Fact vs. Fluff: Elliott Wave & Technical Analysis Scans

Good afternoon traders. I trust your weekend has been enjoyable.

Below are a couple of really good questions I received this week regarding Elliott Wave and more specifically the ability to run a scan to find particular Elliott Wave patterns.

Keep the questions coming – drop me an email and I might feature yours.

‘Scan’ Your Way To Elliott Wave Proficiency

Hi Dave,

Let me start by saying I really enjoy your content on Real Vision and your commitment to produce clear information and hold yourself accountable. 

Thanks for that – it is tough putting one’s forecast out there for all to see. Each time I issue a trade, I am keenly aware that it may not work out as planned, and some clients may get their feathers ruffled. Thus, there can be times where I second guess or over analyze a trade versus just letting it fly. However, since trading cannot be a game of perfection, I try my best to not dwell too much about short-term outcomes.

Read Pit Bull by Martin Schwartz, a great insight how traders deal with client influences.

I noticed you are a bit of an advocate for the MotiveWave platform when someone uses Elliott wave as part of their analysis.

My question is if you use the scanner tool on the platform and what your view is on it?
I have not used it yet but am interested to start a trial

It seems like a great tool to find specific wave structures on a variety of markets and time frames that can be used as a starting point for further analysis to specific trade setups.

Yes, you nailed it. It is a starting point, not a tool that will provide consistent results if used as a stand-alone. Approaching the markets with only one tool in your kit will be devastating. However, I agree that the EW scanner in Motive Wave (Support -> Video Tutorials) is a worthwhile tool to start one’s analysis, especially if you are new to Elliott Wave.

In my opinion, by running the scan, whether it be looking for Wave 2 or Wave 4 completions, or developing triangles, it shows the user the COMPLETE wave count. Now while I have found some of these counts a bit ‘questionable’ at times, it bridges the gap that many new EW users fail to do….create a complete wave count going back months or years. (see Question #2 below). Too often they choose an obvious low or high and then start labeling going forward while completely ignoring vast amounts of price data that directly impacts the current count. BIG MISTAKE.

The other advantage of the scanner is that it saves you a ton of time if you are looking for a particular set-up. It is one of the reasons I invited my friend Daniel Sinnig to come and speak at the Traders Round Table in May. Daniel creates both custom algorithms and scanners so traders can uncover possible trading opportunities for further review. I have had Daniel create a few tools for me over the years. These are not EW tools, but tools that analyze data, look for correlations, divergences, and find statistical anomalies

From there however is where you need to roll up your sleeves. You just got a whittled down list of potential trade set-ups, saving you a lot of time. Now put them through YOUR filtering process.  It is imperative you use more than just EW analysis to come up with trades. You have to look at fundamentals, other technical indicators and quantitative analysis in my opinion.

In Motive Wave there is another really handy feature I use quite a bit, that is called EW AutoWave. Simply highlight a series of price bars and presto MW labels the bars with a wave count. This is a great teaching tool because it allows you to measure your count against the algorithms.

Bottom line? Yes, the EW Scanner and EW AutoWave is something to seriously consider for ramping up your learning curve and getting better at labeling your charts with Elliott Waves as well as being alerted to potential trades. 

Much appreciated

Best regards,

Ben M 

And this one…

Multiple Time Frames? Only One Elliott Wave Count Is Needed

Hi Dave,

Trust you are well, was hoping you might take a look at below and make observations, comments as a favour to a learning trader.

In your training series on Real Vision, you noted should always defer to longer duration chart for trend confirmation. So I have attached daily and weekly charts of gold and removed all indicators except Elliott Wave and Fib.

• Firstly does your software package agree with my Elliott count? I am using Esignal and they have an auto wave count feature.

Ray, I actually do my account manually so I cannot really say if the automated counts would line up. That said, there is nothing wrong with using the scans or auto-wave features as a learning tool/sounding board. But to use them and completely rely upon their output without a critical eye is a big mistake in my opinion.
• Weekly chart shows 4th wave complete, minor wave 4 hit 50% FIB, resuming completion 5th wave, projected $1546

The counts illustrated on these charts cannot be used to make a forecast:
  • The daily chart count start at the 2016 lows and does not take into consideration previous months and years. Thus, what is labeled has no context.
  • Also, the counts are not correct in terms of applying the rules of EW.
    • There is overlap of Wave 4 and 2
    • A 5-wave move higher is NEVER followed by another impulsive wave in the opposite direction (it can be followed by an ABC structure in which Wave A is a 5-wave structure, but that is not how you have it labeled)

The weekly count is completely different off the 2016 low than what shows up in the daily count. Sadly, neither of them are correct.

  • The weekly count shows a recent Wave 4 completion in late 2016/early 2017. However, the length of Wave 4 in terms of both time and price is vastly larger than Wave 2 thus making it highly unlikely this is Wave 4

Your other questions below are not valid then at this juncture since the counts themselves are not correct. Once the counts ‘complete’ and in synch then you can start evaluating.

But this brings up another glaring reason to not rely exclusively on scanners: If the same software program comes up with 2 different counts on the same exact instrument but different time frames, it illustrates the algorithms INABILITY to take a wave count from the highest time frame and back it into the lower time frames. 

• Daily is showing 5 waves down, minor wave 5 complete, target for 5th wave completion must be below wave 3 $1124 minimum.

So two wave patterns diametrically different, how do you trade this?? If daily is correct then will be violation of wave 4 bottom on weekly chart, wave count will have to reset??? If weekly is right the daily chart has to reset wave 4 higher???

They cannot be different – it is the same instrument. The highest time frame counts trickle down to the lower time frame counts….period.

This is a perfect example of the shortcomings of computer aided EW analysis.

It took me a long time to get the basic of EW down – especially applying it real-time. I had many great teachers and resources along the way. Andrew Baptiste is a great EW technician and I learned and continue to learn a great deal from him. He too will be at the Round Table Event in May. Getting his insights from his 13-years heading up Technical Analysis at Morgan Stanley might just be of value 😉

I would also suggest looking at the following books:

Is this premise, thinking reasonable, wait and see which probabilities play out, Your comments much appreciated???

Thanks in anticipation.

Regards,

Raymon (Ray) R – Australia

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