMedianLine

Myfriend,AlanAndrews,toldmethatthemedianlinecamefromastudentinoneofhiscivilengineeringclasses.TheclasswasdiscussingwhatProfessorAndrewsdidafterhegraduatedfromM.I.T.andHarvard.

AndrewsworkedforhisfatherintheInvestmentbusiness.Duringthistime,helearnedatechniquefromRogerBabson.ItwascalledtheAction-ReactionMethod.TheAction-ReactionMethodisbasedupontheideathatpriormarketactionforecastsfuturemarketturningpoints.Withclear20/20hindsightonoldcharts,thiswasrelativelyeasy,butwhenforecastingfutureswingreversalpoints,thiswasdifficultatbest.Threelineswerenecessaryforthistechniqueandthemostcriticaloneisknownasthecenterline.Thecenterlineismostcriticalbecauseitdeterminestheanglesofthelinestobeusedfordeterminingfuturereversalpoints.

AstudentinProfessorAndrew’scivilengineeringclasssuggestedthatamedianlinebeused.Inthecharttheywerestudying,themedianlineprovedtobetheoptimalcenterline.

Andrewsdidalotofresearchwithmedianlinesandfoundthattheywereextremelyusefulfordeterminingthetrendthatpriceswillmovein.

Themedianlineisveryeasytocalculate.Takethreeconsecutivepivotpoints,infigure#10theyarelabeledA,B,andC.

ThemedianlineisdrawnfromthefirstpointAthroughthemidpointofthedistancebetweenpointsBandC.Whatmakesthemedianlinesousefulinpriceforecastingisthat,accordingtoDr.Andrewsandotherstudies,pricesmakeittothemedianlinein80%ofthecases.

ThelinesparalleltotheML(medianline)aredrawnfrompointsBandC.

Thisisanimportanttool,andtherearevariouswaystouseit

Afterthetestofthebottom,apossibleendofwave2isreached,andthemedianlinesaredrawnfromthethreepivotsthatarepriortopivot#1andpivot#2.ThiswillbecomeclearinFigure#13.

Infigure#13,itcanbeclearlyseenthatpriceszoomedthemedianline.Thesecondpartofthesetupwillbepresentedinthenextchapter.Inorderto“test”thechartpatternsforthis,themedianlinesaredrawnwiththeElliottABCpivots.

MakingCorrectionsEasiertoDealWith

WiththeElliottWave,onecaneasilycomeupwithtwentydifferenttypesofABCcorrections.Besidesthestandardzigzagpatternthathasbeenpreviouslyshowninthepriorcharts,thereareothersthatarecommon.

InfigureABC-1,therearetwoABC’sthatcanbeclearlyidentified.ThefirstABChastheBbeyondthe5.ThisissomethingthatisallowedunderElliottWaverules.Itisthewave2thatisnotallowedtobepastthe5.

Ascanbeseeninthesecondabc,thecisa2andislowerthanthea.ThisisalsoallowedunderElliottWaverules.Itisclearlyevidentthat,asthepriceszoomedthroughthemedianlinemarkedML,theywenttopivot#1and,atpivot2,theydidnotclosepasttherelevantredmedianline,whichoriginatedfromB.

ElliottWavetheoristssuggestthatwaveshaveamathematicalrelationshiptoeachotherthatcanbecorrelatedwithFibonaccinumbersandasortofwaveequality.Thiscanbeveryhandyfortryingtoguessthelocationoftheendofwavepoints.

Figureabc2showsthelengthofthewavethatendedatpointcwasabitover100%ofthewavethatendedatpointa.HavinganunderstandingofthiscanbehandyforapplyingtheAndrewsrulesthereaderislearninghere.The100%areaisusedbymanynovicesasatargettotakeprofits.Aswillbelearnedinlaterchapters,therearefarbetterwaystodeterminewhentotakeaprofitbecausethemarketwilloftenmovetoapointthatisfarbeyondthe100%point.

