Failed Type 2

[jkeech]

Hi,

In the attached example of AXP, if a new 5 wave (up wave) gets marked in by AGET and the bottom of it did not reach the expected MOB (drawn from the prior wave 4) - does this mean the Type 2 trade has now failed and will not reach the MOB ... ie its now considered to be in a wave 3 up sequence etc etc?

ie - would this mean that as soon as AGET labels a new wave in this type of circumstance then we should exit from the type 2 trade?

[Nate McCartney]

jkeech,

If the Wave 5 high is taken out, I'm sure you will, at that time or before, be stopped out of your position. If, at that time, AXP is still set up as a Type Two Sell, you can get set up for re-entry. Anyone you talk to that takes these Contra Trend trades will tell you to expect to get stopped out one or two times. That is the nature of the Type Two. It carries more risk, but can have a bigger payoff for the patient.
In the picture below, I show a snapshot of the Reward/Risk methodology I would use in this circumstance. The initial target in any Type Two trade is the previous Wave 4 price level. In this case, that price level is inside the 1.618 level I like to use for my Reward/Risk limit. The MOB from Wave 4 is usually used after the Wave 4 price level has been taken out. These are not "the rules" persay. Just a guid I like to use hone in on trades with higher payoff possibilities. I hope it makes sense. Please let me know if you have any questions on it.

Nate McCartney

[fabrizio]

Jeff

Honestly, after all this time how can you pose that question WITHOUT having the 5/35 Osc on?.

Who cares of the Mob? Eventually you'll be stopped , but you LOOKING FOR A LONG MOVEMENT; so it will get to the mob, than bounce back 7 times out of 10 than wait a while than probabbly retrace , than down again and break the mob...........
Gotta be ready to be stopped though.
Or have veeeery large stops, if you work on wide TF.

Take care rather to the DMA or the 6/4 to see if your mocement is ok....

So fisrt rulke of discipline ( I had to learn it too): RTC adjusted, than XTL : Continuation ? And If you have to make a Count, OSC adeqaute to that count:
In this case : Original-->5/35
ALWAYS
MANDATORY.


Do not take it bad, it's just a matter of discipline. And all the post that we delivered to you.

Ciao

Fabrizio

[jkeech]

Hi Nate,

Thanks for your response.

However you haven't really answered my question regarding my AGET chart showing this as a type 2 fail??? ... could you please go through my post again, tks.

I would have thought if a new wave 3 up is marked by AGET (as it has done on my chart) then the previous type 2 trade is 'all over red rover'???

Also, if your initial target is the wave 4 low and you exit when the price gets there, then how do you play the secondary price taret of tte MOB if you've already exit the position?

Thanks, John.

[Nate McCartney]

John,

It does not mean that it will not reach the MOB, but chances do not look good that it will do so. This does appear to be a failed Type Two trade, and definitely will be so if the price exceeds the previous Wave 5 high. (where I would expect the stops would have been placed when the trade was taken).

As for the initial target, reaching the previous Wave 4 does not mean you have to exit your position. This will have much more to do with the money management strategy of the individual trader. Conservative traders may take off their entire position here. Aggressive traders may look at reaching this point as a good thing, wait for a pullback, and add on, hoping to find the beginning of Wave 3. Some who are in the middle may take off PART of the position, and leave the rest on, looking for Wave 3. There are many scenarios at this point, however, this one appears to be done.

Nate

[pj909]

Another way to confirm your trades is to look on a different time frame. (See the attached image) Re AXP, a look at the weekly gives some more clues. The 5 wave imulse pattern on (D)aily is a wave C (which is usually 5 subwaves) in an ABC wave 4 on the (W)eekly. Although w4 has only retraced a fibonacci .618 it has exceed the wave channels, PTI is less than 35 and the OSC has exceeded 1.4. As a bearish type 1 trade on W this would be a very risky setup suggesting further upside. A closer look at the subdivisions of wave C of w4 might suggest the 7/14 high of wave 4 is actually only wave iii of v followed by a very shallow 25% retrace on wave iv. Time will tell if the chart gets relabeled this way.

It's been noted here and elsewhere but worth repeating: The key to success is money management. If you make a trade and your assumptions prove to be invalid - get out. He who saves his capital today lives to trade another day.