tailieunhanh - Fibonacci applications and strategies for traders Chapter 3

Chapter 3 Working with a 5 wave pattern. Returning to Elliott's original work, one of his most important statements is, "A cyclical pattern or measurement of mass psychology is 5, waves upward and 3 waves downward, totalling 8 waves | 24 THE ELLIOTT WAVE PRINCIPLE IN A NUTSHELL We totally agree with Elliott s approach here and will complement the idea with additional rules in later sections. We will also introduce other investment strategies closely related to the Fibonacci ratio. Elliott never worked with a geometric approach. We will introduce logarithmic spirals as an investment tool. We strongly believe that this is the solution to the problem of combining price and time. This has never been done before. The concentration will be on Fibonacci. The following chapters will work with daily and weekly data. Research shows that intraday data can be applied where only daily data has been used thus far. More historical tests are needed before definitive rules can be set. 3 Working with a 5-Wave Pattern Returning to Elliott s original work one of his most important statements is A cyclical pattern or measurement of mass psychology is 5 waves upward and 3 waves downward totalling 8 waves. These patterns have forecasting value when 5 waves upward have been completed 3 waves down will follow and vice versa p. 112 . This appears to be the only time that Elliott gave a definitive rule with forecasting value and many times the market behaves exactly as this pattern dictates. In this chapter we will analyze this great observation of Elliott combining it with additional rules to give definitive entry and exit points. Consistent with the Elliott concept the end of the fifth wave is considered to be a safe point to invest. The rare case of an extension in the 5th wave will be explained later. The five waves can be seen in charts of any time period whether intraday daily weekly or monthly. The greatest problem for the investor is waiting for the end of the fifth wave. To identify the five-wave swing we must return to Elliott who said Under normal circumstances wave 5 appears similar to wave 1. Most of the time wave 3 is the longest wave. Wave 4 should not touch the top of wave 1 in an uptrend. 25 26 WORKING .