Tag Archives: technical indicator

3 Elliott Techniques For Drawing Trend Channels | 20th September, 2017

The three basic Elliott Wave channels are:


Gold 2017
Click chart to enlarge.

Once enough structure is complete to begin to draw an Elliott channel (about one third to halfway through a wave) use the first technique.

A trend channel drawn using this technique may show where the fourth wave may end. If the fourth wave is contained within the channel, then the fifth wave usually ends either midway or at the opposite edge of the channel. While most markets behave this way, commodities can be different. Commodities often exhibit swift and strong fifth waves which overshoot channels, as in this example.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.


Gold 2017
Click chart to enlarge.

If the fourth wave is not contained within a channel drawn using the first technique, then redraw the channel using Elliott’s second technique.

This redrawn channel may show where the fifth wave may end: either mid way or about the side opposite the fourth wave.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.


Gold 2017
Click chart to enlarge.

If the movement is expected to be a correction, then it may be contained within a channel. Most corrections are contained within channels, but a few such as expanded flats are not.

The channel may show where wave C ends, either mid way or at the edge of the channel.

When the channel is breached by subsequent movement in the opposite direction, it indicates the wave is over and a trend change may have occurred.

Published @ 06:16 a.m. EST.

2 Steps to a High Probability Trade Set-up | 15th September, 2017

This is my favourite trade set up. Here’s what to look for and why.

Gold Monthly 2017
Click chart to enlarge.

To begin, look for a trend line which has strong technical significance. In deciding how strong or weak a line is use these guidelines here.

This trend line on Gold’s monthly chart is drawn as a bear market trend line as illustrated here.

Gold Daily 2017
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Zooming on at the daily chart level to see exactly where the line sits, we can see that price is not sitting perfectly upon it. That may be because this trend line extends so far back, to September 2011. The general idea does appear to be working here today though.

This is the trade set up:

Step 1.

Look for a breach of the trend line. If this is achieved on strong volume, then have more confidence in the breach. StockCharts data does show very strong volume for the 5th of September, which is the daily candlestick on their data that would have been the day of the breach.

Step 2.

Look for price to curve around and back test support at prior resistance (or in a bear market resistance at prior support). Enter in the direction of the larger trend when price tests the trend line.

This set up takes time. In this case a wait of 7 to 8 days after the initial break above the trend line.

Today, the long lower wick and bullish engulfing candlestick pattern offer a little more confidence in this set up.

Why is this such a good trade set up?

With a technically significant trend line, the set up offers an entry point to a trend which traders may have confidence in. The more significant the line, the more significant the breach.

Stops may be set quite close by. Allow a little room for overshoots, and for longer held lines slightly larger overshoots, but stops may be closer than the last swing low or high. This reduces risk.

Published @ 01:15 a.m. EST.

Scale – Arithmetic or Semi-Log? | 30th August, 2017

The choice of what scale to use on your charts makes a big difference to how trend lines sit. Which scale is correct?

Gold 2 Weekly 2017
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The chart above shows Gold 2 weekly on an arithmetic scale. Notice the bear market trend line has been breached, but did not show where price exactly found support and resistance in the process.

Gold 2 Weekly 2017
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The chart above shows Gold 2 weekly on a semi-logarithmic scale. So far price remains below the bear market trend line.

An arithmetic scale is best used for short term price movements. But for long term movements a semi-logarithmic scale is more correct, particularly for markets like Gold which can exhibit blow off tops and selling climaxes.

Any long term movement a year or more should always use a semi-logarithmic or ratio scale.

From Magee (“Technical Analysis of Stock Trends”, 9th edition, page 11):

“Our own experience indicates that the semilogarithmic scale has definite advantages in this work; most of the charts reproduced in this book employ it… Percentage relations, it goes without saying, are important in trading in securities… certain trend lines develop more advantageously on the ratio scale.”

From Pring (“Technical Analysis Explained”, 4th edition, page 68):

“Arithmetic scaling is not a good choice for long-term price movements, since a rise from 2 to 4 represents a doubling of the price, whereas a rise from 20 to 22 represents only a 10 percent increase… For this reason long term price movements should be plotted on a ratio or logarithmic scale. The choice of scale does not materially affect daily charts, in which price movements are relatively small in a proportionate sense. For periods over 1 year, in which the fluctuations are much larger, I always prefer to use a ratio scale”.

Published @ 04:28 p.m. EST.

Volume and Breakouts – Is it Necessary? | 11th August, 2017

This chart was published two days ago. At that time, it was warned that the possible upwards breakout of the 8th of August lacked support from volume and may turn out to be false:

S&P500 Daily 2017
Click chart to enlarge.

That was proven correct. The strong downwards movement from the S&P comes on a day with an increase in volume. This is a classic downwards breakout.

When a downwards breakout has support from volume, that adds confidence in it. Downwards breakouts do not require support from volume; the market may fall of its own weight. Price can fall due to an absence of buyers as easily as it can from an increase in activity of sellers. But when volume supports downwards movement, it may be more sustainable, at least for the short term.

This downwards breakout was predicted by strongest volume during the consolidation being a downwards day.

This volume analysis technique looks at the presence or absence of support from volume on the breakout after a consolidation period to tells us how reliable the breakout may be.

Published @ 12:17 a.m. EST on 12th August, 2017.

Volume and Breakouts – Is it Necessary? | 9th August, 2017

After a consolidation price will break out. The presence or absence of support from volume on the breakout tells us how reliable the breakout may be.

Gold Daily 2017
Click chart to enlarge.

Pennant patterns are one of the most reliable continuation patterns. But in an upwards trend the breakout should have support from volume.

