Elliott Wave Theory & Analysis

Here are some thoughts about EWT and analysis. This ingenious technique was derived by the accountant Ralph Elliott after being struck by an illness and consequently turned his focus analyzing stock market charts. It is basically a method of charting human emotion, the two basic human emotion components of greed and fear. One can primarily see this in an EW5 to 1 to 2 to 3 transition. The chart posted below shows a particularly nasty 24 hour time frame EW4 ABC move (yellow box). A drop occurred right after the close to 1315.75 (intel earnings), then we go up, this prolly eased some bulls minds, but then in subsequent a/h action we move back down to 1316. As my EW teacher said, it is best to stay away from EW4 moves and this one shows the angst and apprehension that accompanies these '4' moves unless one can identify them and therefore identify the levels when one needs to switch. A particularly nasty one. If one cannot identify these, one is positioned right, then wrong, then right.

ES day trading risk is always limited to a 4 to 6 tick loss with a risk/reward ratio set to 3 to 1 or above. By applying EWT to this equation one can see if we are in an EW3 or 5 with a better than 3 to 1 ratio,or if one should be apprehensive of a brewing EW2 or 4, or ending 3 or 5 and be watchful to getting out quickly if positioned and reversing. It is surprising that one can achieve a successful gain in one's portfolio with a 40% success ratio, by applying EWT to trading can boost this percentage much much higher as the understanding of the correct direction, anticipated breadth, and pending limitation of the run becomes instrumental in appraising entries and exits.