 Okay, Traders. Welcome to the next installment in our online education series with me, Patrick Munnily. If you can see the Tick-Mail welcome screen and you can hear me loud and clear, could you type a Y in the chat box? Just to let me know that we don't have any sound or audio issues. Good stuff. Okay, welcome everyone. As always, we're going to get things going here and by just familiarising ourselves once again with the disclaimer. As we know, on product change trading is a high risk endeavour but we're certainly looking to mitigate those risks by participating in these online education sessions, whereby we are learning and writing information to help us better define our trading strategy and trade plan and overall, better manage our risks when we are trading the markets. So just for those who don't know who I am, a quick introduction to the context in which I'm presenting here today. My name is Patrick Munnily. I've been trading now for 15 years. After I graduated, I went into the world of consulting. I eventually did a startup that experienced some pretty rapid growth and I exited that startup and post-emerger. Had a bunch of time in my hand and some capital to play with and started to explore my pattern for markets. I was trading in a market that was predominantly trending north and I had some lucky early breaks and sorry to make some significant capital but then as is often the story with the beginner's love syndrome, mine ran out and I experienced some significant losses which led to me really reconsidering how I was approaching the trading world or the markets indeed and I decided to make the move to becoming a professional trader. I sought out a mentor who demonstrated excellence in the field of trading and worked closely with my mentor to ultimately improve not just my technical game but more importantly my mental game. Through this process, I developed a trade plan underpinned by a rigorous risk management strategy, fallback test and forward test and I set about implementing that strategy in 2008. Since 2008, I have been consistently profitable on an annual basis. That's not to say that I don't have periods of drawdown or losses but on an annualized basis I've had positive returns and really that's really my scorecard in terms of my personal performance. I'm not concerned about the outcome of a small sample of trades. I'm looking at the next 50 or 100 trades. Will my edge demonstrate itself over that period and if so with the appropriate risk management skills then I can certainly expect to receive positive returns. Since 2013, I've also been managing external capital through a managed account service which I've been running since 2013 and on that gain on annualized basis that's been profitable. I've also mentored over 100 private traders, various experience levels from total newbies really to guys who've been trading on the CME floor in the pits in Chicago who were making the transition to the screens and I've really helped mentor traders for defining a trading strategy that fits their personality and their risk profile and working with them to have best to execute that strategy in a mentoring role. As well as being a resident expert at Tickmill, market experts, I'm also the head of trading and trader education for a proprietary trading firm called Little Fish FX and head of trading education for a firm called FXcareers.com who have a program that basically educates traders and then looks to fund emerging retail trading types. But like I said you can check in with me on LinkedIn, contact me through there if you have any questions about any aspects of anything. I'm just more than happy to give you further information offline but with respect to today we are heading into the second section or part two of this pattern recognition process. So we're going to jump off the slides and once again we're going to move into the charts today as we look to increase our knowledge about how to recognize practically practical trading patterns that occur on all timeframes and have a high frequency and also offer a high probability outcome. So just to to refresh ourselves from last week what we were looking at was the initial criteria for a corrective pattern and what we want to do was basically to be able to ascertain whether the pattern conditions were met that typically warn a correction is at or near completion. And then once we understand that the correction is at or near completion we are able to with high probability predict what is likely to follow from the completion of a correction. Now this information is useful to us and by useful what I mean is it can be profitable to us because if we're aware that the market is is making a correction we understand or we can glean information from that correction in terms of the position of the market with respect to the market phase that is likely to follow. So if we're in a corrected phase what we're likely to see then is trends continuation. So there are two important pieces of information that we want our patterns to tell us. Is a market in trend or correction and what is the position of the market within that trend or correction. So when we're tackling whether a market is in trend or correction what we first want to do is have a very simple piece of information that can be very helpful to our trade strategy once you identify the pattern. The key is to identify if the market is making a correction and why is that? Well if a market is making a correction it should not take out the extreme that began the prior trend but should eventually continue in the direction of the prior trend and make a new extreme in that direction. Okay so last week as we know we looked at these ABC patterns and we had some