Probablythemostimportantruletorememberforselectingtheabcpivotpointsisthattheyareatalternatepoints.Therefore,iftheAisalowpivot,theBwillbeahighpivot,andtheCwillbealowpivotatalaterpointintime.IftheAisahighpivot,thentheBmustbealowpivot,andtheCpivotwillbeahighpivot.

LabelingthewavepointswiththepropernumbersandlettersseemstobeaproblemmanychartistshavewhenapplyingElliottWaveTheory.WiththeadditionofonlytwooftheAdvancedAndrewsRules,thereaderwillfindidentifyingwavepointsmucheasier.

Ifachartistcanidentifyafive-wavesequence,followedbyanABCcorrectionofsomesort,andthenthepossibleendofwavesoneandtwo,heiswellonhiswaytobeingabletoforecasttheremainderofthefive-wavesequenceinprogress.Sincemostextendedwavesarethe2-3wave,thechartistshouldacceptthefactthathenolongerneedstodealwiththecomplexityofcorrectlyandpreciselyidentifyingeachandeverywave.Ifthechartistcanidentifythestartofathirdwavethatleadstoafive-wavesequence,thenhisabilitieswillbesignificant.

ElliottWavehaslotsofflexibilityintherelationshipofwavelengthstoeachother.Italsohasarulethatwavefourdoesnotoverlapwaveone,whichwetendtoignore,withAndrewsstylepivotlabeling.

Insomecases,theb-cwaveisverylongandcaneasilybesubdividedintofivewaves.Andthenthereareothercaseswheretheb-cwaveisveryshort,evenshorterthanthe5-awave.Inspiteoftheallthesevariability’swithinthewavetheoryofRobertElliott,AdvancedAndrewsTheorygivesyoutwostraightforwardruleswithwhichyoucandeterminethecto1waveandthe1to2wave.

AndrewsRules

Afteridentifyingapossiblepivot#2thatisabouttogointoathirdwave,therearetwoteststhataregiventothepatternutilizingthemedianline.

First,determineifpriceszoomedthroughthemedianlineastheymadepivot#1.Anexampleofthisisseeninfigure#13andfigure#14.

Anotherexampleof“onlythezoom”isseeninfigure#14.Inmostcases,whenpricesmakepivot#1,theyzoomthemedianline.Andrewstaughtthatpricesmadethemedianline80%ofthetime.Ifpricesmakeittothemedianlinein80%ofthecases,itwouldmakesensethat,inmostcases,theyaremakingitwhenatpivot#1.Ifpivot#1isareversaloftrend,thenpriceswillbemorelikelytoclosebeyondthemedianline.InanElliottWavecontext,theyarezoomingthemedianlineattheendofwave#1byspendingoneormoveclosesbeyondit.Examplesofthiszoomareseeninfigures#14and#15.Afterzoomingtopivot#1,thepricegoestoapossiblepivot#2.AccordingtoElliottWaverules,inordertoqualifyasapivot#2,thepivotcannotbepastthepriorextremeofapossiblefive-wavemovement,withthethirdwaveoftenbeingthestrongestandlongestwave.Andrewsconsideredpricepatternstobeademonstrationofthemovementofenergy.Ifapivot#2isnotbeyondthestartofwave#1,thenitisverylogicalthatthepricewillnotbeabletomakeittothemedianlinebecauseachangeintrendistakingplace.

ElliottWaveTheoryallowsawidevarietyofpatternsfortheendofamultiplepivotswing.Andrewshasvarioustoolsandrulesfordeterminingtheprobablelocationofthepivot.WiththeAdvancedAndrews

Techniques,thesearepattern-dependentandanABC,followedbythetwotestsusingAndrews’slines,isoneofthem.

Intheparticularpatterndiscussedhere,thefirststepwithAndrews’slinesistodetermineifthereisaZoomofthemedianlineatpivot#1or,inwavetheory,theendofwave#1.

