Energy Flow

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ForJL
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Energy Flow

Post by ForJL » Wed Jul 22, 2015 5:09 pm

I thought I would get the ball rolling here with a post on EF. I actually did this last night but held it back for the new forum which I am sure is going to be a huge success and major benefit to all Wave 59 users.




The Energy Flow forecast wrapped up today and thought I would do a review while I have some free time on my hands. I thought this time around I would label the energy waves and cover each one individually so you can better understand my thought process.
a) Energy Wave1 & 2 occurred before the posted date and will be ignored here for that reason.
b) Energy Wave3 & 4 were already covered on the post I did on the 25th. To summarize though Energy Wave3 was practically spot on using the 2nd harmonic. While Energy Wave4 hits it perfectly using the base harmonic. Note that the harmonic that was used is shaded in yellow. These waves held strong predictive value and require no further explanation.
c) Energy Wave5 is where we must put some effort into our analysis. The normal forecast had called for a rally and indeed on the 1st day of EW5 the market did move up so the trader could have been fooled into thinking the market would indeed follow an upward trajectory. Price action as I recall was pretty poor that day and betrayed weakness in the market. There were other signs of weakness but want to stick to Energy Flow alone. I always say that inversions are fairly easy to deal with so let me give you one of the simplest ways to deal with them … a horizontal line. What I will do is draw a horizontal line from the low/high of the just finished Energy Wave and watch for penetration. You must give it some breathing room because none of this is an exact science. While I won’t go into the method that I use to determine this value a simple method that you could use is a percentage of the Energy Waves length. As it turned out the market opened way down the following Monday the 29th well within the inversion window, so the inversion call was essentially a no brainer. From that point on we treat the prediction as we would normally. If you like you can draw both targets, base harmonic and 2nd harmonic, but I only use the one as I have outlined in this thread many times. Energy Flow was designed with the intention of predicting the markets close at the end of the Energy Wave. While the Close on 07/02 was off the predicted value the overall direction was solid and the predictive value of #4 was helpful. There was also an x_energy CIT signal on the 26th which was helpful and harmful at the same time. Harmful in that we would have expected the market to change trends and follow the normal prediction. Helpful in that x_energy is a strong clue as to the strength of the prevailing trend. There are other uses for x_energy but are not germane to this conversation.
d) Energy Waves6 & 7 is where I have a real problem. The sharp dips and rallies no doubt were problems for a lot of traders but there is no excuses in these reviews. So let’s look at this more closely. If you look at where EW6 ends on 07/06 and where the low occurred you might say where is the problem? However as I already stated, EF is designed to predict the close and in this case the close was nowhere near the predicted value. So did #6 invert? Energy Wave7 ends up in the middle of the close on Friday. Oddly enough had we used an inversion for #6 the #7 would have ended up at practically the same spot. This can be seen in the dotted lines. In my own work I chose to use what you see here. While technically this is not following the rules that govern Energy Flow I felt it gave the best depiction of what happened in the market. As far as predictive value it’s really a mixed bag. I got a solid price target on the 6th but it turned out to be a low. EW#7 however didn’t help much at all. What was very useful however was the Energy Cluster that formed between the 7th and the 9th … note the box during this period. It alerted me to the fact that we would soon have a breakout of this wild trading range. While we didn’t get the actual breakout until the following Monday the 13th, the close near the upper portion of the cluster on the 10th was a strong clue as to which way the market would break and that EW8 would invert.
e) Energy Wave8 seemed to be in question as the market opened on Monday way down. However once price crossed the Energy Cluster high the inversion was confirmed and it was off to the races. This is just what you want to see when you get a breakout from an Energy Cluster. If you don’t view that breakout with a great deal of skepticism. The inverted 2nd harmonic forecast missed the close by @30 pts after collaring about 360 pts. It was a little tricky but the predictive value here was good.
f) Energy Wave9 uses the base harmonic and gives a solid sense of direction. It was clear at this point that the market rally was running out of gas. The CIT on the 14th was 2 days off so have to call it a mistake. I can give a day on these things but not two when dealing with so small (time wise) an energy signature. It was clear from subsequent action (hindsight) that it was attempting to call the top on the 16th but simply missed. Predictive value here was fair to good. I used it in my analysis and it was helpful though only to a point.
g) Energy Wave10 was gorgeous. Once we moved past the 118 point second harmonic target we simply multiple by 2 and miss the close by about 20 pts. The predictive value here I feel was strong.



So there you have it. My personal belief was that this was a very good EF prediction. I realize of course that most traders out there would prefer one continuous predictive line without inversions or harmonic adjustments and the truth is so would I. However as I have said before there is just so much you can predict using raw energy data. This works for me and helps me quite a bit in my trading. While far from perfect I feel it can give the trader an edge which hopefully some of you were able to take advantage of also.


Best,
Joe
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