very specific rules that we can follow that help us to identify whether we're in the corrective phase. These being that the wave C should exceed the extreme of wave A. So let's draw in here these this pattern so we can just track refresh ourselves with with this pattern. So we have a low we have a corrective high which is the A point then we have a reaction low so we don't make a new low in price and then we take out the A point and then we're watching for a C point to suggest that the correction is over okay. Now one of the key pieces of information that we we learned last week in terms of how we can best define whether or not we're in a corrective phase is this idea of the market overlapping. Okay so once we have made once we've identified our ABC pattern once price trades back into the A wave region we can with relatively high level of certainty predict that the current corrected phase has come to a conclusion and we are likely to resume with the dominant trends. So we identify the trend prior to the correction which in this instance is to the downside we know that the waves within this trend move don't overlap but we know that there is overlapping action in the correction and that suggests that the trend will continue. Now note again that these what we're looking at here and these these patterns are are about real-world practical application. There is no technical analysis technique or pattern or signal or trade strategy that works on every occasion because a market may run against an ideal set an ideal pattern that usually results in a corrective high or low maybe followed by a strong trend of continuation. So we want to remember that in the business of trading our role as traders is to identify conditions with a high probability outcome and an acceptable account risk. We will not be right all the time okay but we should be right more often than we are wrong and then when we have the correct risk reward profile in place that will lead to positive returns over time okay. So we want to bear in mind these are our rules for a corrected pattern. So if the market trades back into the range of wave A the minimum condition for a correction is complete i.e. we are likely to resume trends. The final rule a trade as we trade beyond the wave B extreme the pattern signal for the correction should be complete i.e. once we take out the B the B swing low more often than not that means we will make a low below the low of the prior trends. So everyone following along so far if you could type a Y in the chat box if this is all making sense. So we have our three basic rules here that we're going to apply when we're looking at corrections and what we're going to move on to today is we are going to identify what happens when an a simpler an ideal correction fails and then we're going to move into how we identify trend conditions okay. So let's review what happens when we don't get a a simple correction i.e. the ABC we actually get something called a complex correction. So a complex correction is a correction that occurs in more than three waves okay. Now Elliot Wade academics or theorists have gone to the trouble of identifying 30 potential complex corrections okay. We are not going to be examining the patterns of complex corrections today or it simply is not an exercise that is really worth your time because what we want is information that we can quickly apply to give us to make relatively straightforward trading decisions. All we want to do is recognize that a correction is probably probably made. If we can do that we know to orientate our trading approach to trade against the direction of the correction for a probable continuation of the trend to either a new higher or new low once the correction is complete. Now a complex correction typically has several sections that overlap and that's the key again we're focused on this nature of overlapping sections. Once we identify that the market should be making a corrected pattern then we know with relative certainty that the eventual trend to a new high or new low will take place and we can enter our trades accordingly. Now obviously it's relatively easy to show these after-the-fact examples but just remember what you need to pay attention to here. The key concept is that if the section's overlap more likely a correction is being made. So that information itself is very valuable and will help you to identify the probable position of the market for the next major trend move. The overlap will be an important signal to trade direction. As soon as a market makes the overlap it is a strong pattern signal that a correction is being made. The market may continue in a complex correction making as I've said several overlaps. Throughout the strategy what we want to do is identify the end of the correction in order to position for a trade in the direction of the trend. We don't need to look at hundreds of examples of ABC in complex corrections since there is just one guiding principle to being able to identify if the market is making a correction and that is simply that once the section overlaps it's an alert signal that the market should be making a correction while the market may continue to trade higher or lower depending on the direction of the correction. The overlapping sections continue to signal that the market is still in corrective mode and that it should make a new extreme and that it will eventually continue in the direction of the trend. So we learned last week that the corrections are usually in three sections. Now we're going to look at a complex correction which basically sees this pattern duplicate. So if we look here we previously used our ABC as our corrective guideline. Now more often than not and again