From Arthur - Snowrider, Thank you for your response. May be I did not pick a good example. Say, today is the bottom of the previous (down) wave (before the establishment of wave 1 and 2), then how is one going to ascertain whether this is a 3-wave correction or a 5-wave progressive wave? Or, do you trade wave 1, 2 at all? Or, you will trade through all the 5 waves (in one hit), riding through the wave 2/4 corrections, a swing trade, or do you get out of wave 1, then position for wave 2, and then wave 3 ...... 4, and then 5.
When we deal with something very complex, a good idea is to simplify the process. Keep it simple and stupid (KISS Principle). How to? We first look at the chart and make a guess (with some imagination) about what the wave structure the market is forming most likely. With a scenario in our mind, we then *peg* an existing wave by assuming that wave is something. For example, we make an assertion that the stock market is going to surge tomorrow because the market has finished wave-2 today. With that assertion, we will need to find out two things:
1. what a correct movement (in favor of us) is, and
2. what market movement will invalidate our assertion
For example, if the market does surge, then our preferred wave count is correct; if the market goes below yesterday's low, then the wave-2 has not finished yet.
About the second question, we need to understand what purpose each wave segment serves:
wave-1: recover after panic or climax
wave-2: accumulation
wave-3: moving the price
wave-4: distribution
wave-5: panic or climax (false break)So my answer to your second question is that I trade wave-3 only most of the time.
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