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What Do You Do When Markets Dive THREE PERCENT?
Practice your technique with a pop quiz from Senior Analyst Wayne Gorman
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By Jill Noble
Wed, 09 Nov 2011 16:30:00 ET |
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If you're not totally confident in ability to use technical analysis and the Wave Principle, a sell-off like we've seen today can serve as a startling reminder to stay prepared.
You must keep your skills current and constantly be "on your toes" to stay ahead of sharp market turns, regardless of their direction. And that means understanding the rules before you get started.
This question is excerpted from one of Wayne Gorman's sections in the online course: How to Trade in a Fast-Moving Bear Market (a new session starts soon -- details available here>>):
How confident do you feel in your answer, if you have to make a quick choice? Practice makes perfect, and in volatile markets, you want to be as well-prepared as possible.
Here's Wayne's explanation of how to find the correct answer:
Now, choice A is of course wrong -- you do have enough information to make that determination.
Choice B… No -- you can see that wave (3) is already extended. It would be rare to have two extended waves. It's possible that wave (3) and (5) could be extended, but that we only see that at higher degree, and we do not see that often. So that's not what you would expect to happen. That's something that can happen.
Choice C… Well, yeeeeaaaah, it's possible -- but you wouldn't expect that. It's true that after a strong 3rd wave, you might see a truncated wave (5), but your first choice in this situation is to look for wave (5) to equal wave (1), or equal a Fibonacci ratio of .618 times wave (1).
So [option D], no, it's not likely in this situation -- you're not likely to have two extended waves.
The correct answer is E.
Did you answer correctly?
Get the extra practice with pattern recognition and counting waves that you NEED, with our seasoned trader-analysts Wayne Gorman and Jeff Kennedy. Their 8-session online course,
How to Trade in a Fast-Moving Bear Market is filled with interactive exercises, clear instructions, and live feedback.