Stocks & Commodities V. 24:6 (56-61): Trading The Trend In Wave 3 by Mircea Dologa, MD

Stocks & Commodities V. 24:6 (56-61): Trading The Trend In Wave 3 by Mircea Dologa, MD

Here’s a refresher course on techniques you can use to trade wave 3, in part 2 of three.

When trading wave 3, any number of methods could be used, so many that it’s easy to overlook one or two. So which one would be best? Here are a few that may pique your interest, including some that you may have long forgotten.

PITCHFORKS AND CHANNELS

The pitchfork technique should be a standard tool to use when trying to measure the slope of the trend of wave 3. The slope is important because its characteristics play a part in defining the exit. In the pitchfork method, a technician will pick an extreme low or high to use as an anchor pivot point and draw a median line. Action and reaction lines are drawn through high and low points, defining the support and resistance levels for the price channel. In Figure 1, the exit at 4135 takes place where the market price crosses with the first upper parallel line above the center line.

The channeling technique is another helpful tool for wave analysis. In this method, a price channel contains prices through the course of a trend; historically, this term has been used to denote the area between the base trendline and the reaction trendline defined by price moves against the prevailing trend. Channeling’s main function is to delineate the exhaustion zones, where the local market will certainly perform, either as a reversal, an acceleration, or a consolidation move. Thus, it serves as an optimal timing guide, giving the trader a prolific competitive edge. The channeling technique is used on primary and lesser-degree waves...