Afterthiscomesthesecondstep,whichistolookforpricesfailingtomakeittothemedianlineastheymakepivot#2.Sincepricesmakeittothemedianlinein80%ofthecases,theyalsowill,onoccasion,maketheMLatpivot#2.Andrewsheldthatwhenpriceswereunabletomakeittothemedianline,theywouldmakeitupaftertheyreversedandgopastthenextmedianline.Ifthethirdwaveistobethemostpowerful,asitisinmanycases,thenthisislikelytooccurwhentheydonotmakeittothemedianlineatpivot#2andleaveaspacebetweentheendofthemoveandthemedianline.

Figure#15clearlyshowsthatthereisaspacebetweenpivot#2andtherelevantmedianline.

BothAndrewsandBabsonlinesmaybecombinedwiththeElliottWaveandothertechnicalanalysistechniques.DuringdiscussionswithAlanAndrewsin1982,hehintedthattheendoftheElliottWave“C”pointcanbefound,orverified,withsomethingcalledan“Oreindicator.”AfterDr.Andrewspassedon,Icameacrosssomeofhiswritingsfrom1974regardingthe“ORE”technique.Andrews’writingshowedthathelikedusingtheoretechniquetofindtheendofcorrections.Fromthestudiesheshowedinhiswritings,thiswasusedtofindtheextremesofcorrections,especiallywherepivot#2islikelytooccurorattheElliottCpoint.

InOreexample#1,itcanclearlybeseenthatthetimebetween“c”and“2”wasseveralweeks.ItistheElliott#2pointthatwillbethefocusinthenextchapter.AndrewslikedtoenterusingtheOREpoint.Itoftenpinpointedtheendofcorrections.InOreExample#1,the#2wasbackataboutthesamepriceasthe“C”severalweekslaterandgettinginatthe“C”wouldnotnecessarilyhavebeenmuchofanadvantage.

Theanalystgainsmuchmoreconfirmationutilizingthetechniquelearnedhere.Ascanbeseen,priceszoomedthemedianlineandleftaspacebetweenthemedianlineandpivot#2.

AndrewsRulesCombinedwithElliottWaveTheory

Andrewsheldthatifpricesdidnotmakeittothemedianline,theywerelikelytocompensatebygoingpastthenextmedianline.

WhenthisiscombinedwithElliottWaveTheorycoveringthethirdthrustwave,thetraderhastheopportunitytoparticipateinamovethatbothElliottandAndrewswouldconsidertobeaprobablestrongorlongmove.

Figure#16showsthatpriceszoomedthemedianlineastheyweremakingpivot#1andthenfailedtomakeitdowntothenextmedianlinewhentheymadepivot#2.Priceleftalargespacebetweenpivot#2andthemedianline.

Eventhoughthemoveupfollowingpivot#2ischoppy,itisalongone.

Figure#17isaweeklyS&PchartthatshowstheconceptofthezoomoftheMLatpivot#1withpricesfailingtomakeittopivot#2noted.

Ascanbeseeninthechart,pricesonceagainmadeanextendedthirdwave.Othertechniqueswouldbeusedtodetermineexactlywhentoenterorexitthetrade.

WhySelectivelyFocusUponAPartofElliottWaveTheory?

Granted,AndrewsAdvanceCoursetechniquesprovidespecificwaystofindtheendofmostcorrections.

Andrewswantedhisstudentstoworkfortheknowledgeandstudychartstolearntoapplyhismethods.Tothatendheputverygeneralrulesinhistradingcourseandencouragedhisstudentstosendhimtheirchartworkorcomeandvisitwithhim.

Thepatternthatisthefocusofthisbookcomesinmanydifferentforms.However,aswillbeseen,thereareafewveryspecificcommonalitiesthatthechartistcanfocusuponinordertoseeallofthesepatternsasessentiallythesame.

Figure#19showsthatevenaftertheendofanElliottWave(labeled#5),theremaybeasuccessfulzoomandfailure.Thereasonthisisnotemphasizedasaplacetofindalongorstrongmoveineverycaseisbecause,inmanycases,theresultingmovesthatarecorrectionsaresidewaysandchoppy.

