April 26, 2010
By Susan C. Walker
How
do you choose one lesson from a basic tutorial that is chock-full of
excellent information about Elliott wave analysis? You could
browse through all 50 sections distributed over 10 lessons. Or you
could do what some people do when they open a dictionary: let the book
fall open and point your finger at a word. Sometimes you learn more
from a random search than a deliberate one.
That's exactly how I
chose this excerpt from EWI's Basic Tutorial to show how clear the
writing and illustrations are. The one best place to start learning
about wave analysis is this online tutorial, which is available to all
Club EWI members -- a membership that is free and that brings you many
resources about the kind of technical analysis and forecasting that we
do here at Elliott Wave International.
The topic that my
electronic finger pointed to online when I opened the online Basic
Tutorial was Lesson 6.2: Channeling Technique. These four graphs and
the accompanying explanation give a tantalizing taste of what you can
learn when you take The EWI Basic Tutorial.
* * * * *
Excerpted from The EWI Basic Tutorial
Chapter 6.2: Channeling Technique
R.N.
Elliott noted that parallel trend channels typically mark the upper and
lower boundaries of impulse waves, often with dramatic precision. The
analyst should draw them in advance to assist in determining wave
targets and provide clues to the future development of trends.
The
initial channeling technique for an impulse requires at least three
reference points. When wave three ends, connect the points labeled "1"
and "3," then draw a parallel line touching the point labeled "2," as
shown in Figure 2-8. This construction provides an estimated boundary
for wave four. (In most cases, third waves travel far enough that the
starting point is excluded from the final channel's touch points.)
Figure 2-8
If
the fourth wave ends at a point not touching the parallel, you must
reconstruct the channel in order to estimate the boundary for wave
five. First connect the ends of waves two and four. If waves one and
three are normal, the upper parallel most accurately forecasts the end
of wave five when drawn touching the peak of wave three, as in Figure
2-9. If wave three is abnormally strong, almost vertical, then a
parallel drawn from its top may be too high. Experience has shown that
a parallel to the baseline that touches the top of wave one is then
more useful, as in the illustration of the rise in the price of gold
bullion from August 1976 to March 1977 (see Figure 6-12). In some
cases, it may be useful to draw both potential upper boundary lines to
alert you to be especially attentive to the wave count and volume
characteristics at those levels and then take appropriate action as the
wave count warrants.
Figure 2-9
Figure 6-12
Throw-over
Within
parallel channels and the converging lines of diagonal triangles, if a
fifth wave approaches its upper trendline on declining volume, it is an
indication that the end of the wave will meet or fall short of it. If
volume is heavy as the fifth wave approaches its upper trendline, it
indicates a possible penetration of the upper line, which Elliott
called "throw-over." Near the point of throw-over, a fourth wave of
small degree may trend sideways immediately below the parallel,
allowing the fifth then to break it in a final gust of volume.
Throw-overs are occasionally telegraphed by a preceding "throw-under," either by wave 4 or by wave two of 5, as suggested by the drawing shown as Figure 2-10, from Elliott's book, The Wave Principle.
They are confirmed by an immediate reversal back below the line.
Throw-overs also occur, with the same characteristics, in declining
markets. Elliott correctly warned that throw-overs at large degrees
cause difficulty in identifying the waves of smaller degree during the
throw-over, as smaller degree channels are sometimes penetrated on the
upside by the final fifth wave. Examples of throw-overs shown earlier
in this course can be found in Figures 1-17 and 1-19.
Figure 2-10
Read the rest of this
10-lesson Basic Elliott Wave Tutorial online now, free! Here's what you'll learn:
- What the basic Elliott wave progression looks like
- Difference between impulsive and corrective waves
- How to estimate the length of waves
- How Fibonacci numbers fit into wave analysis
- Practical application tips for the method
- More
Keep reading this free tutorial today.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.
