Gaps In Wave 4

[silverxx12]

If one has gaps in certain waves say like in the example below should one refrain from taking the trade on can one still go ahead with them ?I know there are different types of gaps but never come across one like this in a wave 4 they are usually at the beginning or end of a formation any ideas??

ps sorry about posting the help!! time template twice it was a mistake

[MR]

Trading Gap Question

Hi Silverxx12,

As you say there are different kinds of gaps. Clearly there is risk with gap trading. We have to weigh the pattern, the price, the potential projections, and the possible power playing itself out.

It depends on the gap and where it starts within the Wave 4. We have common gaps, breakouts, continuation gaps, and exhaustion gaps, to name the obvious gaps. In this instance I suspect it is a temporary exhaustion gap, for lack of a better term.

But there is another gap issue I would like to mention here since you are in the UK and we may be looking at different primary exchanges for our data. As the world enters a global trading market we see more and more stocks with consistant daily type gap actions. For example I when I look at many European or Asian ADR stocks traded here in the states, those stocks all have gaps. This is because that stock is more actively traded elsewhere. These types of gaps really are not helpful for an Elliott Wave guy because all the trading data is not showing up on that particular stock. In this case I don't think this is the issue, but I did notice on your hourly chart at least 4 gaps, which makes me want to do a little more checking on the stock.

One way to better discern what kind of gap is happening is to cross reference that time frame with higher time frames. You showed ABS, which I think is Albertson's, a big US food chain.

When we look at ABS daily chart we see what looks like a strong Wave 3 in progress since early August, but the hourly and daily gap could very well be a warning we have started some sort of a Wave 4 correction. Therefore, I would anticipate this not being an easy hourly to buy into, not on first glance. The daily suggest more weakness to come before we get a lower risk buy setup in this case. In this case, I think the hourly gap is a very good warning, and it is not a Type 1 Buy I would jump in on initially. I would give the stock a little more time to better define the short-term trade opportunity.

Ultimately, once ABS corrects enough, it very well could setup a possible hourly Type 2 Buy, which I would personally find a little attractive upon a quick look.

One more thing, if you want to try and duplicate my hourly chart, I simply took the 24 hour template, and just loaded up a standard Elliott Wave setting.

[silverxx12]

Hey there Marcus thks for the diagrams.

Just a quick question about the chart you drew you mentioned something about extended waves on the diagram are there specific levels of wave 3 which will tell me to what degree i should anticipate a retracement for wave 4 and like wise wave 5 ? i never knew of such a thing .If you do have any info. about the various fib extension/ retracment levels for waves 3,4 ,5 would much appreciate it

[pj909]

Marcus,
Looking at the notes on your ABS chart in File Sharing you note that because w3 was extended at 4.25 you anticpate a correction to 50-62%. Is there a way to predict how deep the retracement is based on length of waves 1-3 (and/or A,B waves). In the case of charts like ABS I had assumed that because w3 was so strong the retrace would be small, say 25-38%.

[MR]

Hi Silverxx12 and PJ909!

PJ909- It isn't always real clear which wave sequence plays a bigger part, the internal wave structure, or the larger picture.

When I apply Fibonacci Extensions the first thing I check for is the bigger wave sequence relationships. For example, irrelevant what the wave count is labeled, I see in the daily ABS since April low to current high, two big swing patterns. It will either turn out to be a bigger A-B-C or a new W1-2-3. Either pattern would suggest still a W3 or C still in progress. I then want to check the internal wave structure to see if there is any reason why we see the sudden gap at the top? (I also check other AGET tools for reasons, in this case a slight mob resistance as a possibility). When I check the internal w1-2-3 Fib Ext relationship the number 4.25 appears very close to the top. One of the rules they talk about in the Fibonacci Wave relationship (see Technical section) is to anticipate a deeper correction when a wave 3 extends beyond 2.618 or higher, which technically qualifies here if we were to focus in on only the internal wave count idea. And there are other circumstantial evidence such as w2 is a simple correction, a gap needing covered, no Ellipse support yet, the Rule of Alternation suggestion a complex correction is possible, no real support such as a clear or obvious MOB, so forth, all lead me to anticipate a better risk/reward opportunity will setup at a lower price, near a lower -4- or W4 Channel support, combined with a 50-62% Fib Retracement parameter. If this happens, I still am optimistic we will see another rally attempt out of this current pullback.... there may be more but these are the things that popped out to me in this example.

Silverxx12 & PJ909 -- I actually started putting together this weekend some information on fibonacci and relationships. Was hoping to have something posted this week on it, or at least an overview.

If you have the AGET manual, technical section part, there is something located there on it as a quick reference until I can finish creating this new Fibonacci overview to be posted soon at AGET USer Group in File Share.

[silverxx12]

So my question is then what is one supposed to follow when trying to work money management out if he follows the supposed wave 5 projection off the fib extentions there will always or more than often take a trade whereas if he were just to stick to the mob projection a number of trades would not be taken because theres less than 1.5- 1 ratio for the trade , but then again what could happen is you get a really big wave 5 ,so what should one go by generally . This will also be a question when one reaches a mob does one exit the position or should he follow the fib extension which of these have you all found to be more accurate?

[MR]

I apologize. Sometimes I try too hard to be detailed in an answer and end up only adding to the confusion.

Your initial question was on gaps. I tried to basically show why I would not buy this particular gap.

The next thing I basically wanted to communicate is you may want to wait patiently for the price to pullback to between 50 to 62% on either your daily or hourly chart before you attempt some sort of a Type 1 Buy setup idea. The primary reason for this was because Wave 3 on the hourly was 4.25 of W1-W2.

There are ways to define a more accurate possible buy area. I will not introduce those ideas in this tread but there are plenty out there to review.

As the Wave 4 pulls back to a viable support, as it evolves, the Wave 5 shifts in relationship to the new data. It then gives you a better idea what your risk/reward parameters would be as you approach the optimal setup idea.

Always go by your minimal expectations. My cross referenced example was to show you one way you can better anticipate other greater potential ideas. How you manage that opportunity really is more a preference issue than an exact science. If you want you use the MOB, a double top or Wave 5 projection to help guide either your exit, or a point at which if you have a decent profit you might consider triggering quickly a tighter trailing stop to at either lock in or protect a given profit. Again, that is a preference issue.

[silverxx12]

No you didnt try too hard in answering the question in fact it was very interesting that you said all i was wondering if you could just pass on some information about the diff fib extention levels and projections it will be most helpful

sorry to trouble

thanks

[MR]

Honest, it is not trouble... I was just trying to better communicate is all... I am going to try and finish that Fib Overview by Friday to see if it can help.

[silverxx12]

thank ever so much