Stockmarkets: Technical Analysis

Looks like XAO in similar zigzag you mention. Up Mon-Thur down Friday 2 weeks running.
I sold out of most yesterday, because I couldn't see a reason why the market was so good, what was better than last week?
Maybe it was also my subconscious mind working because I had read this post earlier...

 

Fair enough.

I would ask then what sort of time frame would constitute confirmation or negation?

For example, I'm sure if you looked at the All Ords chart from 2009 up to now you would find many patterns that look like an impulse. Then, perhaps many months or even years later, price action subsequently negates the impulse. How can you ever tell if something is an impulse until you have perfect hindsight regarding where to draw the lines on the chart?

 

Yes I believe reliable forecasts of price action or movements in instruments traded via exchanges can be made. I'm not saying said forecasts are always correct, nor is it easy. One way of looking at it is that, if you observe countless examples of it occurring, does it really matter that you don't believe it. Such a belief won't change that countless more examples will occur.

 

Valid point and this is an acknowledged limitation of the EWP but this raises whether there is still value in the approach/technique (bear with me). As Elliott waves are fractal in nature the confirmation/negation of a wave count depends upon confirmation/negation occurring at a wave degree of the largest degree in the structure or pattern under analysis.

The example you give is a great example. When you pan out and analyse XAO or XJO from an EWP perspective over a time frame from the early 2000s to present day a number of probable (large degree - say starting at Intermediate wave degree and going higher) wave counts emerge. Very simply, the event that will confirm/negate certain large degree waves counts I've made will be if the market/s falls through the 2009 March low. This event would negate the price action from the March 2009 low was a leading diagonal Intermediate waves (1) - (2) - (3) - (4) - (5) which completed Primary wave ((1)) at one degree higher. If this did occur, then the next most likely wave count is that the 495 day GFC bear market from November 2007 to March 2009 was Cycle wave a and the 4000 or so day rise from March 2009 to February 2020 was Cycle wave b and the fall since February 2020 to the ultimate low was Cycle wave c. The completed a - b - c pattern would finish Supercycle wave (IV).

With the EWP one does not need to analyse the entire price history to make use of the technique. More often, analysis starts at a significant high or low in price or the identification of a clear wave pattern and one analyses (and trades if that's the objective) part of the bigger pattern. The importance of the bigger picture becomes less important or possibly irrelevant. The approach goes like this:



Source: Jeffrey Kennedy EWI

Where people really go astray is that they think, well the technique has a limitation, so it has no value or use to them whatsoever. However, is what they expect or want in any analytic technique even realistic? They seem to expect or want perfection, 100% per cent accuracy and certainty at all time frames. Yet all of us live with none of this in many aspects of our day-to-day lives. Go to a doctor and ask them what exact day you will die. Ask BoM a year advance what dates there will be damaging hail in SE QLD in 2020. Ask your superannuation fund to tell you the value of your benefit to the exact cent ten years from now. I'm sure the point I'm making is clear.

Is it better to have an edge which provides probable outcomes, rather than no edge and at worst just have no idea?

 

I think TA is genuinely one of the most useful skills you can have regardless if you are an investor or trader. All of the big investment banks out there have both traders and analysts (TA & FA) and use a combination of both to make the best decisions they can.

There are many many different sources out there that when they all collide and show the same patterns it's hard to ignore. For example VIX index, bond yield curve, value index, corporate earnings etc... They are all currently saying that the SPX is over valued. Everytime in history when these different sources point the same direction, there is always a correction to the mean.

The trick is to have the knowledge to be able to find all the right data (FA) and then combine that with historical charts (TA) and come up with the most probable conclusion. Even the best traders/investors in the world won't get it right 100% of the time, but the really good ones will get pretty damn close.

One of my favourite is Sven Henrich, check him out if you have time. Here is an article in which he charted the current downturn back in January this year. https://northmantrader.com/2020/01/06/vix-46/

If you have a close look at it, not only was he bang on the money but nailed the timing as well. This was before coronavirus was a thing.

Here is a follow up article to the one above in late feb. - The Big Calls

It's hard to deny that TA doesn't provide an advantage

 

Back on 11 April 2020 I posted this idea. That is, a triangle comprising five overlapping zigzags was possible. So far price action is following this. A rise through the 17 April high would have negated a triangle of the scale I have drawn (a far larger triangle could still be on the cards though), so today's reversal (assuming it continues) was needed. Can I guarantee it will continue to play out like this, no I can't.

