Tristan de Gouvion Saint Cyr on Identifying Actionable Opportunities

GOLD SILVER&How the Wave Principle Can Help You to Identify Actionable Opportunities

Gold & Silver — How the Wave Principle Can Help You to Identify Actionable Opportunities

IntroductionWhile the mainstream media was busy reporting the fundamental reasons that gold and silver would continue their incessant climb, the market action in December 2010 in both markets demonstrated a textbook Elliott wave structure — a contracting triangle. This structure allowed our Metals Specialty Service to forecast the subsequent moves — a “thrust” out of the triangle that was followed by a swift drop in price.

A triangle provides one of the clearest outlooks of any Elliott wave pattern, and it offers traders specific, actionable opportunities. This report presents a chapter from EWI’s upcoming eBook, How to Trade Triangles and the Thrust that Follows, by EWI Senior Tutorial Instructor Wayne Gorman. He will take you through a real-world example of the triangle and show you how you can take advantage of this classic pattern. We’ve also included a handful of EWI’s daily articles to give you the inside scoop about how the Metals Specialty Service forecast these moves.

Section 1 — Trading Scenarios – Impulse Waves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Excerpted from How to Trade Triangles and the Thrust that Follows by Wayne Gorman, EWI Senior Tutorial Instructor

Section 2 — Triangle / Thrust in Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 I’m Beginning To See A Pattern Here

Section 3 — Triangle / Thrust and Subsequent Move in Gold . . . . . . . . . . . . . . . . . . . . . . . . 20 Thar’s Gold In Them Thar Charts!

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Learn more and put the power of the Wave Principle to work for your portfolio. Go to: http://www.elliottwave.com/wave/MetalsSS.To return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com

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How to Trade Triangles and the Thrust that Follows — Chapter 2Trading Scenarios — Impulse WavesLet’s begin the section with trading scenarios within impulse waves. In the trading sections, I assume that you understand Elliott’s rules and guidelines. If you need to review those, please go to our website where we have educational materials that can help you.

Figure 2-1 This is a weekly bar chart of COMEX cash gold, pit session only. We’re going to look at a trading example with triangles in this market back in 2001 to 2002.

Figure 2-2 As you can see, I’ve identified an Intermediate wave (1) and Intermediate wave (2) followed by Minor waves 1, 2, and 3.

In 2001, gold saw a double bottom on the nearest futures contract at 255, although it was not seen in the day session in cash. I want to focus on the impulse wave following Intermediate wave (2) in blue. We already have waves 1, 2, and 3, and we’re going to start trading in that fourth wave after the termination point of wave 3.

Let’s think about some of the points that can guide us in taking a position. First, we know that fourth waves often are triangles in an impulse wave. Next, see if wave two makes a sharp pullback, which it does. We know from Elliott’s guideline of alternation that if wave two is sharp, then wave four will most likely be sideways. So we have two good reasons to expect wave four to be a triangle, and that’s how we’ll approach our trade.

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Learn more about the independent analysis in the Financial Forecast Service. Go to: http://www.elliottwave.com/wave/FinancialForecastService. To return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary© 2011 Elliott Wave International — www.elliottwave.com

Section 1 — Excerpt from How to Trade Triangles and the Thrust that Follows

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We want to establish entry points, stop levels, and target levels so that we can pinpoint our potential risk and our potential reward. I’ll just refer to them as risk and reward, but keep in mind that we’re talking about potential risk and potential reward.

Let’s look at some other guidelines and factors as we anticipate the first move off of this top in wave 3. We’ll be looking for an A wave to the downside, and that A wave will represent the first wave within the triangle.

Figure 2-3 In order to establish target price levels, we can use Fibonacci analysis and look at the retracements. I’ve calculated various retracement levels for wave 4 — .382, .5, and .618. It’s common for wave four to retrace .382 of wave three, so we’re going to focus on the 306–307 level with some potential to go lower to the 50% retracement around 300. So, to establish our target price, we’ll look at a Fibonacci retracement for wave 4, which is somewhere in the 307–300 range.

Figure 2-4 What else can we look at? We can draw in a trend channel, connecting the termination points of waves 1 and 3 and then drawing a parallel line that includes the termination point of wave 2. The bottom trendline of this channel offers another guide for the termination point of the A wave within wave 4. It also is close to our Fibonacci retracement area around 307 to 300.

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Figure 2-5 What else can we look at? Elliott’s guidelines also say that the fourth wave will usually terminate in the area of the previous fourth wave of one lesser degree. If you look at the chart, you can see that there are five waves up within Minor wave 3, so we can look for the previous fourth wave of one lesser de-gree — wave 9. This gives us another target. It’s a bit lower than what the channel and the Fibonacci retracements are showing, but it’s another piece of information.

