P1: PIC/PIC c03
August 18, 2008
Printer: Yet to come
HIGH PROBABILITY TRADING STRATEGIES FOR ANY MARKET AND ANY TIME FRAME
FIGURE 3.17 Typical Corrective Pattern That Didn’t Work Out
all that we are concerned with is using pattern guidelines to identify two basic market conditions: trends and corrections. We have used letters to label the sections of a correction (Wave-A, Wave-B, etc.). Numbers are used to identify the sections of a trend, such as Wave-1 (W.1), Wave-2 (W.2), and so on. A trend usually makes five sections, or waves, in E-wave terms. There are three rules accepted by E-wave traders for five-wave trends. They are good rules with one modification, so let’s learn them first and then take a look at a chart. Since I’ve modified one of the accepted E-wave trend rules, I’m going to call them guidelines instead of rules. Trend Pattern Guidelines 1. Wave-2 cannot trade beyond the beginning of Wave-1. 2. Wave-3 cannot be the shortest in price of waves 1, 3, and 5. 3. Wave-4 cannot make a daily close into the closing range of Wave-1.