Visual guide to elliott wave trading ( pdf drive )

elliott wave trading

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ELLIOTT WAVE
TRADING

6. Wagus Comma
Jeffrey Hennmily

8. Contents

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10. [How to Use This Book

12. Foreword)

14. | Acknowledgments |

16. Introduction

18. Disclaimer]

22. rade Setups

24. C HAT TER |

The Anatomy of

Elliott Wave Trading

31. Ending Diagonal

tective

32. Ending Diagonal

33. Bull Market

Bull Market

35. DEFINITION:
Risk to reward

Risk Reward Ratio is a ratio used
to compare expected returns
against the amount of risk taken.
In line with market convention,
risk reward ratios are expressed
in terms of total reward per one
unit of risk.

Triangle

39. FOREX I

40. —

racing Example]

FOREXTI

42. C HAT TER |

How Zigzags and Flats Set Up a
Trade for the Next Impulse Wave

1

43. DEFINITION:
zigzags

A sigzagis a simple three-wave
correction that subdivides into
wave À (Give waves), wave E
(three waves), and wave C Give
waves).

Caterpillar Inc
15 Min

116,55

45. Buy 10 CAT May11 110 Puts at .86
Total Cost = $860

(B) or (2)

(A) or (1)

46. Sell 10 CAT May11 110 Puts at 3.75
Total Profit = $3,750

(B) or (2)

(A) or (1)
Buy 10 CAT May11 110 Puts at .86
Total Cost = $860
+ 336.05%)

47. KEY POINT

Always ask first, “Do I see a wave
pattern recognize?”

po

i

1
lo it re
Pd

1

48. DEFINITION:
expanded flat

‘An expanded flat is a simple
hree-wave correction that subdi-
vides into wave A (dhreewaves),
wave B (three waves), and wave
C (lve waves), with wave B end
ing beyond the starting point of
wave A.

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day
a A ats 4

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[0]

49. fal

50. Techne Corporation
60 N

51. Short 100 Shares @ 69.50
Protective Stop = 70.66

52. Techne Corporation
a 60 Min
ppt

“om
hy,

Short 100 Shares @ 69.50
Protective Stop = 69.50

Smart Investor Tip

Remember the three phases of
risk management during a trade:
(1) lessen risk, (2) eliminate risk,
and (3) protect open profits.

54. Techne Corporation
60 Mi

55. Smart Investor Tip

‘While an impulsive decline is un-
folding, prior swing highs make
suitable protective stops. From
an Elliott wave perspective, these
‘extremes tend to be second or
fourth waves.

Techne Corporation
60 Min

Short 100 Shares @ 69.50
Protective Stop = 67.85

64.06: U

56. Techne Corporation
60 Min

000 x Wave

57. Short 100 Shares @ 69.50
Protective Stop = 67.15,

STOPPED OUT — 67.15
Profit = $235.00, 3.38%

64. Australian Dollar Exit = .9354
daily Profit = $8,700

618

Long 5 ADM08 @ .9180
Stop = .9230

Smart Investor Tip

‘Use weekly price charts to deter-
mine trend, daily time frames to
identify wave patterns, and intra-
day price charts to finesse entry
and exit points of trades.

66. Silver Comex
Futures Continuation
monthly

Mm
i
|

| Ih
| h |

KEY POINT
Within an expanded fat, it is
common for wave C to equal
1618 times the length of wave A.

67. Silver Comex
Futures Continuation
daily
End

11

ul)
nl
| |

pl à

| M hi ¿Espana 540.5
pp

lit
Start 418.0

DEFINITION:
Fibonacci Expansion

A Fibonacci expansion or mul-
tiple is the relationship between
the net distance traveled of
waves 1 through 3 and the length
of wave 5.

68. Silver Comex
March 1998 (Pit

mul Gi)

hati ml

70. Silver Comex
h 1998 (Pit Session)
15 Min

71. TT A

72. Silver Comex
March (Pit S
15 Min

DEFINITION:
Golden Section

‘The beginning or end of wave 4
will often divide an impulse
wave into the Golden Section
(618 and 382) ar two equal parts.
‘This relationship is called a Fibo-
nace price divider.

