Elliott - Trader Paraphrase of Ira Epstein's Rules For Trading

Elliott_Trader <http://studyofcycles.blogspot.
com/>
A Focus on Counting the Elliott Wave
Sunday, November 1, 2015
Paraphrase of Ira Epstein's Rules for Trading
Ira Epstein is a broker who works for the Lind Group, and has published
numerous videos on YouTube. From that information, a summary of his
Rules for Trading that he provides to the public is distilled below.
_Charting Requirement_
These rules apply to the daily futures chart only. To follow his system,
the following is needed.
1. Daily OHLC bar chart

2. Daily Bollinger Bands with 18-day Moving Average (20-day is acceptable)
3. Daily Slow Stochastic Indicator, plotted as 14,3,3
4. Daily 100-day Simple Moving Average (SMA)
5. Swing line study (if available); i.e. higher highs, higher lows;
lower highs, lower lows*
A current example chart that meets these requirements appears below.
<http://2.bp.blogspot.com/-FxVV6E2Q6aE/VjZDNYD6VuI/AAAAAAAAAOI/bpHcyvFkE30/s1600/
ESZ15%2B-%2BPrimary%2BAnalysis%2B-%2BNov-01%2B1030%2BAM%2B%25281%2Bday%2529.png>
_Bollinger Band Theory _

Bollinger Bands are defined as a daily algorithm designed to keep the
market trading within them 95% of the time. The Bollinger bands were
developed by John Bollinger, and are 'volatility bands' constructed
around the 18 day (or 20 day) moving average where the upper band and
lower band are set at "two standard deviations from the moving average".
The "two standard deviations" are what theoretically provide the 95%
confidence level that the market will trade within the bands.
__
One does not want 100% confidence of trading within the bands because
one is looking for signs of strength when price exceeds a band, and one
is looking for signs of weakness when price can not quite hit a band as
a price target.
These bands expand and contract with the volatility in the market. When
they contract (get narrower) they often indicate a current period of
'consolidation' in the market. When they expand, they often indicate a
time period when the market is trending. When the bands get narrow
(consolidate), it often precedes a time when the market will trend.
Sometimes prices will be expected to close outside of the bands. Because

of the small probability (5%) of trading outside of the bands, the
number of /*consecutive closes */outside of the band will typically be
small 1 - 3 is common, whereas 4 - 7 closes outside of the bands is a
very, very low probability event. The greater the number of consecutive
closes, the lower the probability.
__
_Slow Stochastic Theory_
The slow stochastic (with parameters 14,3,3) is a price oscillator
developed by George Lane, a large Chicago-based grain futures trader.
The slow stochastic is a 'bounded' indicator, and can only travel
between 0 & 100%. On the daily chart, values below 30% are defined as
"over-sold", and values above 70% are defined as "over-bought".
Over-bought and over-sold on this indicator are potential reversal

