I did a post a while back on how i try to quantify elliot wave theory using momentum indicators to help with counts.
In general, the idea is that if you get three waves without a divergence, then you’re looking for a continuation of the trend. However, if you get a divergence there, then its an ABC correction. If you get 5 waves and the 5th wave creates a divergence, then you look for a trend line break and then an ABC move in the opposite direction.
elliot wave enthusiasts are sure to burn me at the stake, but this is the only way i know how to be decisive about these counts. This is a screen shot of a 5 minute chart and how i traded MY EWave set up.
so on the rally up we had the wave 3, as opposed to a wave C because there was no divergence shown. this means the dip should be bought and the next rip should be sold. I watched the trend line of this rally break and shorted it, then as we got the ABC reaction i was looking for i covered.
This is where most guys stop and say; see, look how awesome i am at predicting the future! Im going to go one step further and show why EWT ends up with 5000 opinions on every chart. This is a shot of what happened next.
I closed my trade not because i feared my count would be wrong. Just the opposite, i got that king kong feeling that i could just rule the world. My count was right, i had mastered EWT in a way all these other hacks couldn’t, and i just knew the market was going higher.
So i sat on my hands. Thats a lesson much more important than following wave theory or using indicators the way that i do.
“It was never my thinking that made the big money for me. It was always my sitting. Got that? my sitting tight! it is no trick at all to be right on the market. you always find lots of early bulls in bull markets and early bears in bear markets.Ive known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”
- Reminiscences of a Stock Operator
