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This is the last part about Elliott waves where I will introduce an indicator to help you manually count the waves.
Looking at the long term Elliott count for the S&P500 index with a logarithmic monthly chart, we are in December 2009 most probably close to the end of a long term correction wave B and starting a long term correction wave C.
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Hallo, Sylvain Vervoort with technical analysis part 25. This is the last part about Elliott waves where I will introduce an indicator to help you manually count the waves. Pay a visit to my website at stocata dot org and buy my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system.
Looking at the long term Elliott count for the S&P500 index with a logarithmic monthly chart, we are in December 2009 most probably close to the end of a long term correction wave B and starting a long term correction wave C. Half 2007 we finished a long term impulse wave up with the blue waves 1 to 5. This means of course also that we finished a very long term green impulse wave 1. From there we expect a green correction wave 2. This looks like it is going to be a red ABC zigzag correction. If this is correct, we can expect very soon a bigger price drop to complete the red wave C.
Looking at the descent from the last blue wave 5 top on the weekly chart, are you capable of labeling the downward move from October 2008 till March 2009? You know that mostly this correction is an ABC zigzag pattern and that both the A and C waves move in the direction of the trend and are therefore normally impulse waves. Still not easy is it? It is clear that some kind of guidance to make this count would be a big help.
It becomes more simple with a special zigzag function that can show you most of the time clear Elliott counts, from the bigger waves to the smaller waves. As you can see here we can label a 5-impuls wave down. Since a correction wave can only have 3 waves, this must be just the start of the correction and the completion of big brackets correction wave A. An A wave moves in the direction of the trend and is therefore normally an impulse wave as is the case here. Next you would now expect an up moving correction wave B, consisting of a correction wave.
Up to December 4 2009, the last data available making this presentation, you can see a very clear ABC up correction wave forming the red big brackets correction wave B. Since there is no turning point yet, we cannot be sure that we have already reached the end of this wave. Once completed, we are expecting a correction wave C down with a price below the bottom of big brackets wave A.
Of course you like to have this indicator that looks like a very helpful tool to manually find Elliott waves on price charts. It is actually a simple formula. I use the zigzag function from MetaStock on a heikin-ashi re-calculated closing price. Heikin-ashi candles where introduced by Dan valcu in Stocks & Commodities magazine in 2004. Here is the formula. You can copy this formula from my website at http://stocata.org/metastock/formulas.html. Please note that the zigzag function uses foresight. However for the intended application here this is not important, we actually want a help for labeling past data.
Let's use this indicator to investigate in more detail the last big brackets [A] wave and [B] wave in the S&P500 using a daily chart. Big brackets wave [A] is as we have seen already on the weekly chart a 5-impulse wave down. On the daily chart here, we can see an extension in wave 3, with an impulse wave of a lower degree. Wave 2 is a flat correction and for this the reason that it is not indicated by our special wave count indicator. But it should be clear that we can count a wave 2 here. It will most probably show up if we go into an even more detailed count.
And this is the more detailed count for the same big brackets correction [A]. Here you can see that there was also an extension in brackets wave (1), with an impulse wave 1 to 5 of a lower degree. Note also another extension in the red wave 3 with blue waves 1 to 5. You could eventually now use an hourly chart to go into even more detail, here mainly to find the blue waves 1 and 2, not showing in the indicator.
Big brackets wave [B] is clearly being formed by a brackets ABC zigzag correction, probably close to completion now, but not yet confirmed.
Let's look for some more details in this up correction move. Brackets wave (A) is formed by a lower degree 5 impulse wave up. Next brackets correction wave (B) consists of an intermediate ABC zigzag correction down. Finally brackets wave (C) is formed by a double WXY zigzag pattern, with a zigzag in the waves W and Y. Looking for even more detail you will note a possible zigzag extension in wave A and also in wave X. Again using an hourly chart will show even greater detail.
Let's make some practice. Here you see a rather simple up move. Can you, with the help of the EW_Count indicator, label this chart? You can find the solution at my website: stocata.org/youtube/solutions.html. Stop the video and try first labeling it yourself.
In this chart there is a rather simple down move. Label this chart with the help of the indicator. You can find the solution at stocata.org/youtube/solutions.html. Stop the video and first try labeling it yourself.
OK let's make it a bit more difficult. This is the same chart as the previous one, but we want to look at more wave details. Here you see that the same chart becomes a lot more complex. Can you label this chart with the help of my indicator? You can find the solution at stocata.org/youtube/solutions.html. But, before looking, try it first yourself!
Let's make some more practice. Try to label this chart and to answer the question: is this the end of the correction? You can find the solution at stocata.org/youtube/solutions.html. Stop the video and try to label it first yourself and find the answer to the question.
Now that you have already some experience, let's try to label this more complex up move. You can find the solution at my website: stocata.org/youtube/solutions.html. Stop the video and try to find a solution yourself before looking at the web page.
This is the end of the Elliott wave's part about labeling waves. This is my last video for 2009. I wish you a merry Christmas and a happy new-year and lot's of success in your trading for 2010. I will continue with more videos about technical analysis in January. Tell your friends about these videos and while visiting my website order my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system. See you in good health in 2010!
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