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Alternate Wave Counts

Overview

Elliott Wave analysts understand that there is almost always more than one valid way to count a section of a chart. Given this, an important goal in supporting a trade thesis or driving toward a trade decision is assessing a given count to determine how well it complies with Elliott Wave rules and guidelines, relative to other possible count interpretations.  The Auto Counts gadget makes it extremely easy to do this.

The Auto Counts gadget shows the highest probability wave counts for the most recent automatic wave count calculation. It shows a primary count, along with up to 3 alternate wave count interpretations.

Alternate wave counts can provide supporting evidence for a primary count or trade thesis, and can also help establish probability-based risk parameters for a potential trade setup.

 

 

You can click on any of the counts that are listed in the gadget to display them on a chart. This is a convenient way to compare counts side by side, for example, using the multi-chart layout feature as shown below.

 

 

Remember: Each time you perform an automatic wave count analysis, the Auto Counts gadget will display the highest probability wave counts for that chart, which will overwrite any alternate counts that were previously listed. So, if you’d like to save or perform additional analysis on a particular alternate wave count, click on it to display it in a different chart before performing a new automatic wave count analysis.

 

Interpreting the listing

Each alternate wave count listed in the gadget includes some key information to help you quickly evaluate the collection of counts individually, and as a whole.

From left to right, the display indicates:

  • The wave count label, either “P” for “Primary Count”, or a number indicating which alternate count it is
  • The overall context (or bias) of the count, as reflected by the highest degree wave pattern that has not yet completed. The label is colored green for a bullish bias, and red for bearish patterns, and “Bullish” or “Bearish” will be displayed near the center of the listing.
  • The largest degree sub-wave that is currently underway according to the given wave count. In the example above, we see that a Bullish wave (3) is currently underway at the highest degree.
  • The similarity index of the wave count, expressed as a percentage. This uses our proprietary algorithm for determining how similar one count is to another count, and is an indication for how similar a given count is to the Primary Count. So, the Primary count at the top of the listing will always have a similarity index of 100%.

The similarity index can be used as a way to assess how much “agreement” there is among the highest probability counts. For example, if all or most of the alternate wave counts are very similar to the Primary Count (ie, they have a high Similarity Index), and indicate the same or similar Bullish/Bearish bias, this might be interpreted as evidence that the Primary Count indeed best captures the overall context and bias of a market over the time period that you have analyzed.

When alternate wave counts have low similarity to the Primary Count, this is usually an indication that closer inspection of the alternate wave counts might be in order. A low Similarity Index is not on its own an indication that the alternate count “disagrees” with the primary count, so the displayed Bullish/Bearish bias must also be considered.

It’s often the case that wave counts with low a Similarity index (and potentially differing bias indications) actually imply the same expected forecast, depending on the trading horizon you’re interested in. Differing wave counts that imply the same trade setup can be interpreted as confirming evidence for a trade thesis, so it’s always a good idea to visually inspect and compare the given counts by displaying them on a chart.

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