Elliott Waves And Andy

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From my initial introduction into the disciplehood of the Elliott Wave Theory, I’ve been
convinced of its validity and usefulness to the trader. In the world of trading, the Elliott
Wave Theory is similar to a religion, in that its practice and interpretation has developed
many denominations. As has recently been widely publicized, even two of its high priests,
Robert Prechtor and A.J. Frost, can arrive at sharply contrasting forecast conclusions for the
same market. We are left to conclude that it’s not the deity that is at fault, but the creativity
of man’s interpretive ability that makes this possible. The purpose of technical analysis to the
trader should be that of his servant, not his master As such, I practice a practical religion. When
having difculty interpreting a market’s wave count, I don’t trade it. With the large number of
active markets, do not get caught up in the constant need for interpreting any or every specic
one. Though each and every market has an on-going wave count, they are not all worth trading.
When a specic market’s wave count becomes muddled, there will in all likelihood, be muddled
results from any attempt to trade it. An Elliott trader needs to exercise the patience to wait for
the wave count result or have the exibility to move on. The question Elliott traders should ask
themselves is not what is the clearest wave count for this market, but what market has the
clearest wave count? That way you’ll be focusing in on markets in a manner which should result
in an increased percentage of trades in the win category.
From a personal standpoint, like many others, I’ve found trending markets are easier and
more reliably counted than consolidating ones. When examining a chart, if at rst glance your
impression was that it looked like a jumbled mess, remember, more money is lost during a
sideways consolidating than when market trends are up or down.
Look for the kind of 5 wave count that jumps off the chart and grabs you. Soybeans
were a recent example.
While old crop contracts, at best, lacked clarity, new crop November has a very crystal clear
5 wave rally from October to December with a following 3 wave corrective move. We proted
handsomely from purchasing that retracement.
While most Elliottians use Fibonacci relationships for targeting, we have instead, incorporated
the use of Andrew Median Line analysis
The Median Line is drawn off of pivots or turning points…the extreme price on a bar chart
where prices reverse. The beginning of the median line is at pivot 1 and connects at the half-way
point of pivots 2 and 3. When applied to major or long term pivots, the result is the long term trend
of the market. The same process is applied for intermediate and short term trends. The median
line is the most important, as it will stop or reverse prices 80 percent of the time.
The response of a given market upon testing median line support or resistance provides
additional clues to its relative strength or weakness. Gaping through a median line indicates a
powerful move in the direction of the gap. A reverse from or a failure to reach the median line
means prices will continue in the original direction.
Another aspect of Andrew analysis that we use frequently is targeting objectives from
sideways action. One simply channels the sideways pattern, counting the number of times prices
touch the channel, and multiplying that times the width of the channel. In a downside break-out,
that gure is subtracted from the top of the channel for the 1st objective, and from the bottom
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price of the channel for the 2nd objective. Reverse the procedure for an upside break-out. This
targeting tool, used in conjunction with the Elliott Wave Theory proves to be quite reliable in
determining price moves. Keep the faith.—

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