Saturday, November 5, 2011

Weekend Thoughts - Alternate 1 Added [Sunday 8:46 PM DX Update]

[Sunday 8:46 PM DX Update]

DX

Dollar futures looks to be forming a bull flag and sports a nice five wave count for wave (1) off the 74.86 low and a flat for wave (2) right near a 38% retracement.

Hourly MACD doesn't look awfully bullish to support a wave (3) move higher but is still in a buy signal and above the zero line.

EUR/USD
A possible head and shoulders formation for the EUR/USD.

The two charts above may bode well for all the counts posted below from primary - alternate 2 since all three are looking for a move lower. What differentiates all three is how much lower.

At this point it doesn't matter. All that matters is just to be on the right side.

We will see in a couple hours.
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After looking at the wave structure off the 10/4 low, I have come up with a new alternate 1 count. The more bearish alternate count I posted at EOD yesterday has been bumped to alternate 2.

The alternate 1 count came about while re-reading the rules on diagonals in the, "Elliott Wave Principle", 10th ed, pg 88. As a rule, wave 4 should overlap into wave 1 in diagonals.

Prechter, however, has noted one instance where wave 4 did not overlap into wave 1.  Figure 1-18 (click on the link to see the figure) in the book highlights this.

Just because they have only seen one instance of this does not mean it has not occurred more than once. The alternate 1 count I have added below assumes this is at least the second occurrence ;).

Once again, alternates are there to allow the analyst to make the necessary adjustments quickly should the market prove the primary count wrong. Rather than scratch one's head and wonder what is going on, we may move on to the next most probable scenario.

This I believe is lost on many who claim that there are too many ways to count Elliott Waves and find it impractical. I believe they skipped this section in the book.

I strongly encourage folks who want to under EW and it's usefulness read this and fully understand it's meaning. Straight from the book, pg 95,

"You can prepare yourself psychologically for such outcomes through the continual updating of the second best interpretation, sometimes called the "alternate count." Because applying the Wave Principle is an exercise in probability, the ongoing maintenance of alternative wave counts is an essential part of using it correctly. In the event that the market violates the expected scenario, the alternate count puts the unexpected market action into perspective and immediately becomes your new preferred count. If your're thrown by your horse, it's useful to land right atop another."



Primary

Alternate 1

Alternate 2

This chart may go with Alternate 1.
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