In wave 0 of wave 3, you’ll notice that we have an extension — a fifth-wave extension. When wave five extends, wave four often will retrace to wave two of the extension, because the extension actually began somewhere in the vicinity of wave two. That’s where wave five normally would have ended, but instead it began to extend.

Figure 2-6 Let’s take a position. We’ll assume that we were able to go short after wave 3 had peaked in the 322–325 area. So, we’ll assume that we went short at 324. We’ll set a stop slightly above the peak of wave 3 at about 329, and we’ll use our Fibonacci retracement information to set a target price in the vicinity of 305. Our risk is $5 per contract, and our reward is $19 per contract.

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Figure 2-7 We’ve moved forward and we can see that prices have come down to the area we were expecting, within that 300–307 range. So far the low is around 302. Do we get out here and take a profit? Well, let’s look at some of the guidelines that helped us to set our target prices.

Figure 2-8First, look at the Fibonacci retrace-ments and see where prices are. At 302, they’ve gone a little bit past the .382 — between the .382 and .50 retracement.

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Figure 2-9 Prices are right on the channel line. We also have come into that area of the previous fourth wave of one lesser degree, and we’ve gone a little bit past where the extension started. This looks like a good level to get out. So, let’s buy at this level. Let’s say we get out at 303 (assuming that we get a good fill). Therefore, we went short at 324 and we closed out at 303 for a profit of $21 per contract.

Now we want to go long and trade for the b wave of the triangle. With the guideline of alternation in mind, if we don’t get a triangle we should at least have a flat correction, meaning that the b wave of a flat should go all the way back to the origin of the a wave. In any case, whether this unfolds as a triangle or a flat, we have a lot of evidence to support a major move up from here. Using our channel line as support for a b wave to the upside, and given that we’ll assume that this is a triangle, we’ll go long at 303 with a stop slightly below the low of the a wave at 300. Our risk is $3 per contract.

Our target price is up in the mid-320s. We know that if it’s a triangle, the b wave should not go above the termination point of wave 3, which is at about 328, unless it’s going to be a running triangle. But we won’t assume that right now; instead we’ll assume a contracting triangle, until the price action tells us otherwise.

So, we’ll set a target at about 325, slightly below the top of wave 3 (the origin of wave a). Our risk is $3 per contract, and our reward is $22 per contract.

Figure 2-10Now we start to see a move to the upside. Do we get out here and take a profit? No. We have the semblance of a zigzag unfolding in wave b; it’s hugging our channel line and it is pro-ceeding into that area where we expect to take profit.

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Figure 2-11This could be the top of wave b, so we’ll take a profit here, let’s say at about 324. We went long at 303, so that gives us a profit of $21 per contract. Because we’re very close to that 328 level at the top of wave 3, we will assume that we’ve seen the top of wave b or we’re close, so we will go short here at 324 with a stop slightly above 328, just beyond where we believe the b wave has ended. But to be really safe, we can afford to set it above the top of wave 3 at 329, and we’ll play the c wave to the downside.

What can we use for our target for the c wave? We have the channel line in place to give us a cluster of points at around 311–312 for wave c. We also have the guideline that wave c could be .618 of the length of wave a. The length of wave a is about $26 times .618, which gives us a distance of $16. The top of wave c comes in at 325. So, $16 off of 325 gives us a target around 309. However, you can see that 309 falls well below the channel line. Thus our best target price for wave c in this short position is still in the 311–312 area.

We’re short at 324 with a stop at 329 and a target price of 311. Therefore, our risk is $5 per contract, and our reward is $13 per contract.

Figure 2-12Looking forward, we see that prices did come down to a little below the channel line. They came down to 310, popped up to about 311–312, so we will buy back here because it’s in the area of the channel line, and it is also equal to approximately .618 times the length of wave a. Now you can see the con-traction taking place. We will close out our position here at about 311. Since we sold at 324, that results in a profit of $13 per contract and we will look to go long and trade for the d wave to the upside.

We’re long at 311, and we will set our stop slightly below where we believe the end of the c wave is at about 309.

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What would be our target for the d wave? The d wave may be equal to .618 the length of the b wave, and it should not exceed the top of the b wave at 325. The length of wave b is about $23, which we’ll multiply by .618 to give us $14. We expect the length of the d wave to be approximately $14.

If we add $14 to the bottom of wave c at 310, we get a target of 324. We also know that the top of the b wave is 325. So, if we get close to 324, we’ll sell our long position and take profit on that d wave.

We’re long at 311 with a stop at 309 and a target price of 324. So, our risk is $2 per contract, and our reward is $13 per contract.

Figure 2-13We have come up to about 324; we’re very close to the top of that b wave. If we take out that top, then our count is off. We’re going to take profit here at the 320 level and start to think about positioning for the end of the triangle, the e wave.

