Lessons in Technical Indicators: Part 3
How to use technical indicators to complement your wave analysis
|By Nathaniel Williams |
Tue, 23 Mar 2010 11:30:00 ET
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| Want to Learn More? Read Part 1 and Part 2 of this series. |
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Chris's primary tool for spotting trend reversals is the Wave Principle. Through wave analysis, he saw an impulsive "wave five of five." In other words, prices appeared to be at both a short-term and long-term high. One of the Wave Principle's rules is that a correction -- or a trend reversal -- occurs after the completion of a five-wave impulse, so Chris's wave count suggested that the index's next move would be down.
As you can see from the chart above, Chris's wave analysis was correct. The index had reached the top of a five-wave impulse, and prices responded by initiating a steep downward correction. What's more, all three of Chris's indicators supported his forecast. Using the Wave Principle and technical indicators isn't like looking into a crystal ball, but you can see how helpful they can be to help you spot the end of a trend -- or the beginning of a new one.