AO question

[fadaid]

Is OK to take a trade on a fresh cross of the AO on a 1M chart even when the AO on the 5M chart has crossed some time ago (as immy would say is old)

[immy]

Is OK to take a trade on a fresh cross of the AO on a 1M chart even when the AO on the 5M chart has crossed some time ago (as immy would say is old)

Yes its ok, but in most cases if you realize that the 5x HTF, e.g. m5 for m1, is showing an extended wave, where AO is peaking, then the probability of success will diminish. A set up on M1 is an attempt to take a small trade within a wave on m5 and m5 itself is a fast time frame, so we gotta be careful. Within a good M5 wave 3, usually m1 provided between 1-2 two setups sometimes 3.

I hope this helps!

[Dave]

Hi Fadaid,

Learning to read what the eWave/AO is telling you took me a little while, I'd never traded with an oscillator on my charts before AIMS. But once you get the hang of it, it is a very valuable momentum indicator that, particularly when comparing multiple timeframes, gives you a lot of information about where you are in a wave. Hopefully the following information will help you, I know it makes my decision making a lot easier these days, and while you miss some trades that do work out you avoid just as many if not more rents!

In my opinion, the key thing to look for when analysing a higher timeframe eWave is divergence, i.e. when a peak in the price is no longer reflected by a peak in the eWave. This divergence, or lack of, indicates if the price movement is losing momentum.....

Screen Shot 2013-06-05 at 12.48.58 PM.jpg

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So I'll put up two charts from the nice drop on the Aussie yesterday, M5 and M1 and I'll compare the setups with respect to the higher timeframe eWave.

Screen Shot 2013-06-05 at 10.45.45 AM.jpg

Screen Shot 2013-06-05 at 12.44.11 PM.jpg

So with respect to the labelled trades.....
1. An early entry, the start of the M5 W3, M5 and M1 eWave showing downward momentum, M5 and M1 alligators showing downward direction (M5 turning down and M1 intwined/opening downward). eWave is crossing the zero line on both timeframes so the prefect place to catch the start of a wave. And the right time of day, Frankfurt Open.
2. (For the purposes of this example ignore that the dot is pink, if the previous candle was just 0.1 pip lower that would have been the red dot candle, we're looking at price action here). A setup 1 on M1, alligator wide open on M5, M5 eWave not showing any sign of divergence as there is a single peak. At the time of this entry I was expecting a W5 on M1, but by staying in the now we can see that the eWave on M5 did not show divergence after this drop. This gives us confidence to take another entry if it sets up correctly as the momentum of the higher timeframe eWave is increasing.
3. A setup 2 on M1, clear of higher timeframe AIMS levels (this was a triple AIMS break), alligator still open on M5 and eWave yet to show divergence.
4. No entry, could be considered a loose setup on M1 but look at the momentum of the M1 eWave, it's petered out, it's drifting down without any real force or impulsivity. By comparing the eWave of M5 we can see that the trade labelled '3' gave divergence within the eWave on M5, so higher timeframe now losing momentum, price has already moved some 75 pips, best to let it have a break now.

I hope that helps a bit. A bit of a ramble but the message is - rather than looking at how many bars ago the higher timeframe crossed the zero line, look at the peaks of the eWave and look for signs of whether the momentum is continuing or fading. Sometimes small waves will show a loss of momentum soon after crossing the zero line, and other times a nice big impulse wave will allow multiple lower timeframe entries.

We don't trade Elliott wave, we trade The Setup (thanks Immy ) but with some knowledge of how a W3/W5 sequence is reflected in the momentum and peaks of the eWave we get some good clues as to whether the current move is losing steam.

Dave

[immy]

Dave

(hug) (wd) ^:)^

Thanks for this great post. It is evidence of Sharing, caring and helping. The spirit of this community is still high. I am mighty pleased. thank I could not have done as good as this!

cheers

[Darren]

Great explanation Dave. :-bd

[colaims]

Thank you Dave for this great explanation!!!!

[fadaid]

Thank You Dave.