BylookingforABCmovesatthestartratherthantheendofafifthwave,onehasahigherprobabilityoffindingthelongorstrongmoves.

Thenextfourexamplesfurtherillustratethetechniqueunderavarietyofconditions.

TheABCpivotsareusedtodrawthefirstML,tolookforthezoom.ThentheBC1pivotsareusedtolookforthefailureofpivot#2tomakethemedianline.Thiswaytheendofwavetwooffiveisfound.AccordingtoElliottWaveTheory,itisthethirdwavethatismostoftenthelongestandstrongest.

LettingtheRulesWorkforYou

ElliottWavepatternswillprovidesomeinterestingopportunities,ifyouareflexible.Itisimportanttorememberthatthereisoftenanotherextendedthirdwavewithinanextendedthirdwave.

Thissecond2-3wavemaybethewavetofocusinonwithinthewaveitself.

Anotherimportantfactisthattheextendedwavecanalsobeinthefirstorfinalwave.

Thismeansthatifthetraderisvigilantandwillingtotrade2-3wavesthatareinsidethefirstorlastwave,additionalopportunitiesexistforfindingtheextendedwave,whichinthiscasewasthethirdwaveofawaveofsmallerdegree.IfthechartistfoundanABCpatterninsidethe(1)–(2)waveusingasmallertimeframethanonthechart,thenquitepossiblyhewouldhaveseenthisasaviablepattern.

UsingSoftwarethatCombinesAndrewsandElliott

Overtheyears,thewriterhasexaminedvarioussoftwareproducts.Manyhaveloadsofimpressivefeaturesandevenattempttoforecastfuturewavepatternsbaseduponvariouswavetheories.

ThefirstsoftwarethatcontainedAndrews’lineswas“Orion,”buildbyPaulRabrichfortheApple2+computer.ThefirstversionsofPrecisionTraderwerebuiltbyLorenPage.ThemostpopularisPrecisionTraderversion3.0,whichwasdesignedandbuiltbyMichaelandPavelRada.TheyweremotivatedtogointosoftwaredevelopmentbytheresultsofMichael’smaster’sthesis.

MichaelRadaconductedaUniversityofViennastudyinthe1990’s,inwhichhepolledsuccessfulfundmanagersinVienna.Heaskedthemabouttheirtrainingandtowhattheyattributetheirsuccess.Beinggoodmoneymanagers,theyallhadgoodstories.However,theonecommonfactortheyallsharedwashavingtakentheAdvancedAndrewsCoursethroughliveseminarsconductedbytheauthorofthisbook.

MichalandPavelbuiltasophisticatedcomputerprogramsaidtorivaltradestationinsomeofitscapabilities.Theymadeanarrangementwiththewriter,wherebytheywoulddistributethegraphicschartingportionoftheirsoftware.

Thesoftwaretheybuilthasvarious,uniquecapabilities.Thecapabilitiesincludedbeingabletotraintheuser,auniquepivotlabelingmethod,andatrendforecastingmodel.Allofthesewerecapabilitiesbeyondthoserequestedbythewriter.Michaelwentontobethevicepresidentofr&dforamajorLondon-basedhedgefund.

Aproductisunderdevelopmentthatwillhavefeaturesthattakeadvantageofthechangesincomputertechnologyandthemanyinsightsthatoriginatefromthehundredsofpagesoftheoriginalcoursematerialthatwehavebeenresearching.AyoutubevideoshowsthewritingsofDr.Andrews.

ToseethemassivecollectionoforiginalAndrewspapers,gotohttps://www.youtube.com/watch?v=MnrxXMCwhOI

TakingittotheNextLevel

Whenmedianlinesaredrawnoncharts,itisacceptabletotakeittothenextlevelintermsoftheElliottswing.

