Esignal Manual ch11 PDF

Chapter 11
Types One and Two Trades
11
Type One and Type Two Trades

The foundation of the eSignal program is focused on the Elliott Type One and
Type Two trades. The Type One trade is a Trend Following Trade. It is based on
entering the market at the end of Wave 4, and taking profits at the end of Wave
5. In the Type Two trade, the market is entered at the end of Wave 5, with the
initial target for profits being at the same price level as the previous Wave 4. In
the pages that follow, the rules for the Type One and Type Two trades are
introduced, followed by examples of each trade.
In a Type One trade, the attempt is made to enter the market at the end of Wave
4. Depending on the direction of the current 5-Wave sequence, the market can
be entered in either a Long or Short position. The Type One trade is defined as a
Trend Following trade, or Continuation trade.
The Type Two trade is a Counter or Contra Trend trade. It goes against the
current market direction. Type Two trades are entered at the end of a Wave 5.
We then assume a change in trend after the market has reached a price objective.
Rules for Type One Trades

The Type 1 Trade is used for entering at the end of a Wave 4 Retracement. The
Type 1 Trade is a Trend-Following Trade, or Continuation Trade.
1. Wait for the Oscillator to pull
back to zero.
2. Make sure the PTI is above 35.
3. Make sure the Wave 4 Channels
are holding.
4. When the market breaks the
Regression Trend Channels or the
DMA, buy the market for a Wave
5 rally.
Figure 11-1: Type One Trade
11 ~ 193
eSignal, Part 2
Applying Technical Analysis
Rules for Type Two Trades

The Type 2 Trade is used for going against the trend at the end of a Wave 5 rally
or decline. The Type 2 Trade is an Contra Trend, or Counter Trend Trade.
1. When the Wave 5 makes new highs, make sure the Elliott Oscillator shows
divergence between the Wave 3 peak and the Wave 5 peak.
2. When five waves are complete, the market changes trend. Wait for the price
to cross the Regression Trend Channel.
3. When prices cross the Regression Trend Channel, enter the market.
The initial target is the previous Wave 4.
Figure 11-2: Type Two Trade
11 ~ 194
Chapter 11
Type One BuyDaily

1. The market is in an Elliott
Wave 4 pullback.
2. The Elliott Oscillator has
retraced to zero.
3. PTI is > 35.
4. The market is holding
above the red Wave 4
Channel.
Buy at the cross of the
Regression Trend
Channels.
Figure 11-3: Bisys Group Inc., Daily
Figure 11-4: Bisys Group Inc., Daily
11 ~ 195
eSignal, Part 2
Type One BuyWeekly

Wave 4 pullback.
retraced to zero.
3. PTI is > 35.
4. The market is holding above
the red Wave 4 Channel.
Buy at the cross of the
Regression Trend Channels.
Figure 11-5a: North Fork Bancorp NY, Weekly
Figure 11-5b: North Fork Bancorp NY, Weekly

11 ~ 196
Chapter 11
Type One SellWeekly

Wave 4 pullback.
pulled back to zero.
3. The PTI is > 35.
4. The market is holding below
the green Wave 4 Channel.
Apply a trigger and short this
market.
Figure 11-6: AT&T, Weekly
Figure 11-7: AT&T, Weekly

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eSignal, Part 2
Type One SellDaily

1. The market has moved into
a Wave 4 retracement.
pulled back to zero.
3. PTI is >35.
4. The market is holding below
the Wave 4 Channels.
Everything looks good to
short this market when it
crosses
below
the
Regression Trend Channels.
Figure 11-8: Intermune Inc., Daily

11 ~ 198
Chapter 11
Type Two BuyDaily

1. This market is in a Wave 5
Down, and has made new
lows.
2. The Elliott Oscillator is
showing good divergence.
3. The market just crossed
above the Regression
Trend Channels.
Everything looks good to
buy this market.

11 ~ 199
eSignal, Part 2
Type Two BuyDaily

1. The market has made new
lows with a Wave 5 Down.
Buy this market at the cross
of the Regression Trend
Channels.
Figure 11-12: Soybeans, Daily
Figure 11-13: Soybeans, Daily

11 ~ 200
Chapter 11
Type Two SellMonthly
1. The market has made a

Wave 5 with new highs.
Short this market at the
cross of the Regression
Trend Channels.
Figure 11-14: MRK, Monthly
Figure 11-15: MRK, Monthly

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eSignal, Part 2
Type Two Sell - Daily

1. The market has made a Wave
5 with new highs.
2. The Elliott Oscillator shows
good divergence.
Short this market at the cross
of the Regression Trend
Channels.
Figure 11-16: Valero, Daily
Figure 11-17: Valero, Daily