For price to keep rising it requires increased activity of buyers. Upwards breakouts that do not have support from volume are suspicious.

This upwards breakout comes on a day with slightly higher volume, but the balance of volume for the session is downwards. Stronger volume during the session supported downwards movement, not upwards.

The breakout is suspicious and may turn out to be false.

While volume is important for upwards breakouts, it is not so important for downwards breakouts. The market may fall of its own weight.

Published @ 04:47 p.m. EST.

Learn Elliott Wave – Spot The Mistakes | 3rd August, 2017

For those who want to hone their Elliott wave knowledge, have a go at spotting my deliberate mistakes:

Gold Daily 2017
Click chart to enlarge.

This one is easy (at least, I think it is and I’ve really tried to make it easy).

There is one mistake in the triangle (just one!) and one mistake in the impulse.

Can you find them both?

Name the rules which I have deliberately broken here. Answers will be posted in comments tomorrow or the day after.

Note: During the process of preparing this post, I found a solution that fixes my main problem with the current alternate wave count. This solution will be published in tomorrow’s Gold analysis.

Published @ 05:49 a.m. EST.

Volume Basics | 2nd August, 2017

Volume analysis is essential to a full technical analysis. One of the simplest techniques is to look at volume during a consolidation and note which days, upwards or downwards, have strongest volume.

Gold Daily 2017
Click chart to enlarge.

Gold has been within a large consolidation since about January 2017. A small resistance zone is about 1,295 to 1,300. A wide support zone is about 1,195 to 1,215. During this period of time, it is two upwards days that have strongest volume and this suggests that an upwards breakout may be more likely than a downwards breakout.

This technique does not always work, but it works more often than it fails. This technique is an exercise in probability and not certainty.

Published @ 04:00 a.m. EST.

3 Simple Trend Line Rules | 27th July, 2017

Trend lines used for support and resistance may have varying degrees of technical significance. Here are three simple rules to use to determine how much significance a trend line has and how much attention to pay to a breach.

Gold Daily 2017
Click chart to enlarge.

The stronger the line, the more important the breach.

Thus a line which is close to horizontal, very often tested, and very long held would be the most significant.

A line which is steep, only tested a very few times, and not long held offers very little technical significance.

On the monthly S&P500 chart, the green line has more technical significance than each of the yellow lines. The green line has a more shallow slope and is much longer held, although it has only been tested three times.

This analysis is published @ 05:08 a.m. EST.

Elliott Channels on the USD Index | 21st July, 2017

The USD index has been trending lower for six months now. A simple wave count at the monthly chart level may indicate what is most likely to happen next.

Gold Daily 2016
Click chart to enlarge.

The Elliott channel (maroon) about cycle wave III is drawn using the first technique: a trend line is drawn from the end of the first and third waves, then a parallel copy is placed upon the end of the second wave. The fourth wave is normally contained within that channel. The fifth wave ends either mid way or at the upper edge of the channel.

If the fourth wave breaches the channel, then it is redrawn using the second technique: a trend line from the ends of the second to fourth waves, with a parallel copy on the end of the third wave.

For both techniques, after a possible fifth wave makes a new high (or is a complete structure which is occasionally truncated), a subsequent breach of the channel in the opposite direction is an indication that the whole structure is over and the next wave is underway.

The Elliott channel (maroon) about cycle wave III is breached. This indicates that cycle wave III may be over and cycle wave IV may be underway.

To determine how cycle wave IV may unfold the guideline of alternation and an eye for the right look is used.

This analysis is published @ 06:30 a.m. EST.

Will Gold Backtest An Important Trend Line? | 18th July, 2017

This chart was last published on 9th of July showing a breach of an important trend line.

Gold Daily 2016
Click chart to enlarge.

Price is now bouncing up for another test. There is a little room still for a little more upwards movement, if price wants to come up to kiss the trend line.

Again, adding volume makes this simple trend line more powerful. The breach was supported by volume, but now the bounce is not. The volume profile is bearish, adding to confidence that price may now stay below the line.

This analysis is published @ 05:05 a.m. EST.

Learn Elliott Wave – Spot The Mistakes | 12th July, 2017

A second Elliott wave version of “where’s Waldo”. A fun exercise (for the geeks amongst us).

Test your knowledge of Elliott wave rules. Review this chart and find five deliberate mistakes:

Gold Daily 2016
Click chart to enlarge.

Two mistakes break core rules, but one involves some subjectivity and may need to be verified on lower time frames (an issue of subdivisions). But both look fairly obvious at this time frame.

Only one mistake is something that Motive Wave will alert you to, so the other four would be something you’d have to be aware of to avoid.

Price points are provided where you may or may not need them, so that provision of price points doesn’t alert you to where the mistakes are.

If anyone wants to have a go at their own (correct) wave count for Palladium, feel free to post in comments.

I’ll post answers to the mistakes, and my version of a correct wave count, after 24 hours.

Play in comments below.

Published @ 06:00 p.m. EST.

Gold Breached Important Trend Line | 9th July, 2017

On June 27th I published a daily chart of Gold with a simple trend line. In that post I posed the question: “How Gold behaves at this trend line in the next few days will be a strong indicator. Does the bull run continue or is it over?”

Gold Daily 2016
Click chart to enlarge.

The trend line was breached very clearly. The breach was followed by a typical correction up to resistance. Now price is moving down and away from the trend line.

Adding in simple volume gives this signal more depth. If a breach is supported by volume, then more weight may be given to its significance. The breach of July 3rd did come with increased volume, and volume increased further for the next downwards day of July 5th. After a small bounce to test resistance, further downwards movement for the 7th of July shows again strong support from volume.

Sometimes simple really is best.

This analysis is published @ 11:59 p.m. EST.