points in the market. However, an exception to over-bought and over-sold
conditions is when the slow stochastic has 'embedded'. The slow
stochastic is said to be embedded whenever one of these two conditions
is met: both the %K and %D line of the slow stochastic is either over
80%, or under 20% for three consecutive days or more.
_Other Definitions_
* Line in the sand - the 18 day (or 20 day) simple moving average is
termed "the line in the sand". This is a line to which daily price
often returns. It is considered to be the 'neutral point' on the
chart. Prices often 'return to the line in the sand' to regroup
either before or after an important economic announcement. This 18
day SMA is also a "battle ground between the bulls and the bears"
and the point where one group tries to wrest control of the market
from the other group.
* Positive bias - the market is said to have 'positive bias' whenever
it has closed above the "line in the sand".
* Negative bias - the market is said to have 'negative bias' whenever
it has closed below the "line in the sand".
* Swing line uptrend - prices show higher highs and higher lows 'over'
the 18-day SMA.
* Swing line downtrend - prices show lower lows and lower highs
'under' the 18-day SMA.
* Outside reversal day - same as in all technical analysis (outside
day up or down).
* Smart Money - Smart Money is defined as the large hedge funds and
institutional traders who have account sizes large enough to make a
difference in price movement as seen on the chart as opposed to
retail traders who account sizes typically don't affect the overall
trend of price.
* Riding the Bollinger Band - there are several times when prices will
close exceptionally close to an upper band or a lower band for
'several days in a row'. This often happens when the slow stochastic
'goes embedded', either higher or lower. This is a strong trending
sign for prices.
_Basic Trading Concept_
1. One looks to buy a new long position when prices first exceed the
'line in the sand' to the upside. The target for this position is
the "upper Bollinger band". This is because prices have shown they
now have a positive bias, and the trade is in the direction of the
prevailing trend.
2. One does not look to buy long when price is below the 'line in the
sand', because prices do not yet have a positive bias, and the trade
is not yet in the direction of a prevailing trend.
3. One looks to initiate a new short position when prices first exceed
the 'line in the sand' to the downside. The target for this position
is the "lower Bollinger band". This is because prices have shown
they now have a negative bias, and the trade is in the direction of
the prevailing trend.
4. One does not look to initiate a new short position when price is
above the 'line in the sand', because prices do not yet have a
negative bias, and the trade is not yet in the direction of a
prevailing trend.
5. One looks to sell to 'take long profits only' at the upper Bollinger
Band. This is because there is only a 5% probability or less (by
definition of the band) that price will trade outside of the bands.
The 'Smart Money' is lightening up on long positions at the upper
band. If new longs were initiated, this means the retail trader
would be fighting what the Smart Money is doing.
6. Similarly, one does /*not */look to initiate new long positions at
the upper Bollinger band. This is because of the same probability
that such a trade only has about 5% probability or less of success.
7. One looks to buy to 'take short profits only' at the lower Bollinger
Band. This is because there is only a 5% probability or less (by
definition of the band) that price will trade outside of the bands.
The 'Smart Money' is lightening up' on short positions at the lower
band. If new shorts were initiated, this means the retail trader
would be fighting what the Smart Money is doing.
8. Similarly, one does */not /*look to initiate new short positions at
the lower Bollinger band. This is because of the same probability
that such a trade only has about 5% probability or less of success.
_Other Basic Trading Considerations_
1. When the slow stochastic has 'embedded' it is one of the strongest

of the technical signals. If prices are going to 'ride the bands' in
an up trend, this will most often be accompanied by a slow
stochastic which is positively embedded over 80.
2. When the slow stochastic has 'embedded' it is one of the strongest
of the technical signals. If prices are going to 'ride the bands' in
an down trend, this will most often be accompanied by a slow
stochastic which is negatively embedded under 20.
3. Since the third day defines day when the stochastic goes 'embedded
or not', the second day over 80 or under 20, is the day 'most at
risk' for prices to reverse since, most often, the slow stochastic
does not embed. Most often, the slow stochastic just goes from
over-sold to over-bought and vice-versa without embedding.
4. When the slow-stochastic has been over-bought, then when the slow
stochastic reverses to under the 80 level, then it is */most
common/* for price and the 18-day moving average to meet. This does
not always happen, but it usually does.
5. When the slow-stochastic has been over-sold, then when the slow
stochastic reverses to over the 20 level, then it is */most common/*
for price and the 18-day moving average to meet. This does not
always happen, but it usually does.
_Advanced Trading Considerations_
1. When the slow stochastic has embedded in either direction, it is