73. Silver Comex
March 1998 (Pit

ie

|
rl (tilt ı
es MM Im!
nun
I

KEY POINT
‘The most common length rela-
tionship for wave C of a zigzagis
C equals A.

75. Silver Comex
rch 1998 (Pit S
15 Min

76. Silver Comex
Futures Continuation
daily

Expand 540.5
4

Lt ut
Start 418.0

Tui 1997 E Sep-1997 + 001997 * Novi 1997 " Jan-1998 * Feb-1998

77. Silver Comex
March 1998 (Pit S
Min

ml
jurul

Ie

pe”

|

|!
I" Il,
|

02/04/68

79. La: abet Ham

80. (oe
ute <= Bought 10 @ 678.6

<— Stop

(iii) [re a
thy" i Long 12 @ 678.17
I i

©
(iv)

Market Order: Selling 12 March NY Silver @ 698.0
with a stop @ 670.0 on 120CO

81. Net Profit = $11,300
Sold 12 @ 698.0

15 Min

i
" | << Bought 2@ 6825
[intent < Bought 10 @ 678.5

Stop @ 679.0 on 12

Long 12 @ 679.17

Market Order: Selling 12 March NY Silver @ 698.0
with a stop @ 679.0 on 12 0CO

Risk = 0.17

Reward = 18.83

82. Silver Comex
Futures Continuation
daily

|

hl],
|"

Ih y

Jan-1998 * Feb-1998 * Mart

84. Robusta Coffee
monthly

m

4

87. Robusta Coffee
daily.

(1
La (he

u)

lat i, ,

Sp
I,

88. Robusta Coffee AMOO!
daily: i

Long at 1229
Stop at.1144
‘Target at 1778
Risk = 85
Reward = 549

90. Robusta Coffee Stopped at 1144
daily Loss = 85

lly
tis | In

Long at 1229
Stop at 1144.
Target at 1778
Risk = 85
Reward = 549

Smart Investor Tip

Many times the direction of a
trade is correct but not the tim
ing. This requires patience and
perseverance. Sometimes I have
to trade a scenario two to three
times before I time it right.

92. Robusta Coffee
= B
1306 [c] 1308:
CU
N ld lo It 4

iH BI
if

93. Robusta Coffee

weekly

97. Robusta Coffee Long at 1125
daily Stop at 1094

Target at 1309
Risk=31
Reward = 184

Smart Investor Tip
‘The most advantageous situ
ations occur when both the
preferred wave count and the
alternate wave count call for a
‘move in the same direction.

98. Robusta Coffee
daily

99. Robusta Coffee
daily
Closed at 1289
Profit = 164

tf

ay ES
ics eo

102. CHAE Trak |

How a Triangle Positions You
for the Next Move

103. Gold mini Büy.5.XG1.at 825.0
daily Protective Stop:= 788.1

Ih

104. LE m
! It N yy

LES
til

Ale

Ma

106. i :
i J hol |
Y Hg

107. Wave 3 = 2.618 x Wave 1 at 858.1
FEAR + Stop =815.0

Ih

== at

I

108. Wave 3 = 2.618 x Wave" at 858.1

5 XG1 at 825.0
Protective Stop = 845.0

109. Gold mini Wave 3 = 2618 x Wave 1 at 858.1
dally

Loi RE at 825.0
Protective Stop = 855.2

Ih

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Air je pia

110. Long 5 XG1 at 825.0
Protective:Stop.= 860.0.

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111. Long 5 XG1 at 825.0
Protective Stop = 875,0

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FH
j
Ú bgp! By (4)

112. le
By hgh

J

KEY POINT
Even with two equally viable

113. i
wy

til
gall |

Dell Inc.

daily

iv-2.
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a
d

114. \
ul
pl! FT
i

ity
N}

hut!
M

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ih
ll iM %

Dell Inc:

KEY POINT

The post-triangle thrust measure-
ment serves as a minimum esti-
mate for fifth waves. A significant
move beyond this measurement
normally leads to a prolonged
fifth wave.

115. pere Short DELL @ 20.39

Stop @ 21.19

|
pl
I

pl

117. Dell Inc.

Short DELL @ 20.39
Stop @ 21.19
ing I x Price Target = 17.66

a

118. Dell Inc.

pe |

h \ My

KEY POINT

Within a triangle, one of te ini-
tial subwaves is usually complex
and will unfold as a multiple zig-

119. KEY POINT

When wave E of a triangle is a
triangleitself, the post-triangle

‘thrust measurement is still based
on the larger triangle.

