Interview Playback: Recorded Wednesday, April 19, 2017 Interview by Dale Pinkert You can watch here.

Elliott Waves and Probability

Elliott waves are price cycles. The work by Ralph Nelson Elliott in the 1930s-50s identified a wave structure for the stock market the was heavily based on the fibonacci sequence, although his work most concentrated on the structure and, more specifically, market patterns.

The short of it is that the markets (currencies, stocks, futures, et al) move in a very predictable manner and are not affected to any great degree by events. Markets move based on the collective mood of the “herd” around the world who invest, or trade in them.

Expanding on that thought, you have to keep in mind that the direction of the market on a grand scale is determined by market participants on a worldwide basis. Many a time I wince at the suggestion that the market has had a major reaction to an event in any one country, while it’s rather obvious that the event in question has little significance beyond the borders of that country, or even within that country’s borders.

There are other times when I chuckle as the pundits one day align a market move with a major event, while the next day scramble to explain why the market has completely retraced that move on the following “no-news day.” Events simply have little, if anything, to do with the movement of the market.

On the other hand, what is very clear is that the market moves in identifiable patterns that correspond to specific fibonacci ratio measurements. In my time in the markets (over 20k hours), I have yet to find a wave sequence that did not have a fibonacci relationship with a larger pattern relating to the golden mean (1.618 or .618) or its reciprocal of .382. Fibonacci measurements are critical in determining the lengths of waves, and therefore the next turn in the opposite direction.

Fibonacci ratios run all through the markets. They’re found all through nature, as well. And of course, they originate with the planets in our solar system. The ratio of the distance between the planets in our solar system averages out to 1.618.

For those who are new to Elliott waves, what Mr. Elliott discovered way back in the ’30s, is that a market trend moves in 5 waves, a countertrend in three waves.

If you look at the chart on the left (click to expand), it shows a wave pattern on the left that’s a bull market trend. You can see that the first wave up moves in 5 “trending” subwaves (not numbered). The second wave then retraces in 3 waves (a countertrend move) 62% of the distance of travel of the first wave.

The third wave follows and it will typically rise 1.618 times (the golden mean) the distance of the first wave. At the top of that third wave, a countertrend wave will develop (a fourth wave) that will retrace 38% of the combined distance of waves 1, 2, and 3. Finally a fifth wave will trace out a length of 1.618 times the length of the original first wave.

Elliott wave impulsive sequences are fractal, and so what happens next is that the market will then retrace 62% of the entire distance of that combined sequence (which now becomes the first wave of a larger impulsive sequence). The wave that retraces 62% now becomes the second wave, and a new larger sequence develops that will rise to a “higher degree,” but with the same fibonacci relationships as that of all the waves within that first wave up. This pattern regenerates again and again until it has developed a full 5 waves as this higher degree.

The key to being able to predict the market is knowing where you are in either a trend or countertrend pattern. Knowing where you are (what pattern you’re in) produces a high probability trade, because these sequences and patterns happen over and over again within the larger market—in fact, throughout all markets. It doesn’t matter if it’s bonds, currencies, futures, commodities or what-have-you. The market moves in the same manner worldwide, every single day of the year.

A motive (impulsive), trending sequence has one basic form. It’s a five wave move and conforms to a specific set of rules that cannot be broken. If any of these rules are broken, the resulting sequence must be re-classified as a corrective (countertrend wave). These corrective waves have far fewer rules and there are many more corrective patterns than there are motive patterns. They are therefore, more difficult to predict. The secret to success is being able to identify a pattern early on, and trade them as the pattern continues to unfold and risk gradually reduces.

It’s the identification of these patterns that’s the key to unlocking the power of the Elliott wave sequence. If you spend the time the learn the system, which requires a knack for pattern recognition, the secrets of the market will morph before your eyes into a very readable map and lead to a very lucrative future.

Elliott wave price cycles work very well with time cycles, although I have found time cycles to be far less accurate and predictive. However, using time cycles to support EW price cycles gives you a much higher ability to predict and time any market. It reduces risk and heightens confidence.

Here’s a very recent interview with Bob Prechter, in which he reiterates his prediction of the trajectory for the not too distant future. Good reading if you’re interested in Elliott wave or the movement of the market.

