The daily chart of copper in Illustration 4-I2A indicates a potential trend reversal because! the rctrareinent wave number {VI) exceeds the smaller retracement wave number 4. However, lookingatthc weekly copper chart (we ll!\istration 4-12B), weseethat rctriiccmom wjivc number (V!) matches the previous big retracement waves (11) and (IV). At this juncture, is the trend up or down? Your decision will depend on your trading style and how aggressive you wish to be. Personally, the observation that I abide by is that the trend does not reverse easily; thus, it is best to wait for confirmation of trend reversal and to follow the trend reversal rule given earlier. Because the retracement wave VI did not exceed in magnittide the previous big retracement wave II and IV, the trend is still down. Currently, the copper market is developing downtrend wave IX. This market is ove/developed, and we can either expect a trend reve.rsal or a retracement bigger than wave VI,

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CHAPTER FIVE

Trading Using The Symmetry Wave Method

Trend lines, channel lines, Gann lines, moving averages, moving average crossovers, the stochastic indicator, the relative strength indicator, MACD, Fibonacci ratios and breakouts are all terms you are probably somewhatfamiliarwith, since theycomprise most of the more popular methods and indicators. Why is it that these tools never seem to woik consistently (even in combination)? Basically its because they do not have the intelligence to discriminate between trending and sideways markets, they dont make the necessary adjustments for differing wave magnitudes, and they cant isolate trend reversals accurately, An indicators function is to move up and down based on price action relative to the past few (or many) days. This up-and-down action goes on regardless of whether the market is in a sideways or trending mode, thereby generating random unintelligent trading signals. The end result is an excess number of losing trades and no real perspective on how a market is behaving.

The efficiency of trading, namely, accuracy and profit-to-ioss ratio, increases by knowiedge-ably entering a market after determining the trend, and waiting for the market to either finish its sideways price action or retracement. This is a markedly different approach from relying on one indicator (or a combination of them) under all conditions.

All entries into a market fall into two categories:

1. Later entry: F.ntering a market as it is moving in the direction one wants.

2. Early entry: Entering a market as it is retracing; in other words, anticipating a bottom or top.

In Conjunction with the Symmetry Wave Method, both categories of entry will be explored. Fowever, before we jump into analyzing entry methods, the subject of trading with the trend versus against it will be looked at one more lime.

This book is geared towards helpinga person trade with the trend; therefore youll find almost all of our examples are entries with the major trend. It is my obseivation that trend waves are larger than retracement waves. Alsoa trend wave is usually longer in duration than a retracement wave. Therefore, statistically, it is best to focus ones attention on a trade with the trend.

In the previouschapter we discussed the shortconriirigs of not knowing where a trend will end. We resolved this issue by waiting for the trend to reverse itself by closing below the previous

major support price. The second major unknown is that since markets do expand into bigger symmetncal waves and subdivide into smaller symmetrical waves, it is noi possible to know for sure the magnitude of the current retracement. However, the very premise of the Symmetry Wave Metriod resolves the que.stion about the magnitude oi a retracement wave. If you renumber, the entire idea is to wait for the current retracement to match, in magnitude, a previous retracement. As an example, if the previous retracement was 100 points, then we wait for a subsequent retracement that is approximately 100 points (see Illustration 5-). However, if there is an intervening retracement, lets say 60 points, then we would first expect a subsequent retracement that would match 60 points (see Illustration 5-2), followed by a 100-pdint retracement to match wave (2).

100 Polats

IDC Polats

illustration 5-1

60 Points

too Points

fiO Points

lOtJ Points

Illustration 5-2

Markets oflen behave with sut;h precision. When they do not, a losing trade may be generated. Research has shown tiiai if you trade with liie major trcnti and wait for a matching symmetry wave, the accuracy ofthe trades is greater than 50%. with ,i favo-abli? profii-io-loss ratio of more than two to one,

Going back to our examples, after the first 100-point retracement, ihere are at least three possibilities. First, you may choose to trade the intervening 6G-poini retracement second, you could opt to trade only the 100-point retracement. The third possibility is that the market may retrace more than 100 points or reverse its trend (see Illustration .5 3).

Illustration 5-3

However, experience (and commonsense) indicates that the simpler the trading program, the easier it is to trade, with the least number of mistakes creeping in. Even though the Symmetry Wave Method is a complete trading system in and of itself, other trading tools can be used with it.

Now lets turn to entry methods, starting with the early entry method since this will be the basis for late entry methods.

Early Method

Early entry requires the trader to anticipate a bottom and to put a buy order in before tii(» market reaches the target. Ifonc waits to sec whatthe market will do after reachingan anticipated target, then it is no longer eady entry, it is a late entry. Symmetry is established when a market reaches 80% of the magnitude of a previous wave. .However, entering the market at the 80% mark is too early. The 20% rule is an efficient way lo group similar-sized waves, but not efficient enough for early entry. With the eady method it is suggested that you wait for the current relracement to match at least 90% of the previous symmetric retr.icemem before entering the market. However, do not entei; earlier than 3/4 of a 10-day ATR- The idea is to enter a market before it reaches the symmetry price, but not to enter too early.