Elliott Wave in Intricate Detail on the DIA One Minute Chart

Feb 9, 2009: 2:43 PM CST

Did you know Elliott Wave can be applied to the intricacies of the One-Minute Charts?  I wanted to show an example that occurred just a few hours ago that details a possible Elliott Wave overlay that captured the full structure of the minuscule movements on the DIA 1-min chart on February 9th.

DIA 1-min Chart – You’ll need to Zoom-in (click) for Detail:

DIA Elliott Wave 1-min

If you’re asking, “What in the world are you showing us, Corey?” then let me explain as we go along.

You don’t have to apply Elliott to this detail, and doing so in real time on the one-minute chart is excruciatingly difficult in real-time so this is mainly an exercise in proper counting of Waves from an educational (example) standpoint, as this example and count properly utilizes all the principles of Elliott Wave as applied to a price chart example.  Impulse Waves subdivide into 5 waves (1,2,3,4,5) while Corrective Waves (against the Trend) subdivide into 3 Waves (A, B, C). If anything, just consider it an interesting or fun example.

Work your way wave-by-wave from the left of the chart to the right, taking into account the special “Fractal” Nature of Elliott Wave – that’s mainly what I’m highlighting to you.  Also, how Elliott Wave can compliment and enhance your current indicators or pattern recognition skills (as in bull flags, etc).

The large impulse down from Friday’s close into Monday’s open wound up being an “A” corrective wave down that subdivided into 5 waves, which told us to expect a “Zig Zag” Corrective pattern (one of which resembles a Bear Flag of sorts).  If it was a 3-wave ordeal, we would have been expecting a “Flat” most likely.

We rallied up into the confluence resistance zone from the 20 and 50 EMAs which set-up a Bear Flag (forget Elliott altogether and recognize the Bear Flag).  However, using Elliott, we could have termed this rally “Wave B” and then entered short to anticipate a 5-wave corrective “C” wave down which represented a “Measured Move” (or equal distance) of the prior down-wave (“Impulse” or Flag-pole).

Seeing that the “ABC” Zig-Zag completed, we should have been looking for some place to get long, or at least exit our short positions.

We had a 5-wave Fractal Rally up into resistance via the 50 EMA as we formed another “ABC” (three-wave) Corrective phase that ended just beneath the support of the 20 EMA.  Now is when Elliott Wave Analysis begins to pay off – and in fact, may be the only reason you should find Elliott Wave interesting…

The Third Wave

We expect Elliott 3rd Waves to be the place where the best opportunities are, and where we can make the most money the quickest.  In real time, you should have at least identified the ABC Zig-Zag (or Bear Flag) as the end of a corrective move and then maybe identified the last two waves as 1 and 2 (or that’s fine if you didn’t) but the “Line in the Sand” or “Point of Recognition” comes when we break the price highs of the prior swing high (in this case, Wave 2).

As if to add more confirmation, we saw the 20 and 50 EMAs “cross bullishly” which officially confirmed an uptrend in price.  Experienced Ellioticians were quick to identify this as “Wave 3.”

So wave 3 subdivided (‘fractalized’) into its own 5-wave affair before reaching a peak and swinging down in a quick corrective phase to mark Wave 4.  Astute Elliotticians should have also been waiting to buy in (or hold) when Wave 4 completed to play for a retest of prior highs (at worst) or new intraday highs (at best) that marked Wave 5.

Wave 5 ended – as most do – with a Negative Momentum Divergence (you could have seen that with most indicators) and we began a second Corrective Phase that also formed a Zig-Zag (or Bear Flag, if you so desire).  I won’t describe that phase in detail but you can observe it for yourself.

Elliott is not “god” as I always say, but it can be a welcome addition or compliment to your existing understanding of price behavior.  Yes, it can be applied – if you have the reflexes of a rabbit – on the 1-minute chart but I recommend you use this as an example of how to apply Elliott to any time frame and combine it with other indicators and structural developments.

Corey Rosenbloom
Afraid to Trade.com

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15 Comments

15 Responses to “Elliott Wave in Intricate Detail on the DIA One Minute Chart”

  1. NotAfraidofTrend Says:

    Corey, if you labeled the Elliott Waves on the 1 minute chart, it does look like a lot of work.

    It would be nice if a software program could do that for us, automatically, in real time.

    Please let us know if you know about such a software program, preferably free.

  2. Dominick Says:

    Hello Corey. Taking it out to the 5min. time frame and not having a good working knowledge of Elliott, would it have been unreasonable to have attempted a short entry at approx. 10:25 am? I did not attempt this trade but you appear to have the stock heading down, a new momentum low, a moving average cross and a test of the 20ema. You thoughts?