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(iv)
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120. Dell Inc.
60 Min

{Poe
8)

121. Buy DELL @ 18.48

Net Profit = 1.91

122. ili Dell Inc.
alti daily

MT
pri Ik }
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Vay ju
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124. ey VE

| ing Wave C ina Zigzag |

125. (3)

AU

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mn
apa il!
| IN

Smart Investor Tip

‘You should always look for alter-
nate counts to be prepared for
different scenarios and in case
‘your preferred wave count does
not materialize.

127. KEY POINT

‘The Fibonacci guidelines for
double zigzags are analogous to
those for single zigzags. In a dou-
ble zigzag, first look for wave Y
to equal wave W. If it is longer,
then look for wave Y to be related
to wave W by the Fibonacci mul-
tiple of 1.618.

128. Um
lo

pt

129. 1 or [b]
il!" I
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ie

131. Smart Investor Tp

When the market is going against
‘you, it is emotionally difficult to
increase your position. However,
this trading tactic, which requires
confidence in your forecasting
model, can enhance the overall
average of your position.

bd or[b]

Il
OT
Mo

+

My I! ly 0

[e Stop @ 973.5

|
il hy

[sola 2 @ 969.0

Sold 2 @ 963.3

132. | Sold 2 @ 969.0

hu „a Il Omi)

‘Sold 2 @ 963.3

<— Sold 1 @ 957.3
Sold 1 @ 957.2

|| Stop @ 964.0 on 6 ee

133. Un il
ul N Price Target = 927.4

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l

a | | if ll
Hy pl A i ' ! I,

nl sold2@ a

Stop @ 964.0 on 6
==

134. | Sold 2 @ 969.0

| | I 1 Wl
1 0 1 |
lu, il | i hy! I], sg. 9840 one

Pa
Sold 2 @ 963.3 Sold 1 @ 957.3
< Sold 1 @ 957.2

I

mi
, SBP 500 I I,

Smart Investor Tip

During a market trend, the net
decline (or advance) is never as
large as the sum of the individual
declines (or advances). To maxi-
mize gains, you can trade in and
‘out of positions to take advantage
of countertrend moves.

135. March

138. T-Bonds 30-Year CBT

Man

139. T-Bonds 30-Year CBT
March 1998

38261-12017

50,08(417-27)

61,84(116-10))

tit

KEY POINT

Within a zigzag, waves A and C
always consist of five waves.

142. T-Bonds 30-Year CBT

March 1998 (Pit Session)
Em Short 25 @ 121-02

Price Target = 118-01

A
1
N lay

ly
N
ı la 21
Inn! hl
ly N

I <- Sold 25 @ 121-02

143. Smart Investor Tip

An effective trading plan in-
‘cludes a selective entry point, a
protective stop, a price target,
favorable risk-reward ratio, and
an alternate wave count.

T-Bonds 31

hi

In

ai

0-Year CBT

Mi

pus

Short 25 @ 121-02
Risk = 0
Reward = 3-01
Price Target = 118-01

Sold 25 @ 121-02

}<—Stop @ 120-24

144. Reward = 3-01
Price Target = 118-01

|
|<— stop @ 120-24

145. Short 25 @ 121-02
Risk = 0
Reward = 3-01
Price Target = 118-01

Sold 25 @ 121-02

mn

nl

Um)
11

<— stop @ 120-24
AA
| In! [bought 25 @ 12013
| Net Profit = $16,406

147. til

A \

yy 1 h

150. CH AL Trak |

Using Ending Diagonals to Trade
Swift and Sharp Reversals

153. Smart Investor Tip

The guideline for an ending di-
agonal provides a good example
‘of how the Wave Principle can let
a trader know exactly where his
or her analysis is wrong.

MINOR WAVE 5

MINOR WAVE 5

DJIA Hourly Bar

154. MINOR WAVE 5
DJIA Hourly Bar

Li at 9344.8

MINO!

