EW lesson I learned (the hard way)

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Geometric Thinking Update

By Jim Fredrickson

These were the 2 bearish 5 wave structures I counted.

Elementary Elliott Wave says that impulse waves have a 5 wave structure.  We all know that.  So, when I counted 5 waves down from 9031 on BTC I thought that the top was in.  I was a bit surprised by the strength of the rally that followed but I chalked that up to fomo-driven buyers hadn’t gotten the memo the top was in.

A day or so later I saw yet another bearish 5 wave structure, and counted it as a “1-2, 1-2”.  Wave three was next, I thought. I put in my stop above the high of the first wave and went to bed expecting my short to have done well in the morning.

I awoke to see that the market was again showing a strength I had not expected, and was on the cusp of going higher than my 2nd ‘bear wave’ (which would suggest my count was wrong).  I checked and double-checked, and both the bearish 5 wave structures seemed like 5s. 

Nevertheless, in short order the 2nd of the waves was invalidated, and then the market moved higher to challenge the validity of the 1st of my bearish waves as well. 

Within minutes, in an explosive move driven by countless buy stops being executed the market moved higher.  I was so confused.  Was EW wrong?  Was it ‘junk science’???

 An hour or so later it dawned on me that ABC waves have 5 waves in A, 3 waves in B, and 5 waves in C.

I went back to my chart and looked at it as an ABC with 5/3/5 characteristics, and it fit like a glove.  An ABC, followed by a diagonal.  (BTW, a diagonal there indicates that this is now the 5th and last wave up in the current wave.)

The bad news is that I lost money on that trade.  The good news is that I learned, and won’t easily make that mistake again

” I was so confused.  Was EW wrong?  Was it ‘junk science’??? “

This is not financial advice, just words of wisdom from someone who has seen it all over the past few decades.  Do with it what you will.  Happy Trading!

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