  3. toad37 Says:

    Wow, thanks Corey!

  4. DaveB Says:

    Today had some good signals on the 5 min… I think I’m getting the hang of this.

    I was paper trading but had it been the real thing I’d have made over $300 today trading 1 contract in the YM. Maybe by this summer I’ll be ready to go live with real money. This is a nice skill to have, if I get downsized in this crappy economy at least I know I’ll have a way of generating income between jobs! 😉

    Corey, can you recommend any books or websites that helped you when you started trading futures? I’ve got a good handle on the TA but what keeps me from taking the plunge on the YM is how little I know about the instruments I’d be trading. Thanks.

  5. piazzi Says:

    Very Nice Corey! Great Labeling!

    Seems like we have been trading the same chart, amazing 🙂

    although, I sometimes use 5-minute MAs on a 1-minute chart, especially if we have a trend going on 5 min, then weakness in 1-min becomes buyabel.

    on question if you don’t mind, what chart size you used here?

    I cannot get 1-minute charts to look good, and I use my own Amibroker instead of stockcharts

  6. Corey Rosenbloom Says:

    Not Afraid,

    Wouldn’t that be nice indeed! I don’t know of any program that does so, though I’ve tried two that attempt it but the results weren’t accurate. There’s just too many variations for a computer program to do it successfully – or at least in my opinion.

    If such software exists, it surely won’t be free, I can tell you that much 🙂

  7. Corey Rosenbloom Says:

    Dominick,

    At 9:45 EST, you had the bear flag into 5-min EMA confluence resistance that produced a winning trade.

    I actually took the follow-up trade you are referring to at 10:30 EST and was stopped out as I expected probably what you did – confluence overhead resistance, NML, downtrend, etc. Ultimately – at least on the 1-min – it was the 3rd wave but that sort of supports Elliott.

    The first wave is always seen as a counter-trend impulse where you want to short it and the 2nd wave is a “told you so” shorting opportunity back down that fails to make a new low and then when the price doesn’t go down as expected but swings up and takes out the high of wave 1, stops are taken out and people get long.

    Waves 1 and 2 are tricky – 3 and 5 are easier.

  8. Andrew Stanton Says:

    Corey don’t forget zig-zag corrections are 5-3-5 so the first leg of that last one has to be redone. Otherwise it’s a fantastic job!

  9. Corey Rosenbloom Says:

    Andrew,

    I caught that once I was doing the write-up in the post and noticed my error and would have had to re-draw and re-upload the whole chart again.

    The correction should be instead of “abc” on the “A” Wave around 11:00am to 11:15, it should be labeled “1,2,3,4,5” which readers should be able to decipher to be properly described as a Zig-Zag.

    Good call!

  10. Corey Rosenbloom Says:

    Andrew,

    Also, when I was labeling the chart, I subdivided the A into 3 waves (but didn’t label them) then subdivided the B into 3 waves then of course the C into 5 waves then later called it a zig-zag. There was a method to my madness and that’s exactly why I’m doing these posts – to selfishly help myself with my developing knowledge of Elliott by getting feedback from more experienced readers and to share counts with all readers either to get them interested in Elliott Wave, or to help provide extra examples of the Wave principle as it occurs in today’s markets.

  11. Corey Rosenbloom Says:

    Dave,

    I’m glad to hear! It’s truly a skill that can be developed but one that certainly takes time, application, and practice.

    I’m in the process of making a recommended reading list and hope to share part of that or maybe tell a personal story in an upcoming post.

  12. Corey Rosenbloom Says:

    Piazzi,

    That’s comforting to hear we’re having the same counts! The more I get into Elliott, the more impressed I become.

    I’m using I think a 1600 size chart in StockCharts on the 1-min. I truncated a bit of the chart to the right to focus on the main lesson I wanted to show. I use TradeStation in real time and stockcharts for analysis/posting blogs. SC has cleaner charts.

  13. Dominick Says:

    Thanks for the reply Corey. It is nice to know I am on the same page.
    I assume that 9:45 am short on the 5 min. into confluence resistance would be a little more risky due to the 50EMA still being over the 20EMA?

  14. Dominick Says:

    Sorry Corey, 20 over the 50. (Not the most bearish orientation.

  15. Corey Rosenbloom Says:

    Dominick,

    Well, good point. The highest probability ‘confluence’ shorts will come during the ‘most bearish orientation’ or where the 20 is beneath the 50 which is also beneath the 200.

    But most likely, you’ll have an image like we did at your reference point. Remember if we’re coming off an uptrend, the 20 will cross under the 50 first (creating confluence) and then with further downside later, both will cross beneath the 200.

    Sometimes I take the 200 off the intraday charts to be honest.