1- Download our EOD quotes after 6PM and make sure they were downloaded properly i.e. we have a price for today on all monitored stocks.
2- Run our favourite exploration(s), mine is the AO Elliott Waves (21%) or the associated signal explorations. Run all the explorations simultaneously doing it over night if they are time consuming. We can run up to 10 explorations in a night depending on our computer speed (more with over 1 Gigahertz CPU).
3- When the results are available, we open the report and sort the Bars column in ascending order (Click as long as we don’t have what you want, usually twice is enough). We are looking for the most recent occurrences of Bullish Waves 3, 5 and C. This means that the bar count is between 1 and 5 for a large sensitivity and less on small sensitivity such as 8%.Clicking on the first security that has a bull wave of the desired type, when we spot a second security, holding down the Ctrl button and clicking on the security (so all the selected ones are highlighted) and so on so forth, until we have a good selection (Not too many because our computer will crash, charts are resources hungry). Press on the Open Chart button and wait until the charts open.
4- Looking at our screen, we see the last one we selected. Check the first the wave pattern to make sure it is what we want and then look at the Price Projection looking at the middle projections or grouped projections, never at the extremes because they represent mostly extensions or very conservative estimation based on a corrective wave. One way of pinpointing the probable one is to look at a cluster of lines. We want enough price movement to make a profit even after the wave end is confirmed. See figure 33.
5- Check the other cycles to see if a more powerful wave is propelling or killing our wave. If the projection less the entry price (Close~% + commission) gives us the yield we are looking for (I look for 21%), mark the security on our list of candidates. Our goal is not to have the longest list so we discard anything that is doubtful. We can print the chart if needed. Close this chart and go to the next one. We repeat the same process until we have exhausted the selected charts. If we have charts left from The Explorer™, we go back to The Explorer™ and do the same process as in step 3, opening the other charts. Redo step 4 and add the candidates to the list the chosen securities.
To assist in the selection, just open the Expert commentary. While the information available is limited, it is accurate and helpful. Do not rely solely on the Expert, as the patterns that can be analysed are scant and belong to the most commonly seen. The Expert will only give us a flavour of what is basic technical analysis. As time goes by, we become so proficient that we can skip this step.
6- Now look at our list and we need to select the best candidate, not two or three, just one. We will need three rounds to do that. First round to help us in our selection, we have indicators such as the RSI, the Stochastic, and Momentum… and the ones we see at the bottom of our AlphOmega template screen. Use them! If the RSI is high over 70, it means the stock is overbought; RSI can never pickup a top, it just means the stock could be overbought.
But if we have a choice between an overbought and one between 50 and 70, we go for the lower RSI as long as it is not heading down. Next look at the Elliott Oscillator, it has to be above 0, not negative. The higher the better. Then look at volume, if there is no volume increase in the past days at the onset of the wave, there is nothing to sustain the price movement and eventually all will crumble. So we need a little volume increase. This should weed out quite a few candidates.
7- Next refining selection with the second round where we will look at the previous patterns made by each security. We are looking for repetition so we need to see in the past, the same kind of waves completing their pattern. If it is a first and nothing fuels it like rumours or contract news, then it is suspicious even if it finally makes it. To assist us, there is another exploration that compiles the success of previous impulses by security; it is named AlphOmega Impulses %GT. Look at how strong is the trend, pick the strongest, and don’t count on weak getting stronger later. Strong in weak market will be stronger in strong market. Compare the 144 days EMA and the 55 days EMA.
If the 55 days EMA is getting further above the 144 days EMA, we have a trend getting stronger! Watch for volatility, we don’t want too much but we need a minimum if the wave will come through. Avoid securities that are in a consolidation mode, they make waves that move within a narrow range. Check the Time Projections to see if the pattern is running out of character and out of time (is it in long winded extension?). This round will require a lot of practice but don’t forget it is a selection within the best; our risk should be very small at this point if we misinterpret the charts.
