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3

Illustration 1-1

( C*K»" ri t»» W JBC.

The combination of small waves makes up a bigger wave (see Illustration 1-3) and a combination of all of the small anrj big waves makes a chart. To many readers, this is rudimentary; however, the awareness o( the complex nature of waves will deter mine the proper organization of waves, entry price, protective stop, and profit targets.

Illustration 1-3

This entire large wave is made up of 13 waves.

Each wave at a higher degree is a macrocosm that has a microcosm within it. Vi/hat is a single wave ai the monthly chart level is an entire chart at the daily level. In the same light, a single wave at the daily level is an entire chart at the fifteen-minute level. This progression continues down to one-minute level. The last six bars on the monthly Dow Jones Industrial Index chart (IlltJStration 1-4), which is only oneupwave, covers .an entire chart made up of many complex waves at the daily Dow Jones Industrial Index level (Illustration ]-5}. Illustration 1 h is an S&P 500 chart made uj) of three-minute bars. This entire chart represents the complex price fluclualion of only one daily bar.



I." xniz -

lltustration 1-4

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IJoti: Jones Industrial Indifx - INDU

Illustration 1-5

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3000.00 2950,00 2900.00

aeso-oo zsoo.oo

: 2700.00 : 2«S0.a0 2G00.00 ?.SSfl.0O 8500.00 2450.00

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As can be seen from the preceding examples, there would be too many waves to organize and to label if all price fluctuations were to be taken into account. Therefore, to organise the charts without having to count all price fluctuations, it pays to establish a minimum wave size that should be considered for possible wave count. To mathematically irJeriiify a wave size, we will use the ten-day average true range (ATR). is defined as the greater of the following calculations.

A. Todays high minus todays low.

B. Todays high minus yesterdays close.

C. Todays low minus yesterdays close.

On page nine is the tabular listing for the Gold chart which is in Illustration 1-7, Thetabtilar listing starts from the cursoron the Gold chart which is on January 18, 1991. We will use these figures to illustrate how to calculate ATR for the past ten days. Vhe absolute value is used in calculations because of the possible negative values.

At the closing of January 21,1991, this is the calculation you would perform;

High $383.9 minus low $381.0 = $2.9 High $383.9 minus yesterdays close $378.1 = $.S.8 1 ow $381.0 minus yesterdays close $378.1 $2.9

Since the largest Inje range (TR) is $5.8, this figure goes to tlie TR column. Then you add todays TR to the past nine days TR. By dividing this total figure by ton, you get a ten-day ATR.

0.

11-31,.

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Ui.......

. Illustration 1-7

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Daily April Gold Prices for 1991 Futures

DATE

OPEN

HIGH

CLOSE

Ten Day

Total

TcnD ATR

01/18/91

382.0

382.8

374.0

378.1

01/21/91

381.3

383.9

381.0

382.6

$5.80

01/22/91

385.0

385.5

383.0

383.3

2.90

01/23/91

381.0

383.5

381.0

382.0

2.50

01/24/91

379.3

379.5

374.5

376.6

7.50

01/25/91

377.0

380.5

377.0

379.2

0V28/91

377.8

381.7

377.5

380.2

4.20

01/29/91

381.0

381.7

378.6

379.5

3,10

01/30/91

370.0

371.7

367.8

.70

01/31/91

371.5

372.0

368,3

368.5

3.70

02/01/91

371.5

372.8

366.5

368.7

6. 0

$51,60

$5.16

02/04/91

369.5

372.0

369.5

371.6

3,30

49.10

4.91

02 )5/91

369.3

370.4

368.7

368.9

49.10

4.91

02/06/91

364.0

367.0

363.0

365.2

5.90

52.50

5.25

02 )7/91

366.5

372.4

366.2

370.0

7.20

52,20

5.22

02/08/91

371.0

373,7

370.6

372.4

3.70

52.00

5,20

02/11/91

370.9

, 371.3

368.5

369.1

02/12/91

366.0

372.2

363.1

370.3

02/13/91

370.0

370.8

368.8

369.5

02/14/91

369,5

371.8

369,2

370.2

02/15/91

366.0

368.5

365,6

366. i

02/18/91

Holiday

02/19/91

364,7

367.4

362.5

366.1

02/20/91

366.3

367.6

363.0

366.1

02/21/91

363.3

366.6

363.1

364.1

02/22/91

361.3

362.0

337.0

368.3

02/25/91

339.2

361.4

358.7

360.8

02/26/91

361.3

362.9

3597

360.2

02/27/91

362.0

364.0

361.1

363.3

02/28/91

365.8

370.3

364.3

369.0

03/01/91

368.8

369.9

367,3

368.6

03/04/91

367.2

370.0

366.7

369.5

03/05/91

365.7

367.8

365,5

366.3

03/06/91

365.7

372.0

365.2

367.5

03/07/91

67-

369.3

367.0

368.5

0,3/08/91

368.3

372.8

368.3

371.2



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