what we are thinking here is simply in terms of probabilities we can't deal in certainties because the market is in uncertain environment. But more often than not when we have a complex correction the complex correction will occur in a double ABC. So for the purposes of ease in terms of marking this and because it's a tool that TradingView give we will turn the correction ABCD and E. Now another important piece of information we can use here to help identify when the correction is likely complete is the Fibonacci Retrosive Tool. Now what the levels we're interested in in terms of the Fibonacci Retrosive Tool are the 38.2 percent, the 50 percent and the 78.6 percent. Let me explain to you how we use these these levels to help us identify when that high probability correction is coming to an end. What we know is that if our ABC correction okay so this is our A this is our B and this is the C swing low if that only trades to the 38.2 percent retracement of the prior trend then that is a high probability scenario that we're actually going to make a complex correction i.e. we're likely to see another C where i.e. we're likely to see a D and an E leg. They the D and E leg should at a minimum test the 50 percent retracement level. Okay if if the correction exceeds the 78.6 percent retracement then more likely than not the trend has failed. Okay so let me just let me just go back over those rules so we're clear on them in terms of how we can differ how we can help to identify when we are likely to see a complex correction. The complex correction is a double ABC or for these of reference ABCD pattern that I've highlighted on the chart here. Let me get rid of this for a second so just focus that's the actual trend. I'm going to look at the the properties of the trend so we can identify that in a minute but just for the purposes of understanding a complex correction let's overlay off the tool. What we have here is an ABC low that trades just to the 38.2 percent retracement. Once we get a reaction from that 38.2 percent retracement to a swing high which we're terming D here once we break that C low we then know that we're likely in a complex correction and as a minimum we're looking for price to test the 50 percent retracement. Okay so once we get that 50 percent retracement we then are alerted to the high probability scenario the trend that the correction is now complete. Certainly once we take out the D point we're getting further information we're trading back into the B leg and once we take out that B point high the pattern is pretty much confirmed. Does that make sense to everyone? Can you type a Y in the chat box if you're following along? Well I just quickly take a sip of water. Okay so now we understand the complex correction is. What we're now going to do is we're going to move into identifying the key properties of a trend pattern. We've got two pieces of information so far that we can use to identify what phase the market is in. We've got a simple correction which is an ABC pattern which we can see down here ABC and then we have a complex correction which is an ABCDE pattern that should test the 50 percent retracement area but should not exceed the 78.6 percent retracement. Okay now let's look at the criteria for trend. So here we have three simple rules that are going to help us identify where when we are in a trend section. Trends usually make up five sections and the sections do not overlap. Now in Elliot wave terms a trend is called an impulse wave. We're going to stick with that trend because all that we are concerned with in using this pattern guideline is to identify two basic market conditions. Are we trending or are we in correction? We've used letters to label the sections of a correction. We have waves A, B, C, D, E, etc. Now we're going to use numbers to identify the sections of a trend such as wave one, wave two, wave three, wave four, and wave five. And like I said trend usually makes up five sections. There are three rules we want to adhere to as we did with our corrected patterns. Firstly wave two cannot trade beyond the beginning of wave one. Okay so wave two which we've identified here cannot exceed the beginning of the first wave. So this is the first wave. This is the move off the lows. Wave two cannot exceed that move. Okay wave three which is this pattern here, this leg up to the three point cannot be the shortest in price of waves one, three, and five. Okay so this is wave one, this is wave five, and this is wave three. So we cannot be the shortest, wave three cannot be the shortest out of those one, three, and five sections. Now important here this is a difference from, this is a slight difference for any of you who have prior experience with Elliot wave. Wave four cannot make a close into the closing range of wave one. So in this instance wave four to close within the range of wave one would have to close down here. Okay so that would negate the potential of whatever corrected pattern we're seeing here being a wave four. Now the other rule we have is that we don't want our corrected patterns to exceed a seventy eight point six percent of tracements. Okay so that also helps us but just in terms of the simple idea we don't want to wave four with it closing not saying it can test or probe into the area but on a closing basis whatever time frame we're trading we don't want wave four to close within the range of wave one. Okay because what you'll often see and this is what confuses those people who are simply taking Elliot wave to the letter is that over the years you'll see that the market may make a few ticks into the wave one range and then continue with the trends and complete and otherwise ideal five wave trend so many