Until you buy into this concept that the market moves in a very predictable manner based on the mood of the herd, you’ll never have a chance of beating the casino, because you’re playing against it. Period.

Couldn’t be happier … KK 2

Couldn’t be happier … The analysis and insight you provide is simply amazing!  I’ve been trading the futures and equity markets for well over thirty years and usually average around 5% monthly.  Since joining your Traders Gold Service two months ago, that number has better than doubled.  I couldn’t be happier.—KK

Get an upper hand … JC 2

Get an upper hand in trading … Seeing all the different currency pairs and the wave structures and hearing you explain why this has to do that on a nightly bases gives one a upper hand when trading. Elliott Wave applies to all stock and indices and can be applied to any candlestick chart. If someone ask what you want for Christmas – Tell them a membership to Peter’s “Traders Gold!”—JC

A true expert in Elliott Wave FL 2

A true expert in Elliott Wave … You are a true expert in EW analysis. What you provide is not available anywhere and is priceless. Subscription on your services is the best thing I have ever done. Many thanks for your effort to make me a better investor. I now have more trust in my investment decisions. I hope you will continue the excellent work! —FL

Rise above the rest … SM 2

Rise above the rest … I have only ever met a few people who, in their chosen fields (astrology, medicine, music, martial arts, technical analysis), rise above all the rest and you are one of them…you have ‘the gift’…and that’s why I’m a Trader’s Gold member. —SM

The best of them JL 2

The best of them … Last couple of years, I subscribed to several ‘market traders’. You are by far the best of them and the personal contact is awesome. Daily and daily updates are very well written! Besides your expertise in EW, I also like your cycles analysis. Best investment I ever made! —JL

Have not had a losing week RW 2

Have not had a losing week … I have been with Peter almost a year. The only thing that matters is have I made money with his service. I think I have finally turned the corner using Peter’s EW. I have not had a losing week in the last 5 months. Thanks Peter, for your amazing amount of hard work. —RW

Tops in your field DZ 2

Tops in your field … You are tops in your field.  Tried to follow Elliot Wave international for years.  They were always behind the market.  After discovering you, I perceive that you are an expert in reading the waves, which puts you way ahead of the rest of your peers. And you can read the Waves like you are reading tomorrow’s financial section.  I pray you stay healthy.  —DZ

the real deal SM 2

The real deal … ‘Educational, insightful and thorough market analysis for all levels of traders. It’s Elliott Wave at its best….Peter Temple is the real deal’ —SM

The Market This Week

Above is the daily chart of ES (click to enlarge).

We appear to be in the second pattern of an ABC 4th wave correction. The second pattern is almost certainly tracing out a triangle. A triangle is always a final pattern in a combination sequence. If this is the case, I don't expect a wave below the previous low of about 2316.

As I describe above, technically a triangle is not confirmed until the D wave is in place. However, it's been a high probability prediction of mine from rather early on in its formation. An E wave down will follow the D wave.

I predicted the triangle very early on, because of the knowledge of Elliott wave patterns. Once we'd traced out a flat down (the first pattern in this fourth wave), the options (after a subsequent three wave move up) reduced to either a zigzag or a triangle. Once the zigzag option was eliminated, the triangle became the much higher probability pattern.

After completing the current fourth wave, we'll have one more wave to go, which could be an ending diagonal as a fifth wave. The long awaited bear market is getting closer.

_____________________________

Sign up for: The Chart Show

Thursday, April 27 at 2:00 pm EST (US market time)

The Chart Show is a one hour webinar in which Peter Temple provides the Elliott Wave analysis in real time for the US market, gold, silver, oil, major USD currency pairs, and more. You won't find a more accurate or comprehensive market prediction anywhere for this price.

Get caught up on the market from an Elliott Wave perspective. You’ll also get Andy Pancholi cycle turn dates for the balance of the current month. There’ll be a Q&A session during and at the end of the webinar and the possibility (depending on time) of taking requests.

All registrants will receive the video playback of the webinar, so even if you miss it, you’ll be sent the full video replay within about an hour of its conclusion. For more information and to sign up, click here.