IR WAVE 5

Smart Investor Tip

‘The conservative approach for
trading ending diagonals is to
wait for the extreme of wave four
to give way before initiating a
trade.

156. KEY POINT

Regardless of your trading
style—aggressive or conserva-
tive—ending diagonals are worth
looking for because they are easy
to identify and they offer high-
confidence trade setups.

159. Silver Wheaton Corp.

60 Min

160. Silver Wheaton Corp.

60 Min

Buy 10 Jun11 34.00 Puts @ .82
Total cost= $820.00

161. Silver Wheaton Corp.

i
i

]
IA

ce
RUE

Buy 10 Junt1 34.00 Puts @ .82
Total cost = $820.00:

162. Silver Wheaton Corp.

60 Min

Exit 10 Junt1 34.00 Puts @ 2,72

yn
va,
(5)

Max Option Value — $3.90 - $4.00

163. Silver Wheaton Corp.
60 Min

Guideline of Alteration

a
A] Guidoiine of Depth of Flat (Sideways Correction
À À Corrective Waves

382 Retracement (4)

166. Sell 50 shares at 36.94

Smart Investor Tip

To offset the risk of entering
‘a trade too early, take a small
position.

167. Short 50 shares at 36.94]

Protective Stop = 38.09

168. Teck Resources Limited
Min
Short 50 shares at 36.94

Protective Stop = 38.09

Soll 100 shares at 35.13

169. Teck Resources Limited

Short 150 shares at 35.73
Protective Stop = 37.17

170. Teck Resources Limited

Short 150 shares-at 35.73

Protective Stop = 34.00

171. Short 150 shares at 35.73
Protective Stop = 33.00

STOPPED OUT:
Profit = 7.64%

172. y |
Fl bio

on ath il |
papal Mayan, ital iy hat

!
Ht
Lu Ir [iv]

KEY POINT

After an ending diagonalis com-
plete, the reversal back to where
the diagonal began should take
from one-third to one-half the
time it took for the diagonal to
unfold.

174. Euro FX

Daily Continuation

til

hy
sige Inn,
a ar
| url? liv]

pl ih
je hf hu at

KEY POINT

‘Within a contracting ending
diagonal, wave three is always
shorter than wave one, and wave
five is always shorter than wave
three.

175. (iii)
Stop @ 1.6161
Risk =.0.0204. 1600

m esto @ 1.5957]
À Fil all
ul yee.

Reward = 0.0684

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i I il, u, ita ht

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RU [iv] (0)

i

177. —®)

Market Order:
Buy the euro at 1.5273
with a stop @ 1.5663 OCO

178. 15] v(iii).

Net Profit = 0.0684 N
Bought @ 1.5273 N

179. M

ww

ty hu 2 i

(a

Hoth al
pa yr hh A

ih! i

liv]

KEY POINT

‘The greater the throw-over, the
more violent the reversal.

180. Test Yourself

182. Going Beyond Elliott Wave Patterns |

184. Applying Technical Indicators |

mm

185. Cree Inc
180 Min

Sell 100 Shares @ 31.05

186. Cree Inc
daily

k M

fh
|
\ iit

ha
Y N A

ps

A

RSI (14)

kr M Hi
runs be Y,

187. Smart Investor Tip

Always manage your risk in ev-
ery trade by focusing an this trio:
Lessen risk, eliminate risk, and
protect open profits.

Cree Inc
+80 Min

Short 100 Shares @ 31.05
Protective Stop = 32.85

188. Cree Inc

Short 100 Shares @ 31.05
Protective Stop = 31.95

189. KEY POINT

A successful trade is made up of
three ingredients—the
psychology of the trader (60
percent), risk management (about
30 percent), and technique (only
about 10 percent).