Now let’s assess our next trading position. We’re looking for the termination of this triangle, so let’s gather some more information.

Figure 2-14I have connected the termination points of a and c to draw in my A-C trendline, which tells me approximately where the e wave should terminate — at about 316.

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Figure 2-15I’ve established the end of the d wave, so now I can connect the termina-tion points of b and d and draw a trendline there. Now I have both of the trendlines for the triangle, setting the boundaries for the triangle and giving me a better idea of where the e wave will terminate.

Here’s another thing we can do. The e wave may be equal to .618 the length of c. The length of the c wave was $14, which, when multiplied by .618, gives us $8.80 for the approximate length of wave e. The top of wave d is 324, so if I subtract about $9 the level is about 315, which coincides with the bottom of the A-C trendline. So, I have a number of pieces of evidence to tell me that the e wave should end at about 315. But, as you know, it could either undershoot or overshoot the A-C trendline.

Figure 2-16As you can see, prices did hit the A-C trendline at about 315 — the exact level was 316 — and then they started to thrust out of the triangle. They have now gone above the B-D trendline.

We assume that this triangle has terminated and so we’ll go long at the beginning of wave 5, at about 326. We set our stop level slightly below the B-D trendline at about 322. Now we must set our target price for this long position.

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Figure 2-17We add our channel lines and see that in wave e of this triangle we actually had a throw-under with respect to the channel. An Elliott wave guideline tells us that when prices go below the channel (throw-under) you should expect the fifth wave to go above the upper trendline of the channel (throw-over). So, let’s look for the top of that channel.

Figure 2-18 I’ve now put in all of the wave labels — a, b, c, d, and e.

Now, we will use the post-triangle thrust measurement guideline to estimate how far wave 5 might travel. I’ve gone to the origin of the a wave, which is where wave 3 ended, and extended the A-C trendline and the B-D trendline. The vertical line connecting those two trendlines at the origin of the a wave give us our post-triangle thrust measurement. It is the difference between 295 to roughly 328, or about $33.

So, we will look for wave 5 to travel about $33 from the termination point of wave e at 316, up to approximately 349 — let’s call it 350. That’s a good target price for this long position. We’re long at 326 with a stop at 322 and a target price of 350, so our risk is $4 per contract, and our reward is $24 per contract.

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Figure 2-19 Prices are approaching 350. Do we get out here and take a profit? No. We can afford to wait for a couple of reasons. First, we’re now well out of the triangle. We can and should have raised our stop level as we moved up, possibly up to where it started to gap at 333-334. But we also have to put our channel back in to see where we are. If we have a throw-under on the channel at the end of the triangle, most likely we’re going to have a throw-over in wave 5.

Figure 2-20 The heavy green dotted line is our target, based on the post-triangle thrust measurement. And you can see that we have some resistance up there at about the 350 level, so we want to be a little cautious. We want to be quick to close the position, but we should also give this move a chance. Let’s check to see where we are on our channel.

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Figure 2-21 As you can see, prices haven’t even gotten to the top of the channel, and they are starting to gap up. Let’s wait until we get to the top of or above that channel.

Figure 2-22 Prices have now traveled above the channel, up to about 365. Though there is a high probability that this wave will be extended, prices have exceeded the post-triangle thrust measurement guideline and gone above the trendline. So we have a throw-over. We have a nice profit, so we’re going to get out here at about 365. That’s a profit of $39 per contract.

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Figure 2-23 You can see that prices actually did go higher. There was a gap, probably an exhaustion gap, and the price move finished at about 384. We did go beyond our target, but we were successful in the trade. We can be confident that wave 5 is complete, because now we have a reversal. Prices have come back down into the channel, and it looks like wave (4) of Intermediate degree is starting.

Figure 2-24 You can see now that the entire impulse wave was complete at that top at ap-proximately 384.

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Figure 2-25 Let’s review. We had the A-C and B-D trendlines, which helped us to define the boundaries of the triangle. That helped us to determine the termination point of wave e, where the post-triangle thrust began. You also can see how wave 4, at its maximum retracement, entered the price territory of the previous fourth wave of one lesser degree, and where the extension started in Minute wave 0, within Minor wave 3.

Figure 2-26 You can see how helpful the channel lines were in guiding us to find the bottoms of waves a and c, and even wave e to some extent, although the A-C trendline was already in place by then. But, more importantly, the chan-nel helped us to see the throw-under in wave 4 and the throw-over in wave 5, which gave us a signal that it was time to close out our long position.

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I’m Beginning To See A Pattern HereThe Elliott Wave Principle helps identify structures — regardless of the market, the news, or the opinions of “experts.”

