Elliott Wave International senior analyst shows you how to identify quality trade setups
“I always will be an Elliottician, but other technical tools have merit and are indeed worthwhile: they allow me to build a case, build a more confident reason for making a forecast and for taking a trade; making a trading decision.”
I recently asked Elliott Wave International analyst Jeffrey Kennedy to name his 3 favorite technical tools (besides the Wave Principle). He told me that Japanese candlesticks, RSI, and MACD Indicators are currently his top methods to support trade setups.
In this 3-part series, we will share examples of how to use these 3 tools to “build a case” in the markets you trade. These practical lessons allow you to preview how Jeffrey applies techniques with proven reliability to support his analysis.
We begin this first lesson with a basic candlestick-style price chart.
This is excerpted from Jeffrey Kennedy’s teachings. If you are interested in learning how to become a more successful technical trader, get more lessons like this in Jeffrey Kennedy’s FREE report, 6 Lessons to Help You Spot Trading Opportunities in Any Market >>
You may be familiar with an Open-High-Low-Close (OHLC) chart: comprised of vertical lines with small horizontal lines on each side. The top of each vertical line is the high and the bottom is the low. The small horizontal lines on either side represent the open and close for that period.
Here’s an example of a Japanese Candlestick chart:
Japanese candlestick charts employ the same data that OHLC price charts do except that the data is expressed differently. The real body is the range between the open and close, and appears as a small block. Shadows are the lines that extend upward and downward from this block, and represent the highs and lows.
Next, take a look at the chart below.
Two bearish candlestick reversal patterns that Jeffrey finds highly reliable are the Evening Star and the Bearish Engulfing Patterns. This weekly continuation chart for the Canadian Dollar combines a 20-period moving average to show that the trend is down — allowing you to focus on bearish reversal candlestick patterns to spot trading opportunities.
Jeffrey notes that “combining these reversal patterns with moving averages makes them even more dynamic because they focus your attention in the direction of the larger trend.”
Japanese Candlesticks begin our spotlight on Kennedy’s top 3 ancillary tools for trading with the Wave Principle. Over the next two weeks, we’ll share parts two and three– how Kennedy uses RSI and MACD Indicators to support his Elliott wave interpretation.
Free Club EWI Report
If you are interested in learning how to become a more successful technical trader, get more lessons like this in Jeffrey Kennedy’s free report, 6 Lessons to Help You Spot Trading Opportunities in Any Market.
This free report includes 6 different lessons that you can apply to your charts immediately. Learn how to spot and act on trading opportunities in the markets you follow, starting now!
Relative Strength Index (RSI)
EWI’s senior analyst shows you a beautiful example of how supporting indicators help identify a trade setup in Halliburton (HAL).
“There are many different forms of technical analysis. A completed Elliott wave pattern supported by additional evidence allows for more confident forecasts and higher probability trades.“
Trader and technical analyst Jeffrey Kennedy has more than 25 years of experience using with the Elliott Wave Principle. To support his Elliott wave analysis, Jeffrey says that 3 of his favorite technical tools are Relative Strength Index (RSI), MACD, and Japanese candlesticks.
This 3-part series includes Jeffrey’s practical lessons and proven techniques to support his wave counts (read Part 1 here >>). Today’s video clip shows you how RSI range rules can help identify trading opportunities: Part 3 will cover MACD.
This lesson, excerpted from his Trader’s Classroom educational service, gives an overview of RSI followed by a video example. Be sure to look below the video for an opportunity to get more free lessons from Jeffrey Kennedy.
Buying pullbacks in uptrends and selling bounces in downtrends are great ways to trade trending markets.
Developed by J. Welles Wilder, Jr. and presented in his 1978 book, “New Concepts in Technical Trading Systems,” RSI measures the strength of a trading vehicle by monitoring changes in closing prices and is considered a leading or coincident indicator. Andrew Cardwell popularized RSI as a trading tool by introducing the concept of range rules.
The theory behind range rules is that countertrend price action in trending markets has specific momentum signatures. RSI, for example will find support within roughly the 50-40 region when pullbacks in uptrends occur. Conversely, when bounces develop in downtrends, RSI will meet resistance in the 50-60 area.
Taking the path of least resistance is a benefit of trading in the direction of the trend. Moreover, the use of RSI and application of Andrew Cardwell’s range rules help identify when a trader can rejoin the trend.
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