Cree Inc

190. Cree Inc

Short 100 Shares @ 31.05
Protective Stop = 30.05

191. Cree Inc
80 Min

192. Cree Inc
1

STOPPED OUT:
Total Profit = $400.00 (+12.88%)

Short 100 Shares @ 31.05
Protective Stop = 27.05

194. Wal-Mart

daily

196. E]
Wal-Mart M

brett

ea wi M
if go jeu
CAT

ju
F
sal

La je
at ut!
Li

MACD
ER
ce
„ll. a. all

| Se y “rr

198. Wal-Mart

daily

Long 100 Shares @ 59,10
Protective Stop = 59.80

199. Long 100 Shares @ 59.10
Protective Stop = 59.80

Sold 8 Sepi2 60.00 Call @ 3.65 (+114.71%)
Sold 5 Sep12 60.00 Call @ 4.40 (+158.82%)

200. Wal-Mart

dally

Long 100 Shares @ 59.10
Protective Stop = 63.10

AS
Mao REX |

201. Wal-Mart

daily

Long 100 Shares @ 59.10
Protective Stop = 64.10

202. Wal-Mart

daily

Long 100 Shares @ 59.10
Protective Stop = 65.10

hat

A Md
A W

203. Wal-Mart

daily

Long 100 Shares @ 59.10
5.10

STOPPED OUT — 65.60
Total Profit = $650.00 (9.91%)

205. Wynn Resorts

180 Min

Sell 10 shares.on open
Protective Stop = 138.28

206. Wynn Resorts
ally

je

| A A pl
í ha ! un, !
al ie

itt
hai
i

rea
i}

RSI (14)

Re eee eee E

207. Wynn Resorts

|
| a pl it

| ly
i Nd
= m =

I, |
ii

I

el Du)

fl
IM

208. |
|

Daik Cloud Cover

“|
| Vu N J

Wynn Resorts
dally

N nk " i
+ he tg IE
| Va A

209. Wynn Resorts
180 Min

Short 10 shares @ $126.30
Protective Stop = 138.28

STOPPED OUT — 106.01 Y
Profit = $202.90 (16.06%)

212. CHAE Trak |

[A Basic Options Trade |

215. Stop @ 1.6161

Risk =. 0.0204. short @ 1.8987

til

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216. M

minus
net debit

218. i |
hu Ma, ñ

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221. Euro FX

daily continuation

Ta

[iv]

223. DEFINITION:
intrinsic value

Intrinsic value refers to the dif.
ference between the strike price
and the price of the underlying
asset for in-the-money options.

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226. CHAPTER GN

More Advanced Options Trades |

227. Heating Oil

Weekly continuation

Panty ;
Hee Ar
If hy 1 if

|
ji Mg Mom,

aly

al
ME IM

228. et a 2

er N, FE ih

KEY POINT:
All corrections must achieve

some net retracement of the
wave they are correcting.

229. Heating Oil

y continuation

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till

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nt

a
O.
| Mi i eee
ial, ns

title;

230. Heating Oil

ation

th

ih
yt,
o "m
ty

si
10 1 Art
NT i

| Min
Ile ia

231. KEY POINT:

As a guideline, the time duration
of wave five may equal the time
duration of waves one through
three multiplied by 382, 5, or
618.

Heati

lo

art 01/1

ing Oil

No. of
Trading Days

232. Bear Call Ladder

Buy 1 Further OTM Call
You are here

Buy 1 OTM Call

Sell 1 ATM Call

Net Credit

ger-term strategy,
Maximum risk capped at different
Maximum reward uncapped

Breakeven: short call strike plus net credit

Breakeven: higher long call strike plus maximum risk amount

233. profit

A395 = 1

Breakeven De

iy 1 al
In! i i

235. a

KEY POINT:

Breakeven prices correspond to
‘option values at expiration. Prior
to expiration, breakeven prices
provide a general estimate and
fluctuate according to remaining
time to expiration and changes in
implied volatility.

iy"

Heating Oil

-ontinuatior

ll
fl

Di fl
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ti)

1
tt I pe
pl er

m

236. Heating Oil

237. ate

al

¿pl
ite

240. End 13604

A
E pa A e

N

Fi a

241. Bl

i} rl
al 4

[4]
0s, 11364

TA
0.618

2. —_ 96802

oy

la, ye
hana,

242. Soybeans
0 inuation

tpt tose

98110

= —
et pri [2] —— 57316

a
0,786 LL on
itl *

nee August 2007

243. ai al Mh
!

AO A

DEFINITION:
blow-off

A blow-off top is a steep and
rapid rise in prices that is often
‘characterized as panic buying. It
is followed by an equally steep
and rapid decline in prices.

244. Soybeans
May

420740

a oll

ty
pr

TP