By Jill Noble Thu, 13 Jan 2011 15:00:00 ET

Pity the poor fundamental analyst, who must always pay attention to what the Fed says… or to which political party takes charge… or to what new product a company develops.

And what about the economic reports that come out a month after the fact, only to be “revised” a month later? Then there are interest rates... and costs of production... and purchasing power... and so on. It’s a lot to keep up with.

Not to mention, fundamental analysts have to figure out what all those reports mean to the markets. We’ve all seen that sometimes good numbers turn out “bad” and bad numbers turn out “good”— What a headache!

If you follow the Elliott Wave Principle, the analysis gets a lot easier.

Our analysts use the Wave Principle and other technical tools to cut through the fundamentals and replace possible market outcomes with probable market outcomes.

This past December, our Metals Specialty Service published a forecast for subscribers based solely on Elliott Wave analysis. (Frequent readers of this column will note that earlier this month we highlighted the subsequent reversal in silver based on the pattern below.)

Here’s what we published:

As long as prices remain above the 28.31 low, we’ll stick with the view of a fourth-wave triangle that expects a new high… the push above 29.36 likely means that the final thrust has begun… it seems that the highest probability goes to the fourth wave triangle complete scenario.

This view calls for a thrust to a new high with prices remaining above 28.74. There should be nothing holding back silver, and metals in general, from higher levels over the next several days.

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Section 2 — Triangle / Thrust in Silver




This forecast anticipated a textbook example of a Contracting Triangle pattern, shown here in Elliott Wave Principle (originally published in 1978):

A triangle appears to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. The triangle pattern contains five overlapping waves that subdivide 3-3-3-3-3 and are labeled A-B-C-D-E.

A triangle is delineated by connecting the termination points of waves A and C, and B and D. Wave E can undershoot or overshoot the A-C line, and in fact, our experience tells us that it happens more often than not.

Next you can see the resolution of this pattern, as forecast in the Metals Specialty Service:

This is indeed about as close to a textbook example as you’ll find.

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There are countless ways to look at the markets. But our expert analysts carefully scan the charts until they can say, “I recognize THAT pattern.” In turn, they notify subscribers with informed, methodical and useable alerts.

For our metals analysts, the benefit of the Wave Principle is its ability to identify a structure that can be forecast — regardless of the market, the news, or the opinions of “experts.”

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Thar’s Gold In Them Thar Charts!Elliott Wave patterns abound in the Gold market

By Jill Noble Thu, 20 Jan 2011 14:30:00 ET

We’ve all heard the expression “feast or famine.” It applies to many areas of life, and Elliott Wave market analysis is no exception.

There are times when even the most accomplished Elliottician pores over charts, awaiting a clear-cut pattern. In those times patience is a virtue.

But there are bountiful times — when the market hits a groove and textbook patterns unfold like they were, well, straight out of a textbook!

For the past month, gold has been a “textbook” market.

First came the contracting triangle that ended in late December: it prompted our • Metals Specialty Service to forecast a rally — which happened.

Next came the five-wave structure of the rally: this allowed us to forecast an impending • top and decline — which also happened.

Then a clear five-wave drop led to yet another in-house forecast, namely a countertrend • rally — which brings us to our most recent outcome.

EWI Precious Metals analyst Mike Drakulich provided his Metals Specialty Service subscribers with a great wave count in February Gold last week, forecasting a likely wave 2 target at around 1390. Gold turned at 1392.90.

Drakulich did this by a careful read of the charts, which at the time showed a classic five waves down, three waves up pattern:

Elliott Wave Principle, p.24 Figure 1-3 (inverted)

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Section 3 — Triangle / Thrust and Subsequent Move in Gold




Mike has used the Elliott Wave Principle in his market analysis for over twenty years. And with nearly 30 total years of experience in the business, he understands the importance of catching every relevant detail, to help minimize potential risks.

Elliott waves and technical indicators are key to his success.

Here’s the chart Mike showed subscribers. Note his count of five waves down, three waves up — the most basic pattern — to forecast a corrective rally in gold.

Drakulich called this chart “an Elliott wave thing of beauty.”

Experience in analyzing the charts — and using the Wave Principle to anticipate market moves — allows analysts like Drakulich to make effective market forecasts.

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Section 3 — Triangle / Thrust and Subsequent Move in Gold




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Whether you’re a long-term investor or an active day trader, EWI’s Metals Specialty Service delivers intensive intraday to long-term coverage of all major metals including gold, silver, copper and more. Senior Metals Analyst Mike Drakulich draws from nearly thirty years of market experience to help keep your finger on the pulse of today’s prime metals with concise forecasts and analysis across all time frames.

Learn more and put the power of the Wave Principle to work for your portfolio here:


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Tristan de Gouvion Saint Cyr on Identifying Actionable Opportunities