Thursday, May 27, 2010


Just a friendly reminder to all. Information on this blog is for informational and educational purposes only. In no way is this to be taken as investment or trading advice. All due diligence is the responsibilty of the reader. 

Below is a post from SCW in the CiL (CoverItLive Chatroom- see link to the right) :

[Comment From scwscw: ] 
hey grand, if you mind me asking, when did you place your long trade? just trying to see how you turn your charts into cash (i know you like c's and 3's, but not certain where you would have put on this long-- assuming on open this am since the original down yest looked like it had 5 waves?). we have a lot of great traders in the CiL, just trying to pick up some good habits....

SCW, my apology in advance. I'm going to provide a lengthier explanation in case there are others who may not have as much EW experience as you do and may be interested in this.

As you know, I trade primarily waves 3s and Cs. I think this is the best setup while using EW to trade as you'll see below.

I will start off with, I took a long position just about into the close (about 5-10 mins) and positioned myself with Jun SSO 37 (striking) calls. I paid $1.10 for those calls.

Why you may ask on those calls? That's a whole differnt blog post. To keep it simple, I focused on 37 since there was an open gap at that level and I had been watching the preminum trade. It sucked out pretty quick into the close.

Once we bounced off 1044, whether I used a bear or bull count, I was expecting the first wave structure up to travel in 5 waves at subminuette degree (my red lower case #s and letters).

In my chart above,  notice how I labeled the subminuette waves in red. I have both a motive count (i, ii, iii, iv, v) and a corrective count (a, b, c, w, x) , which both work.

Yesterday, after counting up to wave iii or c, we were all looking / expecting  a wave iv down. However, as the selling continued, the pullback kept dropping lower, which increased the odds that we were not looking at a wave iv though it technically did not violate an EW rule (the 4-1 wave overlap).

Obviously keeping the corrective/bear count in mind, I believed it could also be an (x) wave. But I also noticed what I believed to be a truncated (v) ending diagonal. This helped me get around the possible 5 waves down of the end of (iii) as you had asked.  So using that truncated (v) the structure down after that could be counted as an a-b-c to form (ii).

So say I was wrong about the impulsive count (i, ii, iii, iv, v), the corrective count (Alt:w and Alt:x) still applied. And what did both counts imply?

The impulsive count was implying a wave (iii) up was in store and at the minimum a wave (y) for the corrective option

Both essentially are 3rd waves up. My timing happened to be pretty darn good into the close.

I have been early? Certainly! It's pretty hard to nail the turn though. 

In today's example it worked out well. I took that trade off into the close for a very nice profit. I may miss out on a possible gap up tomorrow, as posted in my EOD update, but knowing that we closed below the 200 day SMA and again with the handsome profit, I wasn't going to get greedy.

If and/or when we break over the 200 day SMA, I'll look for a backtest of the MA and depending on the wave count, may go long or I may go short (pick up puts). It's all going to depend.

Notice that this trade worked whether one is a bull or a bear?

I hope this was helpful and just one person's opinion. Please feel free to leave a comment if you have any questions or suggestions on how I could have done it better or just your thoughts.

Thanks for reading.

1 comment:

  1. SCW, here-- Thanks Grand!! Very interesting and helpful indeed! I really appreciate you taking the time and having the interest to go over this! I guess I had thought there was more ambiguity between 3 and 5 of A, with what looked like maybe 5 small waves down to a triangle (which I remember you saying would be rare for a 2, but what i think i missed realtime was you figuring out that it could be a truncated 5). Genius example, Grand, great analysis, and I really do appreciate you taking the time to go over this!