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In last week’s Trading Tutors Newsletter # 165 we looked at Apple - AAPL and how the Elliott Wave counts were recalculating. If you re-read that article, it will help make this week’s article make a lot more sense.
We ended up with a picture looking like the one below (don’t try this on your own software as I have modified the picture to reflect past and present Time and Price Projections – TAPP). If we break it down simply, one style would have been to close the trade position at the first projected price target in the Wave 4 Buy using the Profit Source TAPP to calculate price targets for your position. Alternatively, another style could also have been used to take some profits by locking in a portion of the position and then continuing with some sort of trailing stop behind the position left in the trade. This article is not about risk management, so either way it is important to stick to your own rules of risk management in a trade whatever the entry may be.
Chart 1 – AAPL Daily Bar Chart
click chart for more detailNow that the Elliott Wave count has readjusted to the current market conditions we are now left with a 3 where the 5 was and a projection to 4 and of course on to 5. What we need to be mindful of is that at this point in time we do not have an entry signal. No Wave 4 Buy or Sell, No pullback of the Oscillator to zero, and certainly there has been no breakout of the EBOT. In fact what we are waiting for is an exact entry point similar to when we entered the trade on the last Wave 4 Buy signal 4 weeks ago. A rookie error right here is to sell short without any real confirmation that the stock is headed down.
In fact it takes another 14 weeks on AAPL before we get another opportunity to look at another possible trade setup. On the 15/2/06 we get what looks like a signal – a wave 4 Buy break through the EBOT. But there is one thing wrong with this trade setup.
A rookie error is to focus insufficiently on the Oscillator. Take a look at the chart below and have a look at the Oscillator and you will note that it has pulled back way past the 140% mark. Some people forget that we are looking for an ideal situation of the Oscillator pulling back to about zero. In this case it has pulled back too deeply, indicating the there is a greater likelihood of this stock moving down rather than up in the near future.
Chart 2 – AAPL Daily Bar Chart
click chart for more detailApple did indeed do just that as per Chart 3. For those of you who remember my article on the 200 Day Moving Average, now might be a good time to go back and take another read of Trading Tutors Newsletter # 151.
Chart 3 – AAPL Daily Bar Chart
click chart for more detailOk, I know I said we would cover this in 2 weeks but I am going to spend one more week on this topic as we progress with our case study on AAPL and as we look for consistent entry signals for our Elliott Wave trading methodology…stay tuned … I am off to the hospital to see my new baby boy!
Until next week,
Neil Gladwin
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