The longer red line is the Highlighter while the short ones are from the Wave Price Projection.
8- Third and last round is comparing the fundamentals of the remaining candidates. We cannot do serious trading not knowing what we are buying. You don’t need to plough through tons of annual reports; just go to a good Internet financial information site and compare key financial information. Earnings per Share (EPS), capitalization, Sales and Earnings forecast, Debt/Equity ratio and Cash. This step will prevent us from buying an almost bankrupt stock. This will take away all the would-be candidates and leave with the best at hand today. Yet we don’t have to take it; maybe all of them should be discarded! If not, then go for it. Beware that we are not looking for the same signals if we are short selling, we want a company that is in trouble!
9- Work out an entry price, a stop loss and a target price before placing an order. Most AlphOmega explorations will give us some of that information. Once we’re in the money (our stock is better than our entry cost (price + commission)), we can move our stop loss higher to protect our profit. I like to get out when I made my target even if there is still some action. Managing our investment is as important as selecting it. Don’t leave it to others to tell when to exit, we are in control. Use the Signal Scan exploration to make sure we did not forget to exit a position that is ripe by looking for the exit signal (if we were in a wave 3, then a wave 4 signal should trigger our exit).
10- Checking all the securities for which we have a position to make sure the patterns are progressing as foreseen. Sometimes a broader pattern will have developed since our entry, this is the time to assess whether we want to ride the larger wave or stick with the initial. Preferably we should adhere to our trading plan.
Well, here it is! we tried to keep it simple not to be overwhelm with information that is not critical at this point. Once again, this is the way I do it; it may not be the best. You can see why I developed all these indicators when you revisit the steps. If this method is too complicated, look at the alternative detailed in a little document from the Advanced Get® software writers. It uses two types of set-up (summary provided at the end of the manual) and explains very well how to benefit from each.
You can download the complete document from: http://tradingtech.com . The indicators required for these set-ups are already in the AlphOmega set and although the PTI (Profit Taking Index) is proprietary, a similar one has been coded for our use. There are two explorations that will search for the patterns and give us the key indications for making our choice. Note that the set-ups apply only to a wave five beginning or ending.
For day trader the obvious difference is that we have only a limited use for an exploration although there is one in the set. Yet we certainly can spot the ideal candidates from an exploration but as the day grows these results are no longer appropriate. From step 3 to the end, we can verify our choice and prepare our trades. Many indicators are suited for intraday application and they will accept hour and minute input, so we can monitor the trade on the real-time screen.
These indicators are labelled with an “i” in their name. Candlesticks are also very useful in short term analysis and it is the reason we opted for that format in our default template. MetaStock® provides a candlestick expert as well as good documentation in the User Manual. Please refer to them to get familiar with candlesticks formation. Day traders must use alerts within the expert to be warned of a specific condition taking place. This is the best use I have found for the alerts however be forewarned that only the active window will display an alert; make sure you cycle through your day portfolio at regular intervals to give a chance to each window to display it.
This is an extract of guidance given to a client who suggested I should write a step-by-step approach for newcomers to Elliott Waves. Please note that there are excellent sites on Internet that will provide better and more in depth guidance on the methodology. My favourite is Robert Miners at www.dynamictrading.com . There are many others but this one has the merit of simplifying the concepts without loosing the essential.
Note that I have no connection with Robert Miners or his site; his information is public knowledge. If you are interested in an academic approach, then you will want to visit the Elliotticians in Australia. The approach is a lot more detailed from a descriptive point of view of the theory; it is not as good from an application standpoint. What I mean is that it is more difficult to extract a process that you will be able to follow to select your investment portfolio. The site is at http://www.elliottwave.com .
For those who wish to learn about indicators and use of MetaStock®, there is an Australian site that I strongly recommend: http://www.stockcentral.com.au . It is well managed compared to the forums available from Yahoo!, not meaning that Yahoo! is responsible for what their customers are doing. Spammers are a plague on any forum.