Novice Traders' Notebook  |  AUG 2002

Chaneling With Elliott Waves Part III by Rudy Teseo

Chaneling With Elliott Waves Part III by Rudy Teseo Project coming waves with this classic technique. Now that you are familiar with some of the many Elliott wave patterns (see parts I and II), I’ll discuss a means of projecting the course of a wave in development: the channel. Channels are parallel lines that you draw on your stock charts using a trendline-drawing tool. If you are studying Elliott wave principles but don’t have a charting program, you can also construct these channels on commercial stock charts, such as daily charts, or on graph paper. Be sure to use semi-log scales on your computer charts, and use semi-log graph paper if you are drawing your own charts. ADVANTAGES OF CHANNELS Channeling helps you keep waves of the same degree together, and it allows you to project the next reversal point. The method is not as accurate as using the mathematical computations I will discuss in part IV. Channeling only gives you a boundary for the completion of the wave, but where the wave actually ends is a function of time. The longer the wave is in development (in a rising channel), the higher the reversal price will be. The channel cannot help you project an exact price; it is only meant to enclose all the waves of the same degree together. When a channel you’re constructing doesn’t seem to be doing what you expect, it may be a warning that your wave count is incorrect. Remember, in part I, I emphasized the caveat from A.J. Frost and Robert Prechter’s Elliott Wave Principle that an incorrect wave count will lead to erroneous projections.

by Rudy Teseo