Catching Tails

Discussion in 'Journals' started by Wide Tailz, Mar 25, 2012.

  1. Greetings.

    This thread will measure my equity curve for your enjoyment, and show a trend following strategy that has proven itself to me after testing everything else my heart desired.

    The objective: Catch the "tails" of stock trends using classic trend following tactics, technical analysis, and the occasional automated strategy when a third wave is anticipated via Elliot Wave analysis.

    A Reg T cash account will be used using hourly bar charts on various stocks that show the required setup:

    1. Countable Elliot Wave situation leading to an anticipated third wave.

    2. Momentum divergence using MACD, Slow Stochastics, and any other momentum indicator such as RSI, money flow, etc.

    3. Buy trigger on automated signal or trendline breakout.

    The setup illustrated:


    Images copyright Elliot Wave International, taken from Jeffrey Kennedy's Commodity Trader's Classroom ebook
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  2. Current Account Status, 2012

  3. Most recent trade setup. This trade caught the majority of wave labeled iii:

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  4. The actual execution on hourly bars. Note the wave 4 created a most excellent breakout barrier. Note the momentum divergence, higher low, and enormous green candle as the third wave lifted off.......



    The remainder of this thread will be more of the same.

    1. Countable Elliot Wave situation leading to an anticipated third wave

    2. Momentum divergence and typically a higher low confirming wave 3 approaching

    3. Buy signal via automation (based on a moving average), trendline breakout, or other method.

    4. Stop placed below the end of wave 2.
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  5. subbed...
  6. N54_Fan


    Interesting thread. I actually look for similar things as your system but I do NOT use EW analysis.

    Take a look at $XEU...the (EUR.USD) and tell me if this fits your system. I believe the Euro is about to "Launch" as you say. Probably this week.



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  7. Handle123


    Very interesting approach, huge fan of Elliot-just takes time to study.

    So in a way, you counting on like a failed H&S pattern within wave 2 or wave 4?

    I think some of the best trades are always failures, generally cause smaller traders are afraid to take them. The trades that are hardest to take usually are more profitable than the feel good trades.
  8. Considering human nature wants to fade that huge green candle when it starts, yes this trading style can feel very awkward. I watched that candle for about 3% before I was ready to jump in. It just kept going up. Never once went against me. The irony is that it is the safest setup I know because the momentum is very strong.

    Ah, the glorious third wave.

    Your description of it looking like a failed head & shoulders comes right out of the classic text on Elliot Wave analysis. When the world is seeing the implication of a simple price pattern, The Market is headed in a completely different direction!

  9. Hi,

    Didn't see your question the first time I saw your response.

    We're seeing completely different things. This is why I'm not shy about posting my method. :) Elliot wave is very user dependent and an acquired taste, but deadly accurate in the right hands. Paul Tudor Jones is the most famous example I can think of who considers the Wave Principle one of the four bibles of the industry, and once claimed that EW gives the trader the opportunity of pinpointing very low risk setups.

    First, I don't see a third wave coming because the price has not yet finished the basing process (wave 1 & 2) which typically puts up a very distinct momentum divergence on all momentum indicators. Note that stochastics in your example is not agreeing with Macd, among other subjective qualities like inflection of momentum, etc.

    Forex is a bit different than individual stocks because it's two markets in ratio, not just one, so the wave counts are not as obvious. I'm also not seeing a wave 1 finishing there (only two impulses on the up). It looks like it's going to thrash and disappoint a lot of traders.

    Here is what I'm looking for in purely momentum qualities. All indicators are making it obvious what is about to happen..... this idea of divergence at the end of wave 5 or leading into wave 3 was presented by Jeffrey Kennedy in the source mentioned above, in month 3 of my trading career. It took more than a year of goofing off before I got serious and decided to wait for the best opportunities!

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  10. Long BAC @ 9.68 anticipating wave iii of 5; Stop Market @ 9.28

    The setup is based on two EW principles: Wave iii typically breaks out of the resistance formed by the previous corrective wave of next higher degree, and wave ii never comes below the base of wave i.

    My "buy signal" was basically absent this time. -1 discipline point for the trader. Position is 1% adverse at close of market.

    Momentum divergence was shaping up nicely until the hard right edge disagreed. :D

    The Market will invalidate my analysis when BAC exceeds the previous swing low, and I'll protect capital with 4% risk.

    However, other clues such as angle of the most recent corrective wave relative to its peers and the higher order wave count leave me fairly comfortable with the position.

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    #10     Mar 27, 2012