Ascanbeseen,alargemedianlinewasdrawnfrompivots4-5-1.Thisisalargermedianlinethantheonesthatwouldhavebeenusedtodeterminewhetherornottherewasazoom,andthemedianlinewasnotmadeatpivot(2).Notethatthe“c”pointisalsoaPivot2.Thiscouldbeathirdwaveinsideathirdwave.Theseareofinteresttomanywavechartists.Note,inaddition,thattheABCcorrectiondidnotmakeittothemedianlineasoccursin20%ofthecases.Intheory,pricesthencompensatewhentheygoup.

Figure#24showsbothofthelargermedianlinesdrawnandtheABCiswithinoneofthem.

NotethatthedownslopingmedianlineisnotmadeattheCpointofthesecondABC,buttheup-slopingmedianlineismadewhenpricesgoupagain.Wavescomeinvarioustimeframesandtheremaybeseveraltimeframesavailableatanytimefordrawingmedianlinesanddoinganalysisonthecharts.

Figure#26isaForexEURUSDchartshowingthatatanytimetherearemultiple,possiblemedianlinesdrawnandmultiplepivotsofdifferentswingdegrees.Notethatatpivot#1pricezoomedthemedianlineandatpivot#2pricesdidnotcomeclosetothemedianline.WhatpricesoftendoatpivotsC,3,4,and5isdiscussedinotherpublicationsbytheauthor.HecanbecontactedatAndrewscourse.comhisemailaddressisronj@san.rr.com.

EnteringtheTrade/InvestmentTherearevariousstylesthatareusedtoenteraposition.

1)Breakaway-breakout.Thisiswhenpricesbreakoutofatrend,inmostcasesinthedirectiontheanalysisispointingwhereitwillgo.

Abreakawaytothedownside,pastthetrendline,isalertedontheESchartasanexample.

2)Pullback.Afterthedeterminationhasbeenmadethatatrendinagivendirectionisinplay,thensometraderswaitforapullbackof50%to81%beforetheygetonboard.

TheEURJPYexampleshowstwodifferenttechniquesforenteringonapullback.Oneiswhenpricesreturntoamedianlineandtheotheriswhenthereisa61.8%pullback.

Theexactvalueofthepercentageofapullbackissetbythechartist.Itiscommonforpricesatapivot#2togotothe50%to81%pullbacklevel.

3)Athemeapproach.Thisiswhenthereisabeliefthatsomethingwillgoinasetdirectionforthelongtermandentriesarefoundthatwouldhavetheinvestorprofitfrommovesinthatdirection.

Inentryexamplechart1,thelinescanbeseenthatwereusedforthethreestepsandthe

possibilitiesforanentrythereafter.

Entryexample2isaForexeurochart.Onceagain,youcanseethepowertrendmovesetup,whichisthethree-stepssetup.Thereafter,therewasthebreakawayandthepullback,asnotedonthechart.

Aweeklygoldchartshowinganentryexample,abreakawayandpullback.Noteinthiscase,goldisinadowntrendandgoingshort;itisinordertotakeadvantageofthis.

TheNewmontminingexampleshowsthelinesneededtodeterminethatthethreestepswerecompleted.Notedalsothepullbackthatoccursafterthebreakaway.

ExitingtheTrade/Investment

Takingprofits,withthistheoryistypicallyduringthefifthwave.

Theremayalsobeothercriteriaforexitingthetrade.

1)Amaxdollaramountorpercentagehasbeenmetandastoplossistriggered.

2)Pricesappeartobeinsomethingotherthanastandardthrustpattern.

3)Pricesareneartheendofwhatappearstobeafifthwaveornearaprobableendpoint.

FigureX1showsthegoinglongindicationnearthebottomofthechart.Noticethatexitismarkedwherethedistanceofwave(4)-(5)isthesameasthefirstwave.TheperfectElliottWavetradecouldhavebeenmadenearthehightickbecausethisiswhereapivot5(5)wasmade.

FigureX2showstheexactsamesoybeanchartdrawnwiththemedianlinedrawnaspricesheadtowardspivots#5and5.Notethattheywerenotabletomakeittothemedianlineandweresoweakthattheyreversedatthelowerparallel.

