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GUE : Get the Ultimate Edge
Workshop on Advance Technical Analysis
using Elliot Wave Principle
INDEX
Wave Personality – Mass Psychology………...................................................................4
Waves – Marriage with TA……………………......................................................................6
Wave Principle Usage…………………….............................................................................7
Trading Opportunities using Waves…………………..........................................................8
Using Waves with TA:
• Triangles and MACD..……………………………………………………………………………………….11
• MACD in Wave 3 and 5……………………………………………………..……………………………..12
• GMMA………………………………………………………………………………….………………………....13
• Reverse Divergence…………………………………………………………….……………………………14
• Divergence w.r.t PA in wave 3 and 5……………………………..…………………………………15
• Bollinger Bands in Impulse vs Corrective Wave………………………………………………..16
• High Probability Set-ups…………………………………………………………………………………..19
• Diagonal Triangle with MACD………………………………………………….……………………….22
• Head & Shoulder using waves……………………………………………….…………………………23
• Catching waves for trading………………………………………………….…………………………..25

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 Wave Personality  Mass Human Psychology

1st Wave (Note: Bull markets)

• Heavily corrected by Wave 2.
• In contrast to prior bear market rallies, technically
more constructive - subtle increase in volume &
breadth.
• Plenty of short selling – majority still feels trend is
down.
• If 1st wave rises from large compression or large
bases, first waves are dynamic and only moderately
retraced.

2nd Wave
• As said earlier, large retracement of Wave 1.
• Investors are thoroughly convinced that the bear
market is back to stay.
• Typically show Bullish Divergences & create “buy
spots” - low volume and volatility indicate a drying
up of selling pressure.

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 Wave Personality  Mass Human Psychology
3rd Wave
• Wonders to behold- strong & broad, and the trend at this point is unmistakable.
• Increasingly favorable fundamentals enter the picture as confidence returns.
• Generate the greatest volume and price movement.
– If extended, the 3rd wave of the 3rd wave will produce the maximum price movement .
• Virtually all stocks participate in third waves.
• Produce breakouts, "continuation" gaps, volume expansions, exceptional breadth, major Dow Theory trend confirmations
and runaway price movement.

4th Wave
• Predictable in both depth & form.
• Most they trend sideways, building the base for the final fifth wave move.
• Lagging stocks build their tops and begin declining during this wave - since only the strength of a third wave was able to
generate any motion in them in the first place.

5th Wave
• Optimism runs extremely high, despite a narrowing of breadth.
• Always less dynamic than third waves in terms of breadth.
• Market dabblers sometimes call for "blowoffs" at the end of long trends, but the stock market has no history of reaching
maximum acceleration at a peak.
• Usually display a slower maximum speed of price change – look for lesser volume as a rule in a fifth wave as opposed to the
third.
– BUT, if a 5th wave is an extension, speed of price change in the 3rd of the 5th can exceed that of the 3rd wave
– Even if a 5th wave extends, the 5th of the 5th will lack the dynamism of what preceded it

5
 Pause!
Before the marriage with TA

6
Improve Trading using Wave Principle
Technical Analysis fall short in identifying “Maturity” of a Trend. Technical Analyst
could use Wave Principle to :

➢ Identify Direction of the Dominant Trend

• E.g. 5 wave advance is up trend
➢ Identify Counter Trend Moves
• 3 wave downward correction are opportunities for traders to position trades
in the direction of main trend
➢ Determine Maturity of the Trend
• Wave 5 gives warning to book profit / tighten stops
• Wave C provides opportunities for fresh positions
➢ Define Price Targets
• Fibonacci Relationships
➢ Improve Stop Loss Judgment
• Use the 3 Rules of Wave Principle
• E.g. Wave 2 never retraces more than 100% of Wave 1
➢ Identify High Probability setups to increase hit ratio
• Decision based on triple screen
• Use wave principle and indicators to verify Chart Patterns / setups.

7
 Trading Opportunities
In an uptrend:
• Bullish Setup
– End of Wave 2 & 4
• Bearish Setup
– End of Wave 5 & B

8
 Determining Stop Loss based on Rules

Rule 1 – SL below origin of Wave 1 Rule 2 – SL below termination point of Wave 1

Rule 3 – SL above a price level where Wave

count goes for toss.
Can be used when wave 1 is extended & wave 3
< wave 1

9
 Marrying TA with Elliot
TA Indicators
➢ MACD
• Often an extreme reading in MACD will correspond to end of Wave 3
• Often MACD pulls back to zero line in Wave 4 prior to the development of
Wave 5
• MACD will show negative divergence in Wave 5 w.r.t. Wave 3 peak.
• In corrective structures MACD does negative divergence with Wave A and
Wave C termination points.
✓ Bullish divergence in a correction of an uptrend
✓ Bearish divergence in a correction of a downtrend
➢ MACD Histogram
• Divergences w.r.t price extremes are essential
• Converging lines in Ending Diagonal Triangles (found in Wave 5 & C)
• Useful in identifying H&S & Failed H&S setups
➢ GMMA
• Moving Averages Compression and then Expansion indicates end of Corrective
Wave
➢ RSI
• Often 5th waves at lower degrees end with negative divergence with RSI
➢ Bollinger Band
• Direction of band helps determine impulse vs corrective wave patterns

10
 Triangles & MACD

• Triangles in price often correspond to

flattened MACD near zero line 3
B
D

E
A C
4

11
 MACD  Wave 3 & 5
5
•Wave 3 often corresponds to the peak of MACD
•Wave 5 ends up with negative divergence on MACD w.r.t. Wave 3
3

1 4

12
 GMMA  Correction Wave

Moving average compression and later

expansion indicates end of Correction Wave
and beginning of next impulse or extension
wave.

