Tuesday, January 1, 2008

Interpreting EWT's Charts, Commentary, and Annotations

Hello there,

I've just subscribed to the NTO as I'm relatively new to trading and find EWT very interesting - I understand basic wave counts and Fibonnaci retracements, but do you have any links to explain the more complex aspects, as it's quite confusing from looking at your charts how and why the lines have been drawn where they have as I'm not familiar with some of the annotation (R1, S2 etc), and the technical commentary appears aimed at a more advanced level which is understandable.

Any help you can provide would be appreciated as I would like to be a long term subscriber to your reports, and obviously I need to improve my knowledge in this area.


Elliott Wave Technology's Reply:

Welcome aboard!

Firstly, do not be intimidated by all of the trendlines, and technical commentary present throughout our reports. Once understood, you will come to find it is a rather simplistic road-map, citing the most likely future outcome probabilities that the price action is currently telegraphing.

In short, the trendlines, or extended “trajectories” as we like to call them, often mark trade triggers with an associated point-value as price crosses above or beneath such boundaries. We label such trajectories as (R) resistance, and (S) support. We mark each trajectory with an up or down arrow, along with a point-value and active or marginalized price objective that is directly associated with it. There is often more than one set of trajectories, which is why we use R-1, R-2, R-3 etc. All are relevant until they reach target, become permanently or temporarily marginalized, or technically negate for one reason or another.

Quite often, the trajectories and associated targets relative to sell-trigger/support-failures, or buy-trigger/resistance-breakouts will become “marginalized” threatening failure. When this happens, the up/down arrows and price-objectives are muted in color to highlight their “marginalization” status. Should price reclaim the trajectory, we return the active color status in a bold primary color.

Bear in mind, the above has nothing directly to do with Elliott Wave, however it is a proprietary and rather complimentary method of analysis in which we measure and project the short and near-term intent of the price action. This method, in concert with our preferred/anticipated wave-counts, provides for a high level of success in identifying short-term price objectives.

Such trade-triggers are at times, one-way-tickets to immediate short-term profit – free of drawdown. At other times, drawdown’s will often occur in advance of such triggers reaching target. At yet other times, targets may fail outright as other opposing elected triggers take over. Monitoring the status of all such trajectories keeps traders apprised of potential impact relative to their specific trades, profit targets, tolerance for risk, and general money management criteria.

In each possible case – the boundaries and trajectory markers are set. Such boundaries are extrapolated in order to provide a meaningful gauge for traders to best manage profit/loss, take-profit, abort, reverse or re-establish a given position.

A third and separate level of methodology incorporated is that of buy and sell “probes.” These are “counter-trend” in nature, and attempt to catch early tops and bottoms at various degrees of trend. Please refer to some of the trading questions in the balance of the blog page for a more complete discussion on buy and sell probes.

Do take the time to carefully read all of the chart-note-definitions included with each issue of the NTO. In addition, read and absorb the general trading notes highlighted (in blue text) in the “Evening Post” archives to gain added insights.

We have provided two links from our blog page above. Here again, take the time to invest in carefully reading through the posted “trading questions” and all other informative materials relative to getting the most benefit from our publications.

Once you’ve read, then re-read and assimilated all of the basic chart-note definitions – then for a second or third time, review all of the content from the blog page – the simplicity of it all will come together rather quickly. It will then become crystal clear as to what we are speaking of when you read the straight-to-the-point technical commentaries associated with each price chart we present.

Do let us know if this helped answer your questions, and do feel free to inquire with specificity, as to any other facet of our analysis and forecasting models.