times that we work with the modification of that rule as it will serve you well over your trading career. So before we learn about the most typical trend pattern let's make something very clear. Not every trend makes a five wave pattern that conforms to the trend guidelines. Okay so just like with our corrections we not every trend pattern is going to meet the trend guidelines. Okay the momentum price and time position will also help us identify the next swing and potential for the trend pattern. So we've got to keep the you know we really want to avoid getting caught up in the idea of labeling waves or sections we want to have a simple logical approach we don't want to fall into the Elliot wave paralysis by analysis trap. We are only interested in two types of patterns that are useful to help us understand the position of the market and then allow us to make practical trading decisions. We don't want to become an Elliot wave expert as such. All we want to be able to do is use simple logic on what trends and corrections usually look like and what guidelines to use to recognize the probable position of the market within a trend or a correction as well as a probable outcome an emphasis on this word probable. Okay we want to think in a logical step by step fashion as new data is added. We don't want to have any complex counting systems we don't want detailed subdivisions of subdivisions and waves and different degrees. We just want to know a couple of simple patterns that are reliable and how best to recognize them as the market unfolds. Okay so when we're looking at trends as we we can see one other chart here price makes a high out of the swing low okay where we make when the momentum tool so this is how this is a great piece of objective information you can use if you're concerned about whether or not you think that the current pullback is a correction when we make a momentum low here versus this move off the lows as we make the new momentum low we do not make a new low in price. Okay now if for example we made the momentum low and this was the price action let me just draw this in for you this will be helpful just to clarify the point so if we if the price action looked like this so if when we made this new new low momentum or this secondary low momentum versus this low price had broken to new lows then the idea that we're in a correction would be false or invalid but what we can do is we can like I say we can use our momentum tool to help us clarify objectively as to whether or not we've seen a correction. Now what we know is that at the minimum we're looking for an A B C pattern so we get that on this secondary low okay so once we trade back into the range of of the A wave then we've got that overlapping scenario okay so this is key we want to focus on whether or not we are overlapping in price and as you can see quite clearly here we are and so we have an A B C pattern let's bring in our fib tool now from the low to the high it falls within the ideal level for the correction to complete which is in the 50 to 78.6 percent retracement area and then price trades back into the A range and ultimately up through B and so we have a confirmation so now we have a wave we can mark this now as a potential wave one okay so we have this level marked as our wave one and now we have a second a wave two we have the wave two structure learn okay with the correction once we take out this high here then we have further confirmation that we are likely seeing a third wave move to the upside okay and all we we need to do then is track this pattern as we trade into the into this this area we know now that this as we traded back into this area that this can't be the third wave because it's it's shorter than our wave one so we don't need to mark that as a we don't need to mark it yet until we take out the high here now we've got a potential wave three because the wave three is longer than wave one so we can start to track the pullbacks now again we pull back here but we don't test the 50 percent retracement once we make the new low momentum we continue to make new highs so each time we can overlay our third wave identification to see are we getting a pullback and again we don't get that pullbacks of a 50 percent so this third wave is still developing okay we're getting our pullbacks in our momentum but we're not even testing the 50 percent retracement okay so this is alerting us to the idea that we are not that the pattern has not completed and we continue to track the swing highs we don't get the pullback we don't get a pullback here we get an overlapping structure again so we have an a a b in a c confirmed with our momentum so now we have a potential wave three completion and then we're looking ultimately for a wave five now once we've got a wave five in place then we know we have the potential for another corrective phase to develop versus the trends and here we have an a b c pattern again we get objective confirmation through the use of our momentum to all the stochastic rsi and from the beginning of this section to here we bring in our fibro tracements we can see we trade into a 50 percent retracement and then we ultimately make new highs does that make sense to everyone can we type a y in the chat box if you're following how we can logically track the development of the trends so these these fifth waves are the key because the most valuable piece of information regarding trends is that once waves one through four are confirmed the trend should be in its final stages the trade to a new high in this bullish trend confirms the wave four should be complete and the upside should be limited before a wave five high is complete which should complete the bullish