often seen - that when prices return to the "line in the sand" -
then */the line in the sand will be defended/* in the direction of
the trend that embedded. In other words, price will generally
'bounce off' of the line in the sand and resume the trend. This
doesn't always happen, but it often happens.
2. When there has been an outside reversal day down, the high of that
day should not be taken out higher in the next two trading days or
else it constitutes a 'bear trap' - meaning that a number of players
have been trapped in their positions at the lows.
3. When there has been an outside reversal day up, the low of that day
should not be taken out lower in the next two trading days or else
it constitutes a 'bull trap' - meaning that a number of players have
been trapped in their positions at the highs.
4. When the 18-day SMA crosses above the 100-day SMA, some moving
average followers will view this as a positive sign. If this happens
when price is above the moving averages the cross over can be
considered valid.
5. When the 18-day SMA crosses below the 100-day SMA, some moving
average followers will view this as a negative sign. If this happens
when price is below the moving averages the cross over can be
considered valid.
6. Often times the 100-day SMA acts as either a price target or support
/ resistance depending on it's relationship to the 18-day SMA,
and/or the Bollinger Bands.
_Example_
While these rules may 'seem' complex, the example chart above helps to
clarify them.
1. From June 17 - August 1, price could not attain the upper Bollinger
Band, and this is a sign of weakness, not strength.
2. In mid-July price made it's target of the lower Bollinger Band, this
is a sign of weakness, not strength.
3. Throughout early August, price can be seen to be trading for
multiple days on "both sides of the line in the sand", there is
clearly a battle going on for control of the market. Further, there
is a narrowing of the Bollinger Bands indicating a period of
consolidation, to be followed by a breakout in one direction or the
other (more likely lower given the above information).
4. When prices break below the mid-August low, the Bollinger Bands
begin to widen to the down side, indicating a trend beginning. This
breakdown occurs /*under */the 20-day SMA, and would be sold, as the
market would have lower lows and lower highs (a swing line trend)
under the line in the sand.
5. Prices begin to "ride the band lower" as the slow stochastic embeds
under the 20-level indicating the down trend in force. Profits are
allowed to build until the slow stochastic turns back above the 20
level, around August 23rd.
6. When the slow stochastic turns back up over the 20 level, it is
'most often' expected for price to meet the line in the sand, and
that is what occurs in mid-September.
7. One does not initiate new shorts against the lower band in late
August, per the above rationale as the probability of success is 5%
or less (less for every day that price closes below the band).
8. One does not initiate new long positions in early September as price
has not closed above the "line in the sand".
9. A new long can be initiated in mid-September, /*after price closes
back above*/ the line in the sand. The target for this trade is the
upper Bollinger band.
10. One would not initiate new longs on September 19th, when price is
very near the upper Bollinger Band, as the probability of success is
only 5% or less, of success. However, profits should look to be taken.
11. A new short position is not initiated in mid-September because price
has not closed below the line in the sand.
12. When the slow stochastic turns back under 80, it is 'most often'
expected that price will meet the line in the sand, and that is what
does happen in mid-September.
13. A new short position can be initiated in late September /*after
price closes below*/ the line in the sand, with a target of the
lower Bollinger Band.
14. One would not initiate new short postions in late September when
price closes on the lower Bollinger Band, as the probability of
success is only 5% or less. However, buying back shorts to take
short profits should be initiated.
15. One would not initiate new long positions in later September as
price has not closed above the line in the sand.
16. In early October, price closes above the line in the sand on the
second trading bar. One then looks to initiate new long positions
with a target of the upper Bollinger Band.
17. In late October, price has hit the upper Bollinger Band and one
would look to take at least-some profits on long positions. The slow
stochastic has not yet crossed back under the 80 level from being
embedded, so a trader may still wish to let some partial positions
run until it does. This is discretionary.
18. The last daily bar is an "outside range day down", meaning if the
high of this bar is taken out in the next two trading sessions, it
could constitute a 'bear trap' - meaning some players have most
likely been caught short in the trade - presumably giving the market
more fuel for a further upside run.
19. Because the slow stochastic is still embedded for many more than
three days, when it eventually turns down under 80, and price and
the moving average begin to meet, it is a high probability that the
line in the sand will be defended! Meaning price will bounce off the
18-day SMA, and resume a turn higher. This does not always happen,
but it */often /*does!
Repeat this Cycle, and these Instructions Continuously!
We post this information to show two things: a) we care about trading as

much as we do about counting Elliott Waves, and b) sometimes Elliott
Wave counting can be a great 'assist' to trading, as in when the longer
direction has been established. One can 'filter out' short trades or
'long trades' in the above system based on the Elliott wave count in the
market. Other times, like now, Elliott Wave analysis can have clear
alternatives, and, in such cases one may rely more on plain technical
analysis or a trading system like this to help screen for potential trades.
Disclaimer: We make no claims for the profitability of the above rules.

