Advanced Charting Principles for Traders

Introduction

• Focus: Advanced charting principles to enhance trading accuracy.
• Key Concepts: Elliott waves, Fibonacci, box theory.
• Goal: Predict future price movements, build a guide for trading.

Importance of Projections

• Common Misconception: "Traders do not predict, they react."
• Importance of Estimation: Having a plan to trade more effectively.
• Avoid Speculation: Use expectations to guide trades, not random decisions.

Elliott Waves

Overview

• Reflection of human behavior in markets.
• Common pattern: Five-wave cycle followed by three-wave correction.

Wave Descriptions

1. Wave 1: Impulse Wave
   • High volume, starts with an expansion or gap.
   • Filled with negative news.
2. Wave 2: Correction Wave
   • Wipes out 60-70% of Wave 1.
   • Counter parallel to trend.
   • Cannot break below Wave 1.
3. Wave 3: Impulse Wave
   • Often the longest wave but cannot be the shortest.
   • Most explosive, hardest to trade.
   • Inverse relationship with Wave 5.
4. Wave 4: Correction Wave
   • Forms a box or triangle.
   • Cannot correct to top of Wave 1.
5. Wave 5: Impulse Wave
   • Completes the cycle.
   • Inverse relationship with Wave 3.

Practical Application

• Identifying Elliott waves can help predict market bottoms and tops.
• Use wave structure for technical analysis and predictions.

Three-Wave Corrective Cycle

• A, B, C waves follow the five-wave cycle.
• Wave B is typically the longest in time.
• Expect a pump, drop, then another surge higher.

Market Maker Cycles

• Accurate prediction of market movements.
• Structure: Channel, spring, plunge (max pain), return to channel.
• Can predict moves above the spring high.

Box Theory

• Strategy: Use horizontal price action boxes to set targets.
• Copy the box:
  • 100% for first target.
  • 75% for second target.
  • 25% for final target.

Fibonacci Levels

• Mathematical levels based on ratios.
• Used for targeting future price actions and corrections.
• Important during all-time highs or lows for setting targets.

Conclusion

• Understanding these principles helps set expectations and predict market movements effectively.
• Next Masterclass will focus on a more practical application of these tools.