KeepingProfitsfromVanishing

Afterridingthethirdwave,manyanalystsrecognizethenotionoftakingprofitsbecausethethirdwavemayturnouttobeaCwaveofanABC.Thisisaneffectivewayofkeepingasubstantialportionofprofitsevenifpricesgoupforafifthwave.Whenthethirdwaveisanextendedwave,itisoftenthecasethatafterafourthwavecorrectionthemarketwillgointothefifthwave,whichistypicallybeyondtheendofthethirdwave,butnotnecessarilybymuch.

Wefoundthatwhentradingstockswithasinglemethod,itisusefultousethefreeservicenotedinthenextchapter.Asaresultofdoingthatwefoundwithsomesystemsafteramonthortwoyoucanlookbackatyourtradesandseean80/20relationshipfactorintermsofyourmostprofitabletrades.Inadditionitbecomesveryeasytodeterminehowmuchcapitalisneededtoworkasystem.

Forexampleafteralongrealtimeparalleltestwefoundthatoneparticularsystemonlyneededamaximumof1/3ofthecapitalwesetupforit.Thefirstsystemmadeanaverageofabout3.3%amonthwithamaxdrawdownof1.5%.Afteradjustingforthe80/20relationship,wearelookingforwardtothenextrealtimeparalleltestyieldingahigherpercentage,withanevensmalleramountofcapitalneeded.

Whentradingtherearevariouscostsinvolvedincludingcommissions,chartservicesandequipment.Tokeeptradingcostsmanageablechartingservicesandcommissionsaretwoimportantvariables.Besuretocomparethecommissionsandservicesprovidedbyatleastthreebrokeragefirms.WhenitcomestochartservicesweuseeSignal.WeutilizeeSignaldataforoutcharts.

AllchartsonourwebsiteandthisbookarecourtesyofeSignal.Thisfirmhasaninterestingservicethatcomeswiththeirdatafeed,itcansaveyouhundredsinmonthlyexchangefeesfordatafortheasking.Thisiscoveredingreaterdetaillater.

Hint:Youdonotneedtoactivelytradetotakeadvantageofthis,justhaveanaccountwithoneofmanydeepdiscountfirmlikeinteractivebrokers.

Howeveritisprobablyavailablewiththebrokeryoualreadyhaveanaccountwith.

Gettingstartedwithminimalrisk

AccordingtotheAuthorofthebestseller“TheBlackSwan”,whenitappearsthatthereisnorisk,iswhenriskisgreatest.Thisisthepointwherewhatthetraderorinvestorperceivestobeawhiteswanisreallyablackswan.Hesuggeststhatitismoreproductivetohandlevariousrisksininnovativewaysthatleadtobetterlongtermresults,thantolookonlyforsituationsthathavenorisk.Evenputtingassetsincashhasrisk.Inthiscaseitisinflationrisk,wheretheuseofthemoneywillturnlessvaluableovertime.

Perhapsthisiswhystrongmarketsareknowntoclimbawallofworry.Theygoupforreasonsunknowntomostinvestors,inspiteoftherisksknownbymany.Inthischaptertherewillbeadiscussionofwaystoeliminatevariousrisksintradingandtheinvestorwillbeshownandencouragedtoutilizetoolsthatresultinnorisktotheirtradingcapital,initially.

Therearevariousstrategiesthattheinvestorortradercanusetodealwiththevariousriskfactors.Forexample,afterdevelopingatradingstrategy,it’stimetotradewithoutcapitalriskbyusingatradingsimulator.Theobviousbenefitisnotriskingyourcapital,onlyyourtime.Probablythemostimportantreasonisthatitgivesyoutheopportunitytotestvariousstrategiesandlearnwhattheweaknessesare.Performingtestsonhistoricaldatabydevelopingthemethodonanearlytimeperiodandthentestingitonalatertimeperiodisusefultoseewhatmighthaveoccurredinthelatertimeperiod.Whenthatsystemdevelopmentstageiscompleteditisvitaltodowhatisoftenreferredtoasrealtimepapertrading.

