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Rule number 3 is based on an alternative application of my BBS or band Break System. BBS was presented October 2011 at the TradersLibrary Trading Forum in Denver, Colorado. The DVD video of the presentation with the user manual and the licensed formulas is now available. More information HERE.
Here the band is not used to create direct buy and sell signals, but rather as an envelope in between which price is moving between the upper and lower boundaries of the band.
There are two alternatives. Either price is close to the upper or lower boundary or price is turning on the averages. In the above figure the first and second and fourth red arrows show a number of selling signals from rule 1, confirmed by rule 3.2 with price turning against the averages.
The first and second green arrow and the third red arrow show buy and sell signals from rule 1 confirmed by rule 3.1, with price close and turning against the lower and upper band boundary.
My new wave count principle, the 1>2<3 wave count, is presented as a separate item.
In the above figure at the bottom of a wave 3 beginning of September price turns up for a correction wave 2 next making a turn down where we would expect a new lower low wave 3. However price turns up again with a higher bottom, making wave 3 invalid. So, we renumber the waves from the bottom up 1 and 2.
We are now expecting an up wave 3. This complies to rule 4.1 After making a first wave 3 top, you can see a further up move with higher highs with more wave 3 tops, and higher lows with wave 2 bottoms.
In the next figure we are expecting a wave 2 correction after a medium term complex move down creating a wave 3. When price turns up beginning of May for a correction wave 2, we comply with rule 4.2 and we expect this wave 2 to turn into a new wave 1 in the opposite direction.
In the figure below we have a rather large wave 3 down. So, we can expect a correction wave large enough to make profit when half of October price turns up for a correction wave 2. We are complying with rule 4.3.
For all the basic techniques, please consult my book “Capturing Profit with Technical Analysis”, published by MarketPlace Books and available HERE
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. no representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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