So if you are looking at my charts/posts and are expecting me to give you a trade, then you shouldn't be following me. But if you are following me to LEARN something, then you are in the right place. There are plenty of posters here who give you actual trades. But as they say, "you get what you pay for".
So here, what I am posting for you is an example of why it is that wave counting is not an "exact science" but rather much more of just each person's opinion. That has always been the argument against wave counting as a useful prediction tool. But in reality, out of all the so-called indicators, it is the only one that actually can "predict" what is going to happen. It is forward looking. Not just backward looking. That is why all the traditional indicators such as Moving Averages, RSI, Bollingers, MACD are all "lagging indicators" because they can only tell you what already happened. They are not used to project forward. And if you are using it that way, I'm sure you are not having much success.
So back to wave counting. Wave counting is based on the "human factor". What is that you ask? Let me ask you, what moves the market? Is it the news? Economic factors? Geo-political happenings? If you thought any of those things are what moves the market, then I would argue that you are missing the point. The ONLY thing that moves prices in the market is the buying/selling action of traders. Simple. That is all. Unless you are into conspiracy theories that is. Which I'm not. And if you are, then don't trade. Because you can't beat whoever it is you think is manipulating things anyway!
Back to the point though. It is the trading action of traders that moves prices. Whether that be a small trader like yourself or the multi-billion dollar hedge fund manager or the HST algos, the buy/sell orders is what moves prices. Not the news itself. The trader's REACTION to the news and subsequent action to buy or sell is what causes the markets to move during news events. NOT the news itself! So what causes the trader to react and place a trade? One thing: emotions. Specifically, FEAR & GREED. Fear causes traders to close out positions and Greed causes them to place orders be it buy or sell. This is what is called the "human factor". Why is this important and how does it relate to wave counting, you ask?
This might get somewhat too into psychology for you but if you can understand the human mind, you can understand the market, why it moves, how it moves, and when it moves. You see, there is one indisputable fact....humans are creatures of habit. We tend to do things the same way over and over and over again. Even if that thing we are doing is detrimental and not helpful. We do it again and again. Wonder why you always lose? Take a good, hard look in the mirror and see if you are trading the same way over and over again. I guarantee you will find a pattern to your trading. And if you are losing and you keep following that pattern, you will continue to lose.
Insanity = Doing the same thing over and over again but expecting different results
So back to wave counting....wave counting has been backtested ad infinitum. And the rules, laws and theories of wave counting are all based on repeating patterns over and over again. It has been found and proven that these repeating patterns exist and they work in definable, predictable waves. This is based on the what I just told you about humans....we are creatures of habit and do the same things over and over again and again. I already established that it is the trader's buying and selling that moves the market. And that buying and selling is based on human emotions and how we react to whatever the stimulus is whether its news or a technical pattern. Because most all the time, we will react in a predictable manner, that is what causes wave patterns to occur over and over and over again. Predictably.
So back to my charts on Gold here. What you see are 3 possibilities of what the wave count could be as I see it. Some other wave counter may see something different. Beauty is in the eye of the beholder, right? One of the major criticisms of wave counting is exactly this, that there are almost always several possible counts so how can you rely on it? My answer? I don't rely on any single count. What I do is always look at several possibilities and when they all match? Well, that is when there is a good trade to be had. Of course, there are other factors that I take into account in my overall analysis so no, I don't purely rely on wave counting but it is one of the main analytical tools I use.
So Gold....as you can see, the one thing all 3 of these counts have in common is that eventually, Gold is pointing UP! Take that for what its worth!
Want to know more about Gold and other commodities? PM me or look at my sig box below.
You look for confluence; I'd bet you'd be a good astrologer:)
Thank you for sharing
Dll
⋅
In your 3rd scenario, why you didn’t count it as a starting point of new 5 wave down?
EverythingForex
⋅
@Dll, In the 3rd scenario, its a wave (X) down. X's are not 5 waves.
Dll
⋅
@EverythingForex, yes I can see your (x) is unfolding. What I am asking was why you didn’t think it will go much below 1205 and develop into a five wave down?
EverythingForex
⋅
@Dll, In wave counting, that is not what you do. You do not project it will be 5 waves down. You follow your overall wave count and project forward following what your count tells you it should be based on the rules. Could it 5 waves down? Sure. Anything can happen and wave counting is not an "exact science" and it is very subjective depending on the eye of the counter. In that 3rd scenario, you see that I labeled the previous wave up as a wave (W). So that means in that 3rd scenario, the current move down can ONLY BE A wave (X) which is 3 waves down. No other choice can be had there. If I were to project the current move down as 5 waves, then the previous wave up cannot be labeled as a wave (W) up. If I were to want to project 5 waves down, then I must change the overall wave count.
Also, as you can tell by my 3 scenarios, my overall bias is bullish. Not bearish. If I were to be projecting 5 waves down, then that would also necessitate that my bias be bearish. Why am I bullish and not bearish? Well, that goes back to my overall BIG PICTURE wave count starting from years ago and following through to the present. You do not just pick and choose where you want to start counting. You have to work from the macro picture down to the micro-picture. And so following my macro count down to the 4HR charts I posted above, my bias is bullish.
BTW, bias might be a misleading tern in that it is not what I WANT to happen. I don't care if Gold goes up or down. I only care about how I can profit from it going up or down. When I say "bias", it simply means that is what my analysis is telling me is going to happen. Does that make sense? All this is only a small part of what I teach.
Dll
⋅
@EverythingForex, Thank you so much for elaborating the way you count. Admittedly I somehow disconnected EW with fib and lack of tract for macro pictures. My problem in EW was the expectation or the "bias" that my count gave me often confused me. For example, I saw xauusd down in a 5 wave from Sep 2011 to end of 2015, then expected a 3 wave bounce in zig-zag or a triangle. Because of the fast movement since Dec 2015, i thought a zigzag is more likely. But the real development is very frustrating which makes it super hard to hold either long term or short term options. Therefore, much of my short term trades are based on technical and candles. But again I appreciate your sharing and am try to keep track of wave count in a top down way and see how this can help me on my EW path :).
bracken
⋅
Chaos theory is a mathematical theory that can be used to explain complex systems such as weather, astronomy, politics, and economics. Although many complex systems appear to behave in a random manner, chaos theory shows that, in reality, there is an underlying order that is difficult to see. So Chaos is order but on a higher conceptual level. Wave theory is so much more than Prechter. It's certainly not my intention to offend anyone. Just putting it out here hoping to get a reaction and a broader discussion started on wavetheories (thermodynamics, hydrodynamics, aerodynamics, harmonics, Neowave, dimensionless numbers and whathaveyou)
Thank you for sharing