5.6 Superimposed Equilibrium Fractal Wave Channel
In previous chapter, we have introduced the EFW Channel. Probably it was not too hard in term of how to construct channels. Now the same idea can be extended using the superimposed patterns. Construction of Superimposed Channel can be done in two steps as before. Firstly, we will draw the base line by connecting point 1 and point 3. Secondly, by projecting the base line in parallel to point 2, we can create the channel over the superimposed pattern. It is typically good idea to aim to draw the channel on the 3 points of larger Equilibrium Fractal Wave. The channel on superimposed pattern has stronger prediction power comparing to the channel created from single EFW. If you are not convinced with this idea, then imagine simple two waves interfering. Two waves can interact together either constructive or destructive. To have the constructive interference, two waves must have the peak or trough overlapping in the same position. When the final points of two equilibrium fractal waves end up in the same position, two equilibrium fractal waves will have the constructive relationship. For example, traders recognized EFW 1 as the trading opportunity will join the force together with traders recognized EFW 2 as the trading opportunity. Hence, the superimposed patterns with two or three EFWs will bring much stronger reaction to the market. In general, more EFWs are superimposed together, its prediction power will grow too. Therefore, superimposed patterns are naturally the best location to place your channel.
Figure 5-30: Superimposed Channel example.
Figure 5-31: Demonstration of two simple wave interference.
Superimposed channel can be used on its own using buy and sell trigger margin rule specified in the previous chapter. Buy and sell trigger level can be identified exactly same as in the single EFW channel. Another excellent usage of superimposed channel is that we can expand the channel into grid lines to get the medium to long-term market prediction. When a superimposed channel is expanded across charts, it provides the predictable grid lines. Traders love the grid lines because they can easily read trend and reversal area. Often you will find that well positioned superimposed channel will provide amazingly accurate prediction for the market movement. Now one might question how to construct the expansion from the superimposed channel. Once again, this is not a rocket science. The expansion construction is simple. Firstly, I much prefer to use the half (50%) of channel width to construct the expansions. One might be able to use 100% of channel width or other width if you wish. In this book, we will assume that we will construct the expansion with 50% of channel width.
As shown in Figure 5-32, expansion lines can be constructed by expanding the channel by the half of channel width in parallel. We can continue this process until we see enough parallel lines filled in your chart for the market prediction. Since superimposed channel provide the fixed location in your chart, there is the reduced subjectivity in constructing the expansion. This is one of the attraction of using superimposed channel over other competing method.
In addition, when we place two crossing channels with expansion in one chart, we can construct more detailed grid lines comparing to the case of single superimposed channel. When you want to use two superimposed channels to construct the grid lines, first channel must have up slope whereas the second channel must have down slope. If you have two up slop or two down slope channels, then you will never able to construct grid lines. Remember that well-constructed grid lines can provide you the rich information about market direction and reversal points. Typically, it is not good idea to use more than two superimposed channels because they will look messy in your chart. You should stick with either one superimposed channel or two superimposed channels to construct the grid lines. If you are hard to understand how these grid lines work for your trading, then just treat them as a diagonal support and resistance lines. These grid lines can be used together with many other trading strategies including Harmonic pattern, Elliott Wave and other technical indicators. For example, the grid lines can indicate trend strength after the formation of Harmonic pattern. This can help you to avoid failed Harmonic pattern or to identify when to disregard the detected Harmonic pattern from your trading. Beside these superimposed channel and Harmonic pattern interaction, superimposed pattern can be used together with Harmonic pattern. For example, when superimposed pattern is coincided with point D of Harmonic pattern, this is much stronger sign of the turning point. Harmonic pattern is only one example in this article. Superimposed pattern and channel can work with many other trading strategies for your practical trading.
Figure 5-32: Demonstration of grid lines constructed from one superimposed Channel.
Figure 5-33: Demonstration of grid lines constructed from two superimposed channels.
Figure 5-34: Harmonic pattern and grid lines constructed from superimposed channel.
Figure 5-35: Example of Harmonic pattern and superimposed pattern interaction.
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