TRADER’S GUIDE TO TECHNICAL INDICATORS

GETting price and time targets

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It’s fairly easy to spot tops and bottoms and trendlines ona chart after the price action has occurred. However, mosttraders are more interested in what lies ahead, using pastprice patterns to project what could happen in the future.

Because the trading crowd will act the same way insimilar price circumstances, the Elliott Wave principle hasbecome a popular method for trying to get this edge indetermining future price action. Elliott Wave analysis looksfor five impulse waves in the direction of a trend and threecorrective waves against the trend in all time frames. Thatseems simple enough, but the most daunting task for thetrader is identifying the waves in constantly shiftingmarket conditions.

The previous article in this series explained howAdvanced GET, an add-on feature available on eSignal,uses a built-in algorithm to analyze a market and labelEll iott Wave counts on a chart automatically andcontinuously. That is the foundation for knowing thecurrent structure of the market, but the next step is to findout what it suggests for future price and time targets.

The same chart used in theprevious article is repeatedabove, adding several veryuseful Advanced GET toolsthat pinpoint key price andtime target areas:

Ellipse - This time and pricetool determines where andwhen a correction shouldcomplete, if the previoustrend is to resume. If thewave count is correct, this isthe retracement area whereprices should turn backtoward the direction of thetrend. The chart of MercuryInteractive (MERQ) shows ashort-term ellipse (yellow)and long-term (blue) in the28 area. The ellipse is basedon the low of wave 2 and thehigh of wave 3 and, in thiscase, is approximately a50% retracement.

MOB - The “make-or-break”tool, based on the wave 3 high on the MERQ chart,provides a price target for a move. The location of theMOB depends on prior price action and shows how far arally (or decline) can be expected to continue before itbegins to lag, profit-taking comes in and a change in trendbecomes likely. As prices reach that area, it’s a signalwave 5 is complete on this chart and it’s time to sell.

Between these two tools on the MERQ chart is the autochannel. As explained in the previous article, a wave 4 ishard to trade so you want to wait for wave 5 to make a Type1 trend trade: Advanced GET identifies a wave 4 correction,prices turn back at the ellipse, and GET oscillator pulls backto zero. Buy when prices break out of the auto channel,looking for a move to the MOB price target.

Of course, you don’t have to know a thing about ElliottWave to use these tools. They can be applied to a chartwith a few clicks on a mouse and may serve as stand-alonetools that may be all you’ll need to trade successfully.

Next. . . more Advanced GET tools for a complete trading package.5 of 12

Several price and time target tools have been added to the wave counts on this chart of Mercury Interactive.