TRADING TECHNIQUES
Relearning Techniques OFT Forgot
Trading The Trend In Wave 3
by Mircea Dologa, MD
Here's a refresher course on techniques you can use to trade
wave 3, in part 2 of three.
When trading wave 3, any number of methods could be used, so many that
it's easy to overlook one or two. So which one would be best? Here are
a few that may pique your interest, including some that you may have long
forgotten.
PITCHFORKS AND CHANNELS
The pitchfork technique should be a standard tool to use when trying
to measure the slope of the trend of wave 3. The slope is important because
its characteristics play a part in defining the exit. In the pitchfork
method, a technician will pick an extreme low or high to use as an anchor
pivot point and draw a median line. Action and reaction lines are drawn
through high and low points, defining the support and resistance levels
for the price channel. In Figure 1, the exit at 4135 takes place where
the market price crosses with the first upper parallel line above the center
line.
Figure 1: Pitchforks and price channels. You can use pitchforks
and channels to help determine your exits. In this example, the point where
price crosses the first upper parallel line is where you should exit your
trade.
The channeling technique is another helpful tool for wave analysis.
In this method, a price channel contains prices through the course of a
trend; historically, this term has been used to denote the area between
the base trendline and the reaction trendline defined by price moves against
the prevailing trend. Channeling's main function is to delineate the exhaustion
zones, where the local market will certainly perform, either as a reversal,
an acceleration, or a consolidation move. Thus, it serves as an optimal
timing guide, giving the trader a prolific competitive edge. The channeling
technique is used on primary and lesser-degree waves:
-
w2-4 base trendline (very important)
-
w1 parallel trendline
-
w3 parallel trendline
-
w1-3 -- 50% parallel trendline
-
w1-3 nonparallel trendline
Even though these techniques can be used for multiple types
of wave degrees, they are more important on lesser-degree wave levels.
...Continued in the June issue of Technical Analysis of STOCKS &
COMMODITIES
Excerpted from an article originally published in the June 2006 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2006, Technical Analysis, Inc.
Return to June 2006 Contents
