In The Swing of Things

In some of my recent articles we have looked at the additional set-up criteria or filters that can be applied to Wave 4 Buy trades. In this article I want to share with you an additional entry trigger worthy of consideration.

Many regular readers will recall the emphasis I place on confirming that Wave 4 has run its course. In bullish trades this essentially means that the uptrend has resumed.

The first method we use to confirm the resumption of the uptrend is to look for the close of the stock price relative to the EBOT (Elliott Break Out Trigger). The EBOT confirms that the current price action has broken outside the overall Wave 4 move.

The second entry trigger I want to talk about is an unheralded one in the ProfitSource realm – the Daily Trend Filter (DTF). The DTF is one of ProfitSource’s swing chart based Hi-Lites™. It classifies daily price action into three categories – Up Trend, Down Trend and Uncertain.

Chart 1 – EMR Daily Bar Chart - DTF Hi-Lite applied

The up (green by default) and down (red) trend categories are determined by their technical definitions (higher highs, higher lows or lower lows, lower highs) and the uncertain category (black) then applies to any price action in between.

Applying the DTF as an entry trigger is an easy process. We simply look for an Uptrend to be marked green by the DTF on or before the EBOT close break signal. What this tells us is that the Wave 4 down-trend (often marked black as uncertain by the DTF due to the length of Wave 3) is technically over when the EBOT signal is triggered.

Chart 2 shows an example of the two entry triggers combined on a recent EMR trade.

Chart 2 – EMR Daily Bar Chart From January
Elliott Wave and DTF Hi-Lite applied

When we follow the movement of the trade in Chart 3, we can see this example was a winner.

Chart 3 – EMR Daily Bar Chart Today

It is probably not a surprise that using specific additional filters like this decreases the number of overall trades signalled in a given period. Having said that, the DTF provides strong additional confirmation that the start of Wave 5 has begun.

Happy Trading

Jordan Craw