trend if a market is making new highs the natural inclination for traders is to be very bullish this is a good inclination in the early stages of a trend it can be very costly inclination in the latter stages of the trend but if we are aware of all the guidelines to complete waves one through four have been met the swing to a new high could be that wave five and probably the last swing in that section okay in that trend move this information will be a huge advantage and can help us to prepare for a major top or at least a reversal just as more traders are actually getting bullish if we just focus on this one pattern tendency of trends to usually make at least five sections with no overlaps that information alone will be of enormous benefit if four sections are already complete as if a market is in a probable wave five the next momentum reversal could be the early signal that wave five is complete and we can adjust our trade management strategies according okay so now what we're going to do is we're going to move into another chart here I think I've got a chart this is a this is an Australian dollar chart this is just last year's price action sorry 2018 through 2019 what I wanted to do now is just walk you through how we can track a trend development and how we can use our tools and the information that we've gleaned from from today's session to help trade that trend pattern so once we break down from the high using our momentum tool we get our first corrective low now we have two ways of identifying whether we're making a correction first is do we trade into a 50% of tradesmen and through that process are there any overlapping waves well we can see here if we mark up our swing points we have our low we have our high we then pull back which is the overlap into the c-point so from a simple trading perspective here once we identify that we have an overlapping structure into our c-point we could as a trading strategy employ an entry point at the 50% retracement and a stop just above the 78.6% retracement okay so this is I'm just showing you how you can apply some simple rules to develop a relatively straightforward trading strategy using the information we've learned in these past two sessions so we know that if we trade through the 78.6% retracement then likely that the trend has failed and we're going to move through the prior extreme high but if we hold this 78.6% retracement entering at a 50% retracement once we've been able to identify a three wave move into the 50% retracement we know that if we get that three wave move the more likely than not from a probabilistic perspective we've either completed a simple correction or we are in a potential complex correction but we still should not exceed that 78.6% retracement now we enter at the at the uh so in this instance here we pull back we trade into the 79 49 level we have a stop at 80 59 and our first target is a retest of the prior swing loads okay now we can use that as our exit point because that's giving us about a 1.5 times risk reward or we can look for a new swing loads we made and target the 1.272 extension okay so this is the 1.272 of the range which is ultimately when we get down to this level is actually giving us nearly a three times risk reward on the trade okay so once we've made our corrective high here we watch for a new low we get a new low in the RSI sorry the RSI stochastic which is our momentum tool and then what we're looking for is how the price action unfolds it can we see waves overlapping waves or are we potentially in a new trend well here from our prior swing high in the last correction we put our bit all over and then can we identify an overlapping move well we can hear and then we get our C point there okay so again we enter at the 50% retracement and our stop is at the 78.6% retracement we're looking for a move down once we trade to the prior swing lows we can move our stops to our entry point and cover our risk on the trade may need to risk free and then we're looking ultimately for a test of the of the 1.272 extension so new lows confirming that the trend remains intact so we get that new low get a pullback we don't exceed our prior swing highs now is this pullback corrective in nature well we can clearly see an overlap and once again we apply the same process we overlay our Fibonacci retracement we enter at the 50% retracement once you've identified this AB structures that overlap suggesting that we're liking it in a correction and then we trade up into C point high that doesn't exceed the 78.6% retracement everyone following along so far yeah then we get a new low as per the RSI so this is giving us an objective signal that a new low has been made we don't have to be you know scrutinizing the charts which is watching for this new low once we get a new low we overlay our Fibonacci retracement tool versus the new low and then we're watching for how price reacts against that low so we get a reaction high that's at the 38.2% retracement now what do we know about 38.2% retracement well more often than not but price is not going to stall out there but we can use that that resistance area to give us information about whether or not we're going to see a complex correction because if we stall out at the 38.2% retracement and we don't make a new low and we take out that 38.2% retracement high then again we've got confirmation that we're likely in a complex correction so we use our tool now we're looking for an ABCD pattern so here we have our A, our B, our C, our D and our A so we can with relative safety enter at the 50% retracement using the 78.6% retracement as a start because we know that statistically we should not take out that 78.6% retracement if we are in trend