Anatomy Of A Trade  |  SEP 2006

Trading Wave 3 by Mircea Dologa, MD

Stocks & Commodities V. 24:9 (42-44): Trading Wave 3 by Mircea Dologa, MD Trading wave 3 could prove to be the most profitable of all waves in Elliott wave analysis. Here’s an example. In my previous two articles, I discussed various techniques you could apply to trading while a wave 3 was in process. In this, the third and final part of the series, I will walk you through a trade so you can see how to utilize everything I discussed in the first two parts. GETTING READY 1. Be alert to the possibility of an extended W3 trade • Identify the profitable low entry. • Price should be near the close of the previous day. • Price should gap down, opening below the close, then return above the close and fill the gap from the low of the day/morning, or vice versa. This is known as the oops phenomenon. • Price gaps down, consolidates for several bars, then fills the gap from the low of the morning/day. Again, you have the oops phenomenon. • Follow the price movement from downtrend to uptrend. • Once a low is formed, wait for an upswing in wave 1/A and its retracement of wave 2/B (38.2 – 50%). After the retracement, you can set up for the wave 3/C ride. • Be aware that a low may not necessarily be the starting point for wave 1, but rather the end of wave B of an ABC correction. Wave C will follow, taking the form of a terminal-ascending triangle. A similar situation might take place when an impulse pattern has a wave 5 failure. This will be a classic doublebottom formation. • Be aware of the formation of w1 of a future W3. It can coincide with the entry (as is the case in the example). The length of the move will give the tone: o Five bars for a swing o 13 bars for an average trend, and o 21–34 bars for an extended wave.

by Mircea Dologa, MD