Type 1 - pros and cons of waiting for at least 38% retracement?

[jkeech]

Hi, do you feel that at least an absolute 38% retracement is necessary for a type 1 trade?

What I mean is - often I see a stock come back to maybe 35% or so, but not really make it to 38% ... what would be the pros and cons of taking this trade, or should I wait for an ABSOULTE, not negotiable, minimum retracement of 38%?

Thanks, John.

[MR]

Absolutely not! No, you do not have to wait for a minimum pullback of a 38%. It is more a function of how many other tools and studies do you have available at the time to help support your Type 1 idea? It also depends on where you take your calculations from. For example, when I looked at your CVX daily idea, it was not hitting the ideal 38%, but when I took another more aggressive retracement calculation, sure enough it did hit that one. As a general rule if a stronger sequence in progress still has good trending strength to it, it should retrace from 24% to 38%, but it is not an absolute requirement.

[jkeech]

Thanks Marc,

What were the dates that you did your 2 retracement drawings from (because the manual says to use the previous wave 3 beginning, which I assumes was from 5/1/03)?

Were yours from 5/1/03 and 5/21/03 ?

The ADV GET manual says to see "if the prices have retraced at least to the 38% level of the proceeding Wave Three" ... that's why I thought it was a requirement. Is that not really the case then?

[MR]

Maybe 80% of the time I might like to key in on a specific 38% retracement area, but there are occasions where I think one can deviate from the ideal scenario if you have the experience and background to know how to do it. If you do not, you don't take the chance.

This is one reason why we developed other tools and studies to add to our analysis. We need all we can get to identify support and resistance. Retracements are only one way.

The statement you quoted is not a requirement, it is a guideline. If my memory is correct, somewhere in the manual is reference to a general 25% to 38% retracement window as an area to key in under certain conditions. It all depends on the Wave 3 in progress, how strong the oscillator is and growing, how much and how far Wave 3 keeps extending itself, etc.

I am not saying this particular stock you mentioned isn't going to retrace more and hit the number you might be looking for. I am only answering your question, is it absolutely a requirement? The answer is no, it is not an absolute requirement.

[MR]

below 38% Type 1 question

Question emailed to me from Antonio... "Thx Marc for your help, Can you help briefly on this issue please? When in a type 1 situation you have the PTI index > 35 but the oscillator has retraced more than 38-40% of the move from the peak of W3 would you still take the trade or not? Thx again, A.D."


Yes, it is very possible I could and would want to take the trade. The 38% retracement and PTI are only two or many variables that go into defining a good Type 1 setup. There are other questions and items to check out as well before you rule out this Type 1. What is the Wave 3 Fibonacci relationship? How far has Wave 3 pushed so far? Have you cross referenced to higher time frames and identified other possible support and resistances nearby? Where are the Wave 4 Channels in this situation? Are they nearby? Could you setup another key support or resistance area nearby using other key tools such as a MOB, Ellipse, Fib retracements, etc? What kind of Wave 2 correction did you observe? The Rule of Alternation and Fib wave relationship helps you predict what kind of correction this could be and how far you might anticipate a correction.

I have been working on a new Overview of Fibonacci and Elliott Waves that will hopefully be completed soon. This might be helpful to you. Below is a quick attachment I created to help you better visualize some of these other considerations when trying to identify a Type 1 setup.

Hope this helps until then.

[1tony]

Marc thx very much for your answer.. going fwd do you give more weight to the Regression Trend or DMA Channels?

[MR]

Thanks Tony for the question. In a general since, yes, the 6/4 DMA Channeling and Regression Trend Channel (RTC) techniques play a role in the setup. Cross referencing to a lower time frame is also one technique used when trying to fine tune earlier crossover triggers. If you have, for example, a very high Pearson rating, say above 95, you might have a tool trigger for a tight, aggressive entry... but you might also want a safety exit plan just in case. I think, however, since this is only a generalization, we should also mention the DMA and RTC are confirming or trigger techniques. You still need a strong support or resistance focal point setup before we want to have the triggering technique used.

Click here to read another discussion on DMA/RTC

Click here for more on DMA, DMA EFS w/alert