All trading results are determined by your decisions, and we accept no
responsibility for them. (*) The Swing Line study is one developed by
Ira Epstein, and only appears in charting software he provides. To
respect the proprietary nature of this indicator, we have not reproduced
it here. Instead, if you are interested in examples of the Swing Line
study, go to YouTube, and search on Ira Epstein. Any one of his "End of
the Day Financial" videos, "Currency" videos, or "Metals" videos will
have the indicator applied to the chart.
Posted by Elliott_Trader
<https://www.blogger.com/profile/14941335198945083652> at 1:58 PM
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7 comments:
1.
Mark Thimesch
<https://www.blogger.com/profile/11121786376695375337>November 1,
2015 at 3:44 PM
for.html?showComment=1446410649163#c8535134363082365412>
Thanks again Joe!
Great wisdom from old Ira. Much appreciated for the blog.
Reply <javascript:;>Delete
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blogID=4251274909260261631&postID=8535134363082365412>
Replies <javascript:;>
Reply <javascript:;>
2.
enzo <https://www.blogger.com/profile/11549618924068768536>March 20,
2016 at 5:29 AM
thank you for your detail comment you must have lots of experience
to be able to go true so much detail i thank you very much for
sharing your knowledge
blogID=4251274909260261631&postID=8999439917976602951>
3.
Titan of Wall Street
<https://www.blogger.com/profile/17930522089914012427>October 13,
2017 at 8:37 PM
Ira is fantastic. I used to watch his show on UHF TV in Chicago in

the mid 1980's. He still has the gift.
blogID=4251274909260261631&postID=5806507546199481556>
4.
CMD88 <https://www.blogger.com/profile/08289591046247922335>February
10, 2018 at 3:11 AM
In his end of day for ag market video released 9th of February 2018,
he says the D-line uses 5 periods of time opposed to K-line which
uses 3 periods of time, having adjusted my STO oscillator I still
get mismatched readings, I wonder what else is different
blogID=4251274909260261631&postID=8972159076787177036>
5.
Lester S. Bosworth
<https://www.blogger.com/profile/06527384674166404170>July 28, 2018
at 8:43 AM
thanks
blogID=4251274909260261631&postID=5076335394675389167>
6.
anonymous <https://www.blogger.com/profile/17659799786314891091>July
30, 2018 at 3:27 AM
These days, the field of the drug store building up everywhere

throughout the world and consistently the universe of the general
population make the great pharmaceutical however proficient business
altering administrations is the best choice for all person and you
just click here
<https://www.paraphraseservice.com/how-resume-rewording-can-help-to-get-a-job/>
for useful info.
blogID=4251274909260261631&postID=5558100861857944363>
7.
fibonacci.
<https://www.blogger.com/profile/05590800435333475757>July 11, 2020
at 4:19 PM
Joe- Thanks for sharin this. I have traded these setups most of my
trading career. Its essentially beneficial to option trader. Why?
because statistically we know well in advance which strike prices
have 85% of chance expiring worthless. Add the BB touch probability
to it. Now you have a iron clad system. You will have losses but it
is manageable as you now have almost 90-93 % chance that you will be
right.
Thanks again. EWT helps too and sometimes you know there is 100%
chance of being right.I wish those type of setups would come more
frequently though.
Have a great weekend.
blogID=4251274909260261631&postID=3202003368376163659>
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Elliott_Trader <http://studyofcycles.blogspot.

A Focus on Counting the Elliott Wave

Sunday, November 1, 2015

Paraphrase of Ira Epstein's Rules for Trading

1. Daily OHLC bar chart

A current example chart that meets these requirements appears below.

_Bollinger Band Theory _

Sometimes prices will be expected to close outside of the bands. Because

Over-bought and over-sold on this indicator are potential reversal

_Basic Trading Concept_

_Other Basic Trading Considerations_

1. When the slow stochastic has 'embedded' it is one of the strongest

_Advanced Trading Considerations_

1. When the slow stochastic has embedded in either direction, it is

Repeat this Cycle, and these Instructions Continuously!

We post this information to show two things: a) we care about trading as

Disclaimer: We make no claims for the profitability of the above rules.

Thanks again Joe!

Ira is fantastic. I used to watch his show on UHF TV in Chicago in

These days, the field of the drug store building up everywhere

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