Withtheadventoftheinternetthepapertradinghasturnedintousingparalleltradingsimulators.Investopedia.comisoneofmanyfreeservicesthatgivestraderstheopportunitytoinvestparalleltotheactualmarketinamannerthatrequiresthetradertodoeverythingthatwouldnormallybedone,inazerocapitalriskenvironment.Thereareotherfreeservicesthatpermitparalleltradingsothatthetradercanproperlyprepareandhaveaclearersenseastowhenitisproperforhimtouseriskcapitalintrading.

Howlongshouldonetradeaspartofproperpreparationwithasimulatortradingparalleltoactualmarketactivity?Theamountoftimeandtradeswillvarydependinguponavarietyoffactorsthefirstofwhichisthefrequencyoftrades,butinanycaseitwouldtakeaminimumofsixmonthforanewtraderandabareminimumoffiftybuyandselltransactions.

Duringthatperioditiscommonforthetradertofindgoodreasonstomodifysomethingthatisinvolvedwithtrading.Atthatpoint,theclockandnumberoftradesneedstostartalloveragain.Forsometradersitmeansbacktotheoriginaltestingtimeperiodtoseehowthetradingmethodwouldhaveworkedoutyearsago.Someinvestorsfindthattheyneedtodothisafewtimesinordertohaveamodelthatfitstheirpreferencesandstyle.Thismakesperfectsensebecauseifoneputscapitalatriskduringthistimeperioditismostlikelylost.

Evenwithararewhiteswantradingsystemthathasnothingbutwinningtrades,weaknessessuchasdistractionsorothereventsthatcauseimproperactioncanhinderthetraderandcauselosses.Eventsthatcauseimproperactioncanbeanythingfrombadpricedatatospillingcoffeeonakeyboard.Topreventmarketmovessurprisingyouanddestroyingexcessivecapital,placeastoporder.

TheThreeSteps

Step1;findasimpleABCzigzagpattern.

Step2,AftertheABCdetermineifwhilemakingthepivot#1priceszoomedthemedianlineandwhilemakingthepivot#2priceswerenotabletogopastorclosepastthemedianline.

Step3,Utilizeavirtualtradingaccountinrealtimeforasubstantialperiod,withlowriskandsubstantialvirtualprofitson30ormoretrades.Afteryouhaveasolidtrackrecordandfeelconfidentinyourabilitiesconsiderstartingtotradewithrealmoney.

AtthestartofDecemberof2012theauthormadeavideothatdemonstratedthethreeeasystepstotaketobecomeseasonedatfindinghighprofittrades.Thethirdstepwasanoriskwaytotradeaportfolioofthirtyormorestocksforabareminimumofatleastamonth.

Atthetimeinadditiontotradingthestocksinmybrokerageaccounts,avirtualrealtimethirdpartyaccountwasusedthattracksthetimeandsalesoftradesinrealtime.Thechartisfromthataccount.

ThereminderofthischapterwillshowchartsfromtheS&Pindex,2010through2012.Youwillalsoseethelabelingofthepivots,alongwiththetwosetsofmedianlines.Notethatineachcasetheruleswerefollowed.

ImprovingPopularIndicatorsAnindicatornotedbymanytradersisreferredtoasthegoldencross.Thisiswhenthe50-day

movingaveragecrossesabovethe200-daymovingaverage.Afterthisoccurs,pricewilloftentravelabovethefifty-daymovingaverage,indicatingastronguptrend.

Manytradershavenoticedthatpriceswillcorrectdowntothefifty-daymovingaverage,wheretheybounce.Theconceptisalsonotedindowntrends,ascanbeseenintheNewmontMiningchart.

Newmontminingisinadowntrendandpricesgouptoandreversenearthe50dayMA.

Thecorrectionbacktothefifty-daymovingaverageisoftenenoughtothenbethereversalpointforafurthermovethatgoes15-50%oftheprice.

