Spot a Pattern You Recognize: One Simple Tip for Becoming a Better Trader
by Chart School - July 16th, 2009 6:20 am
Spot a Pattern You Recognize: One Simple Tip for Becoming a Better Trader
By Gary Grimes, Elliott Wave International
The following article is adapted from market analysis by Elliott Wave International Chief Commodity Analyst Jeffrey Kennedy. Now through July 22, Jeffrey Kennedy’s daily, intermediate, and long-term forecasts for up to 18 markets are free via EWI’s FreeWeek. Learn more here.
Wave patterns are like beautiful women, classic cars and great art – you know them when you see them.
EWI analyst Jeffrey Kennedy drives this point home during his live Elliott wave trading tutorial. It’s my favorite of his tips for trading with Elliott waves. "Trade the pattern not the count," Jeffrey says.
If you don’t recognize a pattern at a glance, don’t trade it – plain and simple. After all, your wave count can be wrong; the pattern cannot.
Does that mean you must know the exact wave count at a glance, as well? No. Simply spotting a pattern you recognize is where you should start. Jeffrey scans hundreds of charts, clicking through them one by one, spending mere seconds with each. If he doesn’t spot a pattern he recognizes, a click of his mouse takes him to another potential opportunity.
Does price action look extended or choppy? Is it trading in a channel? Is it forming a wedge or triangle shape? These are some of the signals Jeffrey’s looking for. Each could help him identify – at the quickest of glances – whether price action is impulsive or corrective. This is the first critical step, Jeffrey says, to spotting high-confidence, Elliott wave trade setups.
That brings us to the following chart. Do you see a pattern you recognize? I do.
Look at the downward price action; the moves look decisive, almost in straight lines like impulse waves. Now look at the upward moves; they look indecisive and choppy like corrections. There’s also one down move that is clearly longer than the others – that’s almost certainly a third wave of some degree.
At just a glance, here are a few things we can determine:
- This is a bearish market pattern, because downward impulses are interrupted by upward corrections.
- The price action from September to November seems to be a pretty clear wave 3 down, followed by waves 4 up then 5 down, completing what appears to be a larger degree wave 1 in early March.