MAs compression

13
 Reverse Divergence  Next Impulse Wave

Example : Nifty 2009

3
Price making Higher Low & MACD b
making Lower Low
a c Reverse divergence usually indicates
4 end of Corrective Wave & beginning of
Next Impulse wave

Bullish divergence on MACD Hist

w.r.t wave a and wave c

14
RSI Divergence  5th wave

Bearish Divergence w.r.t. Price

15
Bollinger Band  Impulse vs. Corrective waves

Flat band indicates Corrective

wave is in progress. Usually seen
When prices touch upper band
in wave 4 or wave B.
and if band moves in the direction
of price, it confirms the beginning
of new Impulse wave.

a
c
Buy with SL below
previous low

When price falls to lower band,

but if band fails to change
direction, it usually indicates end
of corrective wave

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 Bollinger Band  Corrective Waves

Counter trend rally stalled within

the band, confirming corrective
wave.

Why these are

corrective waves?

Why is this not a corrective wave?

Nifty – weekly chart Counter trend fall stalled

within the band, confirming
corrective wave.

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 Bollinger + ADX -> Dynamic Wave

Bollinger band along with

ADX is a deadly combination
to identify Dynamic waves

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 High Probability Setups
1. Ending Diagonal Triangle
➢ Is a Motive Wave.
➢ Found in Wave 5 or Wave C.
➢ Wave (iv) within the diagonal enters the price territory of wave (i).
➢ MACD Histogram should show negative divergence with price.
➢ Use MACD Histogram “Converging Lines” to position the Entry on the break of
the diagonal.
➢ Target : price retraces to the beginning of the diagonal.

2. Head & Shoulder

➢ Waves A-B-C with wave C breaking the neckline.
➢ If after Wave 5 of the Impulse, it could indicate Reversal of the trend with new
Wave count 1-2-3…
➢ MACD histogram typically shows lesser bear power at neckline breakout
point, compared to the previous low.
➢ This characteristic of MACD Histogram shows that Bears need less power to
cause the breakdown.
➢ Success Factor : Follow up action or continuation of ticks in MACD Histogram.
➢ Reversal H&S : self study

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 High Probability Setups
3. Failed Head & Shoulder
➢ Continuation of the trend of one higher degree.
➢ Enter after Termination point of Wave B is breached.
➢ They usually fail when TIDE is not in favor of the trade for e.g. H&S on daily
but weekly EMAs strong.
➢ E.g. H&S on daily fails when weekly Tide is up!
➢ Look out for break of divergence line on MACD.

4. Trading for Wave 3

➢ Enter at the end of Wave 2 with Stop Loss below start of Wave 1.
➢ MACD Histogram of the TIDE (higher timeframe) should favor the trade.
➢ Bollinger Band should confirm previous correction and the next Impulse
nature .
➢ MACD line should be inching higher, making new highs.
➢ Look for gap ups/downs and dynamic nature of the price movement.
➢ Use Oscillator on Wave and trend reversal chart pattern on Ripple to enter.

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 High Probability Setups
5. Trading for Wave 5 (refer Reverse Divergence example given before)
➢ End of Wave 4 with MACD doing Zero Line reversal.
➢ Look for Reverse Divergence on MACD.
➢ Look for Zigzag with negative divergence w.r.t. Wave a and Wave c.
➢ Look for Triangle Patterns in Wave 4 (if Wave 2 was simple zigzag).

6. Trading for the main trend at the end of Wave C

➢ Look for divergences at end of Wave C.
➢ Look for Ending Diagonal Triangle patterns.

7. Trading for the Corrective wave (counter trend) after end of wave 5
➢ Ensure that 5 wave advance pattern is over.
➢ Look for Divergences on Oscillators (RSI) & MACD corresponding to wave 3 &
5.
➢ Look for Ending Diagonal Triangle pattern in wave 5.

21
Diagonal Triangle  MACD histogram

2
4

Throw-under
1 3 5

Converging peaks

Bullish divergence

22
Head & Shoulder - Example

23
Failed H&S - example

24
Catching Wave 3 or Wave C

Crude -Daily

25
 Trading For Main Trend After End of Wave C

Example: LIC Hsg (Jul 23, 2010)

Also check weekly & daily chart for EMAs

c
Buy
Stop loss

MACD zero line crossover

MACD peak

26
Trading for Correction after end of Wave 5

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 POINTS TO NOTE
➢ Use Triple Screen for Decision Making and Elliot Principles for filtering &
verification of setups and fine tuning stop losses.
➢ Your 1st step should be to identify if price is in an impulse or correction.
• For impulse use multitude relation of Fib
• For Correction use Fib retracements
➢ Never forget, in order to make profitable trades, you need an impulse… be it in
motive or corrective
• Must use Bollinger Bands
➢ In TIDE if you are in an Impulse, your Exit Strategy should can be EMA crossovers
in the Wave.
➢ 60% things are simple. Let’s use only Simple things.
➢ Stick to ONLY High Probability Setups for higher success rate .
➢ When in doubt, Do Not Trade.
➢ Wait “Patiently” for the Right Setup.

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 Keep it Simple
Wait for Right Setup
Follow Discipline
You CAN DO it !!!
☺☺☺
29
 How To Get The Correct Counting

➢ Impulse vs Corrective:
• Impulse always have 5 wave structures.
• Have energetic personality.
• Covers a lot of ground in short time.
• Angle of impulse wave is steep.
➢ Corrective waves:
• Have sluggish personality.
• Slow-moving affairs that takes days and weeks to
end.

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