The first thing to say about this kind of a market (which is any market that is not embedded in the long term overbought / oversold) is that neither group has privileges over one another and the lead one may enjoy (i.e. due to a surprise loss of embedding) shall only last until the current move wears off.
By this, I mean that after wave 5 of Wave 5, the tide turns in a big way. And wave 5-s tend to be underperforming, which means that they merely match the terminal point of Wave 3, and often would fall short.
The implications would include the high probability of a reversal in Bull Zone 1 and Bear Zone 1. A range bound market would often be playing ping between the 30-minute LEMA and the 2H LEMA.
For the most part this is a calm and collected game where the parties (bulls & bears) have to wait for their turn.
The monkey wrench is when the strong handed bulls/bears override the privilege for the next move by taking over the tokens of the weak handed bulls/bears around the guard rail, and from 1x stretch they pull the band out to 3x stretch with their continuous buying/selling.
Figuring where you are at in the board game takes tools, such as plotting mowing averages, displacements and counting waves. Additional hints may arrive from the Energy Bands (arguably one of the best indicators ever invented by anyone), and from monitoring for volatility bracket breaches of the consolidation level as well as for RSI2 divergences.
As you will see, applying the knowledge you get here would make a world of difference in knowing what is happening: how far can the market go, when and where would it be turning around.
The following image shows you the hit of the Energy Bands, the back test of the high, the daily RSI2 divergence and the volatility bracket breach all in one picture.
Find my LEMA 30N indicator on this blog for the LEMAs, the guard rails and the purple haze displayed on a 30-minute time frame correctly.
Plot E-16, which is E-32 on the 30 minute. When in picture based on the Daily, 4H divergences and breaches, we are working off the 30-minute.
The following image shows a not very typical, but symmetrical wave structure down: both Wave 2 and Wave 4 hit the E-32. You can clearly see the whoop-bam-boogie peaks of Wave 4 on the RSI below, but to get the structure right, for Wave 2 you would have to zoom in to 15 min.
As an actuality, check out my the blog entry, “..in Acapulco”. Where I calculated the target using a fractal sequence. Look at the date of the post and the outcome as well.u
…Wave 2 down made – think Pivot, think fake out of 4H doji. A Wave 2 can also exceed 100% retracement of Wave 1, so factor in this possibility. This looks like a scare on the Volatility Whip.
…so this was the Monkey Wrench I just mentioned. Look up my entry about Trading Bear Zone 1 for further info about the rules that apply here, such as:
Sell after Whoop, Bam and Boogie finished making sandwiches in the kitchen.
…the path of least resistance summed up in one picture
We left off with calling an end one hump early – not that this changed much: both failed breaks fell shy of five pips extra. So the Volatility Whip correctly had the whip leg longer this time, and after a quick fake-out of Mr. Maroon this head served as the terminal for wave 2 up.
Whoop, Bam, Boogie, and #5 matched up perfectly.
The topic of this entry is to be able to spot how the thrust follows the build up in a wave structure.
This would be a good time to call in the clowns candles.
You already know where wave 1 down started: it came after the volatility whip. It ended in the thrust at the end of the same thirty minute candle, so in order to see the blown up structure of black candles plus the thrust wick, you would have to go down to the 5-minute timeframe, and we are not going to do that now. The previous article should had given you the feeling of how things were speeding up gradually.
Wave 2 and Wave 4 ends I marked up with the numbers.
What you need to appreciate here is that Wave 3 had two of the black candle streaks followed by a thrust each (sometimes you would see one big bodied candle if your time frame is too close to print a wick, but this is the same thing), but between the two the RSI2 did not register enough strength to call a wave. Your reference point is the read on wave 2, and if that one is barely visible because of the wave’s steepness, go to lower time frame again.
You can also see that there were 3 Full Lambdas (3 diagonal cyan lines) down during the move, since there was no shot over the bow in the middle of wave 3.
Figure one shows a Volatility Whip (VW) in deep pink after a wave structure ended to the downside.
The Lock Out Close Out point is at the end of the V leg.
The W leg does not taken out by more than 5 pips, so this is a failed attempt to the downside.
Figure two shows the new wave structure starting from the excess and after wave 3’s three-push rampage, the wave 5 single blow’s rebound is already a V leg. Since the structure was to the upside, the LOCO point would be on the bottom.
The starting point of Wave 1 is inside the V leg and is the first pull back of the W.
Figure three: Wave 2 gets picked up upon the penetration into the last V leg within 4.5 pips .
The market shifts gears, things start to happen faster.
LOCO gets placed on the top.
Wave 1 starts just from above the hourly close of the W leg.
Wave 2 is a 3-pip penetration into the V leg (red circle shows the fake out of the Hourly Maroon).
The Loco point just falls shy of the low made by Wave 3 to the downside, to the actual matching of the lows becomes a 4-pip fake out out the LOCO as well.
Figure 5: the ominous Institutional market move & the present.
Looking at this image the institutional move looks more like a market making move: they put in longs those who never in a million years wanted to be.
The wave structure ended just above the previous LOCO line and a new LOCO was printed. Fake outs galore. Having an open that would reach below 1.1153 would set up a back test of a now doubly wide LOCO pair of lines = Kiss GoodBye.
Now, what if they gap it up? There is some potential (5-15%) here to go crazy and milk more buying. A small gap up would change nothing on the picture. You would need to increase your tolerance beyond a 5-pip fake out of the V line for a bit, so I would only start hedging shorts gradually, and starting beyond 1.1181. Watch out for the increased spread at the open as well, for your ask line might be showing a break out 4-5 pips earlier.