Thisconceptofusingthemovingaveragecanbeveryusefulasaninitialindicatorforacomputerizedscanningtool.Thereafter,anAndrewsindicatorisaddedtodeterminethegeometriclinewherepricesshouldreverseandcontinue.

TheAndrewsOreindicatorwasunveiledinAlanAndrews’writingsinMarchof1974.Itisarelativelyunknownindictor.WhatwasthesourceofAlanHallAndrews’marketgeometry?Thisandmorewillberevealedintheanotherbook.

ViewonRiskManagement

Tradingissomewhatlikewalkingindeepgrasscarryingeggsinyourhandsinthatyouneedtopayattentiontoseveralthingsatonce,sincetherearerisks.

Knowhowdeeptheriskforeachtradeyoutakeisandkeepitunderasmallpercentagesothatifyoudropaneggortwo,youwillnotbewipedout.

Themethodsweteachwillgiveyoumoreopportunitiestohavegoldeneggtradesandkeeptherisklow...bepatient,themarketwillprovidemoretradessoonenough.

Ifyouneedmoreopportunities,youcanexpandthenumberofinstrumentsyouaremonitoringratherthanincreasetheriskpertrade.

Keepthemaximumatriskatanymomenttoareasonablenumber.Limitrisktoonethatwillnotrequireachangeinlifestyle.

Anexampleofriskmanagementfromagreattrader:

IfyouintendtotradeleveragedETF’s,knowthattheyareverydifferentfromfuturescontractsandnon-leveragedETFSinmanyways.Onanoutrightpurchase,theriskappearslimited;however,theydonotalwaysfollowthemarketlikethefuturesortheunderlyingtypicallydo.Duringthemarketdownmoveof2008thereweremanyinvestorswhohadlongpositionsin“3xshortindexETF.”Thiswasduringaperiodwhenthemarketwentdownconsiderably,which,intheory,wouldbeaprofitabletrade.Forsomereasonitwasn’tforthem.Itappearsthatthisisnotuncommonduringperiodsofwildmarketmovements.

Resources

Tojointhefreeyahoobaseddiscussiongroup,gotoAndrewscourse.comandclickupon...NEW?

Avideowascreatedafterthisbookwaswrittenthatcoversthematerialinthisbookandmore.

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Aprivatediscussiongroupwherestockswiththepatternsshowninthisbookarediscussedisavailable,[email protected].

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WhatiscoveredintheAdvancedAndrewsCoursebyRonJaenisch?PleasegototheAndrewscourse.comwebsitefordetails.

ThiscoursecoversthemanyaspectsoftheAndrewsandBabsontechniquesandpresentstheminover25videos.

Thelarge,colormanualhasadditionaltechniquesandgoesfrombeginningtoadvancedlevel.Themanualhasinittheonerulethatisusedforfindingallthird(#3...expandedornot)waves,whilethethirdwaveisinprogress.

Beingareaderofthisbookentitlesyoutoadiscount.AskforthePowerTrendDiscount.

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TheExpandedCourseisalimitededition;ithastechniquesnotfoundelsewhere(suchastheOREindicator)andalsohasseveralvideoscoveringhowthecoursemethodsinteractwiththevariousElliottWavepoints.

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AllchartsonourwebsiteandinthisbookarecourtesyofeSignal-Qcharts.Thisfirmhasaninterestingservicethatcomeswiththeirdatafeed;itcansaveyouhundredsinmonthlydataexchangefeesjustfortheasking.WehaveanarrangementwithScottFitzgerald,asalesrep.Ifyoucallhimat1.800.322.0940andmentiontheAndrewscourse,youwillbechargedatleast$25belowthemonthlyservicechargelistedontheirwebsite.Hint:Youdonotneedtoactivelytradeormakeapurchasefromustotakeadvantageofthis,justhaveanaccountwithoneofthemanybrokeragediscountfirmssuchasinteractivebrokers.