11 ~ 202
Chapter 11
Type Two Sell60-Minute

1. Market is in an Elliott Wave
5 up with new highs.
2. Elliott Oscillator shows
good divergence.
3. The prices just fell below
the Regression Trend
Channels.
This market looks good
here for a Type Two Sell.
Figure 11-18: Rowan, 60-Minutes
The market moved down to test

the lows at the previous Wave 4.
Figure 11-19: Rowan, 60 Minutes

11 ~ 203
eSignal, Part 2
Catching Wave 3 in a Type One Trade

One of the most frequently asked questions about Elliott trades is, How can I
get into Wave 3? Thats where all the money is, right? While that may be true,
Wave 3s are very difficult to predict, not having the statistical indications we can
draw for Wave 4 and Wave 5. However, we have seen cases in which a Type
One trade turns out to be Wave 3! The following is an example of such.
Figure 11-20: March 2003 S&P, Daily
Results:
What was thought to be
Wave 5 carried so much
momentum that it
became and extension of
Wave 3, resulting in even
greater profits.
Figure 11-21: March 2003 S&P, Daily

11 ~ 204
Chapter 11
Forecasting a Double Top or Failed Fifth Wave

Type One BuyLaborious Wave 4
The key here is that the Profit Taking Index (PTI) dropped below 35. Statistically,
this indicates a potential Wave 5 failure, or at best, a Double Top. In the example
below, DELL is setting up as a Type One Buy. The Oscillator has pulled back to
zero, and the Wave 4 Channels are holding. However, the PTI is only 21, indicating
that chances for a Wave 5 making New Highs are very low. Additionally, looking
back, DELL has a very simple Wave 2, indicating a good chance that Wave 4 will
be long and complex.
Results:
DELL eventually makes
new highs, but the
process is long and
drawn-out, eating away
at emotional capitol and
Options Premiums. If a
long position is taken in
a situation such as this,
very tight stops should be
used.
Figure 11-22: Type One Buy, Failed Fifth Wave

11 ~ 205
eSignal, Part 2
Type One BuyFailed Wave 5

The PTI is again below 35. In this AAPL chart, the Wave 5 never materializes.
The Profit Taking is too great in this market to take the prices to new highs, and
the vicious sell off
generates a new trend
in
the
opposite
direction.
Results:
It is apparent that the
PTI is a good early
warning indicator not to
take a Type One Trade.
Any PTI below 35
indicates that Profit
Taking is too great, and
the Wave 5 will most
likely not make new
highs. Any attempt to
enter the market for a
potential Wave 5 should
be done with very tight
stops. We would Figure 11-25: Type One Buy, Failed Fifth Wave
recommend not entering
the market at all in these
situations.
11 ~ 206

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Chapter 11

Types One and Two Trades

Type One and Type Two Trades

Rules for Type One Trades

Applying Technical Analysis

Rules for Type Two Trades

Figure 11-2: Type Two Trade

Types One and Two Trades

Type One BuyDaily

Figure 11-4: Bisys Group Inc., Daily

Applying Technical Analysis

Type One BuyWeekly

Figure 11-5a: North Fork Bancorp NY, Weekly

Figure 11-5b: North Fork Bancorp NY, Weekly

Types One and Two Trades

Type One SellWeekly

Figure 11-6: AT&T, Weekly

Figure 11-7: AT&T, Weekly

Applying Technical Analysis

Type One SellDaily

Figure 11-8: Intermune Inc., Daily

Figure 11-9: Intermune Inc., Daily

Types One and Two Trades

Type Two BuyDaily

Figure 11-10: Intermune Inc., Daily

Figure 11-11: Intermune Inc., Daily

Applying Technical Analysis

Type Two BuyDaily

Figure 11-12: Soybeans, Daily

Figure 11-13: Soybeans, Daily

Type Two SellMonthly

Types One and Two Trades

1. The market has made a

Figure 11-14: MRK, Monthly

Figure 11-15: MRK, Monthly

Applying Technical Analysis

Type Two Sell - Daily

Figure 11-16: Valero, Daily

Figure 11-17: Valero, Daily

Types One and Two Trades

Type Two Sell60-Minute

Figure 11-18: Rowan, 60-Minutes

The market moved down to test

Figure 11-19: Rowan, 60 Minutes

Applying Technical Analysis

Catching Wave 3 in a Type One Trade

Figure 11-20: March 2003 S&P, Daily

Figure 11-21: March 2003 S&P, Daily

Types One and Two Trades

Forecasting a Double Top or Failed Fifth Wave

Figure 11-22: Type One Buy, Failed Fifth Wave

Figure 11-23: Type One Buy, Failed Fifth Wave

Applying Technical Analysis

Type One BuyFailed Wave 5

Figure 11-24: Type One Buy, Failed Fifth Wave

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