To me, at the moment it looks like Wave 1 down was started with the back test of the overbought area, and there were more than Four Tops made above the Upper Guard rail (in green) which is the Bottom Rail of Bull Zone 1.
See you all in Acapulco!
(The fact that the time frame had to be blown up by the end shows that there is less liquidity up here for the market can only sustain shorter moves. The Market wants liquidity, the brokers want commission.)
Do remember the possibility of a continuation still, and be prepared for it.
Another 5 waves up would put price somewhere between 1.1266 and 1.1285. So, if price violates 1.1158 first, then comes back through it, surrender all hopes that the next wave structure would occur to the downside and ride it hedged (or overhedged) to the nearest check point.
This one is gonna be a rant on waves and the behavior of the funny guys.
Calling things symmetrical would be a little bit harsh, but the rhythm of the market more or less remains the same.
Take a look at the following two 5-wave structures.
Although they are certainly not identical, they have commonalities. Three attempts to take the price as high as possible is one of these. In both cases, 2 out of the 3 peaks managed to achieve overdrive prints on the stochastic bars. Both wave structures had #4 undercutting #2 which speaks of a corrective wave structure (by this I mean you should start fading heavily by the time wave 5 is up). In both cases, wave 5 fell short of the overall peak, and they were less than 5 hours long.
Now, let’s discuss for a moment the deep break and why none of that move is connected or marked as part of a structure. They aren’t.
The volatility whip was utilized by some institution smelling funny guys to take over as many longs as were possible and make a killing on the 10% move that transpired in about 6 hours – about one session’s length.
The volatility whip is a thrown up ball, there are no rules other than the idea of making a measurement on what the downside volatility versus the upside volatility relates to each other on a current full throttle.
This institution spotted the short term opportunity: wave structure over with, 10% score on short notice pending, all they needed to do was serving as an amplifier, plus putting a lot of orders out at & below the 30% line.
My assumption for generating a very efficient “trending” move is having a program run that gives every fill at market in one direction. It takes a lot of capital to do this, no doubt. There are about 10 banks in the world that have the funds.
This overwhelming move knocks out everyone on the way down from their longs -> they become taken over by the bank, showing an ever increasing draw down, then they hit their target area that should be strategically placed beyond a lump of orders (stops) that were left out for good measure.
This is by when the auto fill program (in this case auto buy) gets turned off. Appreciate that they cannot exceed the demand on the way down, only match it, so the down move in this case was an “aid” to escort price into their own net. They will have a bottom heavy averaged down entry price and a ghost print on the chart that others would start drawing trend lines onto.
The overwhelming buy is a notch more aggressive, it has to also front run the orders, getting other routines excited and wanting to interact.
It does help the cause that the liquidity is relatively light in the cluelessness of what is happening. A big news event can help their cause, no doubt.
The major puzzle is now, that the 5-wave structure is over with, would they bother to mirror their own cash cow Vol Whip event this time?
Oh, the arrow for hedging? I lifted it from my TOS era. Don’t quite remember how I came up with the expression, but it works.
I probably have mentioned before that I use codes for trail stops,
code 1 applies a 1-pip stop loss first upon hitting 4-pips in gains,
code 2 applies the same protective stop loss, but starting from 8-pip in gains, and
code 3 jumps over the first 3 lower steps and only starts trailing upon having made progress beyond 1/2 of the fluctuation size (i.e. 4 pips locked in beyond a 16+4-pip move) which comes in handy when the market does a whole lot of nothing and would likely take you out for break evens with its back and forth motions.
One recent modification was to figure in the swap when determining about applying the trail ( OrderProfit()+OrderSwap()>0 ).
Code 4 is actually an automatic target setting: it adjusts the get out level relative to the last 8-sample low/ high and displaces it by kickback * points – if the position went into gains, and if the new kickback displacement leaves the minimum of 1 pip on the bone (my EUR/USD round trip cost is 0.6 pips)
Code 5 is quite stylishly adjusts the target to E-16: this is where you would be expecting your wave 4 to end and start wave 5, if your count is correct.
for(i=OrdersTotal()-1; i>=0 ; i--)
Print("Access to orders list failed with error (",GetLastError(),")");
I am currently net 4 lots short, and booked $468.02 in gains, which means that today I managed to purchase 10 pips of movement relative to the naked risk carried forward. This 10-pip measure is the name of the game plus not losing equity when you are managing holdings.
Kickback is 90-160 points depending on recent data.
The following indicator should be placed as 3rd indicator below the chart in order to have the letter plots right – or edit the plots from “3” to the number you want it to be (OBJ_TEXT, 3 <- that one).
You need the green line to be “fresh”, not embedded.
In the fresh overbought you are looking for a sell signal.
Now you need to make sure, that a turn is happening. Go to a 30-minute chart and look for a hood in the overbought and a root in the oversold.
These can be spotted with an RSI2 divergence (thick red short lines).
Now you start to count the humps to get the exit right.
Self explaining picture coming up:
The corrective wave structure does not show a continuation divergence between wave 2 and wave 4.
You are calculating the approximate distance of failure from the end of 3 wave (the peak that occurs right before the #4 print in the opposite direction) 1/2 fluctuation size away and factor in the possibility of a failed break as well.
Now you know a lot.
(TNR stands for Total Naked Risk in dollars).
I am planning on releasing a book on Managing Naked Risk in Forex in the coming years.