okay and we've got that confirmation through the overlapping nature of the price action that we're in a correction we're continuing to make higher at lower lows and lower highs okay even here although it's complex we don't take out that 78.6% retracement we move down we test the price swing lower support consolidate but then ultimately break down through the consolidation to our target so and then we're left to watch the price action again so here we make a swing low swing high into a swing low as per the Fibonacci sorry as per the RSI stochastic in terms of once we've traded through the through the 20 20% level to the downside we have a swing low and then we're waiting to see do we get overlapping price action well we do here you get a swing high and a pullback and we go a C point here but in reality we probably don't get filled on that trade so again we're not going to catch all these moves and obviously this this section of price action is but it's particularly fertile and I've used this so you can see you start to train your eye to see the patterns but it's not always going to work perfectly as we know but in this instance we probably don't get an entry but the trade does work out as per the rules so what we're watching for now is the next swing low using the RSI stochastic to help us identify that level and we get a breakdown into the next swing low here once we're trading up into the 50% here we have no overlapping price action so there isn't an opportunity for us to get into that trade because it doesn't meet the criteria but we're continuing to make lower lows and lower highs so we know that the market is still in the downtrend and we continue to track the price action so now we have this swing high and we have this swing low and there we've got our confirmation with the stochastic RSI and what do we have an A B C okay now in this instance we come pretty close just below our stop so we get another trade here we trade down into the area where we move our stops to break even but ultimately we don't get filled on our target and we get taken out for a risk for a break even trade and then ultimately on this swing here we don't get our overlapping price action what we get is a sharp move up through the 78.6% of the trades and so we don't get a trade signal there so in this section of price action where we saw trend developing we're able to trade with that trend just using some of these simple pieces of information that we've covered in the past sessions because that makes sense to everyone you type a Y in the chat box if you're following along that concludes the the second section here of the the pattern recognition I hope you found this useful I'm free now for the next few minutes to answer any questions you've got with respect to anything we've discussed in the past two sessions Aruna I've never used fibs before can you clarify where to position after making the ABC yeah so it's quite simple Aruna the once you've got the ABC that's your swing point from which you're going to measure into the next load so once we have this see this ABC we measure down to the low as per the low made once we take out these lows we have a new swing low using the RSI stochastic this can help just give you an objective way of seeing that so then we're measuring from that C high to the to the this point low and then we're watching for overlapping price action as we trade into the 50% retracement so that gives us our entry level we have a stop a logical stop because we know that corrections should not exceed the 78.6% retracement and then we're watching the price action for an ABC pattern again now we break down so what we do once we take out this low we're using our C point swing high as the last swing high you also get that confirmation with our RSI stochastic and then we have the RSI stochastic back down below 20% level and so that gives us our next swing low point to measure does that make sense the other webinar is is recorded and the other webinars are also recorded I'll you can access them through the Tick Mill YouTube site the RSI stochastic Felix the settings are 3 3 14 14 on the close okay if there aren't any other questions I'll I'll wrap this session up here next week we're going to look at how we can use our Fibonacci tool without beyond just the retracements so today we've obviously focused quite a bit on Fibonacci retracement next week we're going to look at how we can use the tool for extension or targets to help identify targets in our trades and potential areas of reversal yeah there's a YouTube channel if you bear with me one second I will I'll post it in the chat give me one second here here we go give me one second guys I'm just trying to pull the link up for you now see maybe you can access yet you can access all the recordings I'm just going to give you the link for the for the look for last week so I also you can follow along I produce a weekly market outlook which you might find useful as well I'll post a couple of links here so you can start to follow along you can also register for updates via my author section let me that's probably easiest you can you can receive email alerts let's just see if this can work can you see in the chat there I've just posted it's blog.tickmail.com forward slash author forward slash patrick you can receive email alerts now for all of my content that I share on tickmail and I'll also make sure that the guys also send you the links for prior recordings once you've registered and you subscribe to my posts okay session's been useful like I say next week we're going to look beyond Fibonacci retracement so we're going to start to to look at extensions thanks very much for your time and enjoy the rest of your week