 

My emphasis added. Indeed the argument exists that the financial meltdown in markets was approaching regardless of the COVID-19 pandemic.

 

@kitdoctor once again, all fair enough. I understand your point about having an edge due to probable outcomes rather than pin point 100% accuracy.

 

@PKFFW glad we could discuss sensibly.

Not sure if you know of Martin Armstrong whom I mentioned earlier. Anyway, he has developed an AI tool (Socrates) that analyses just about any financial instrument you can think of e.g. stock indices, stocks, bond prices/yields, precious metals, real estate, agricultural commodities, ETFs etc. It analyses in excess of 1000 instruments daily, far more than humanly possible, producing a daily summary report for each but also a series of arrays at any time frame of interest that forecast directional changes, volatility, panics etc. In addition, it generates technical support and resistance levels on different time frames. From what I understand it works on historical pattern recognition. He was offered USD$500 million for it but declined. Someone saw value in that!

 

Martin Armstrong Socrates Scam Martin A. Armstrong - Wikipedia

 

quote..

He spent 11 years in jail for cheating investors out of $700 million and hiding ..

Make's one think about the importance of thinking for ourselves and allowing the time and space to think deeply rather then be pushed up the garden path and end up with 20 cents left in your back pocket..

 

Having had a day or two to sleep on it (I actually woke up at 0440hrs yesterday thinking about it for some reason! haha) I realise where my sticking point is.

As you mention, it's about probabilities not 100% accuracy and I get that. However, I've never seen any empirical, repeatable, unbiased evidence that the patterns we humans are absolute geniuses at seeing, even in completely randomly generated data, have any predictive ability when it comes to the Stock Market. I'm puzzled as to why something that is so often described with phrases such as mathematical and a law of nature and those kinds of things can't be modeled successfully with computers.

So here's an example....

You find what you think is a text book perfect "impulse" wave. You consider the 10 steps in post #46 and you place your trade. You manage the trade and risk and you make money. Then months or years later, as you mention can and does happen, price action shows that you were incorrect and it was not actually an impulse wave after all. Hindsight shows that you should have drawn the lines differently so that the pattern held up under the rules.

I get that in practice is doesn't matter, the trade was successful and you made money so does it really matter if that particular instance of market direction prediction was accurate or not?

However, you can't really say it was the EWP in practice that gave you a high probability insight into the direction the market was going to take and that is why you made money because subsequent price action showed you were actually wrong on that point.

I would say you made money because you managed the trade and managed the risk and the fact that by pure luck the market went the way you thought it was going to go.

So here's another example. It is not meant to belittle TA or EWP or anything like that, I am intentionally keeping it very simple and obvious to make a point. I fully realise that whether or not I think TA and EWP can predict market direction, a lot more thought and analysis does go into TA and EWP than into my example.

I have a special coin that shows that when heads lands it is likely the market will go up and when tails lands it is likely to go down. I flip my coin, go through the 10 steps in post #46, place my trade, manage my risk, and I make money.

Would you be convinced that my coin has some ability to predict the market direction or do you think I made money because I managed the trade and risk?

 

The Stock Market Is Not Physics Part I: Problem of Trend Extrapolation

The Stock Market Is Not Physics Part I: Problem of Trend Extrapolation

The Stock Market Is Not Physics Part II: Action and Reaction Myth

The Stock Market Is Not Physics Part II: Action and Reaction Myth

Stock Market Is Not Physics Part III: Don’t Believe in Cause and Effect

Stock Market Is Not Physics Part III: Don't Believe in Cause and Effect

Stock Market Is Not Physics Part IV: Beware Rationalizations


Stock Market Is Not Physics Part IV: Beware Rationalizations

 

Thanks but I had already researched MA and new about his imprisonment.

 

Nothing there that I had not already come across.

 

@PKFFW lots in your post.

Counting waves or determining wave counts with fractal waves is where the complexity enters. Despite advances in technology (robotics, AI) there are still today countless tasks that only humans can (currently) perform or undertake.

motivewave already has software Best Professional Trading Software | MotiveWave Trading Platform I don't have the software and have not trialed it. I've asked questions about it and based upon the answers I tend to think they haven't overcome the complexity of it all.

Elliott Wave International are working on EWAVES Home :: EWAVES They are the ones to watch going forward.

Watch the latest video 1906 :: EWAVES

 

Yes this gentleman when one looks at the main components of his style are always the same-trade timing -trade rationale-and trade management ..