BarroMetrics Views: The Ray Wave
From time to time I get a request to write about the Ray Wave. For the most part, I have been reluctant to teach this subject: I withdrew both the video and the book from sale. In my view it is a powerful tool for stock trading, forex trading and futures trading; but its strength is also its weakness. It is flexible enough within strict guidelines to deal with the chaotic nature of the markets. But unless you stick to the guidelines you can ‘make’ your trading charts say anything you want it to.
In this blog, I outline the first guideline, the need for price symmetry between wave-2 and wave-4 in a 5-wave structure.
I like the Elliott Wave for its flexibility. The ‘problem’ is there are few restrictions imposed for the classification of waves. You often see, for example, a very small wave-2 and a humongous wave-4. In this case, there is little to say that the waves belong to the same category. In fact, visually, they do not.
I was convinced that the Elliott was useful but you had to apply its ideas in similar magnitude structures. The question was how to define ‘similar magnitude’.
I borrowed an idea from Michael Gur: wave-4 and wave-2 had to relate by 20% in price. I went on to test various other percentages and found that 20% was as robust as percentages from 17% to 27%. So, I stuck with the 20%. To Gur’s idea, I slowly added my experience and ideas from Elliott, Neely and Wyckoff to create the Ray Wave. Later I added some of Jim Kane’s ratios.
To show you what I mean about guidelines, let’s take the current GBPUSD. Figure 1 shows the count. The clear symbols are a higher category than the filled-in ones.
Figure 1 shows that I believe that we shall see a 5-wave failure in the GBPUSD. We see also that:
- Wave-2 and Wave-4 are within 20% of one another.
- We have termination price targets for both wave-3 and wave-5
- We have a 2-4 trend line. The market must accept price levels below the trendline in no more than the amount of time it took wave-5 to form. Since wave-5 took 24 trading days to form, for my count to be correct, the breakdown needs to occur in 24 days. In other words we need to see the 2-4 trendline broken within the next 8 trading days. If this does not occur, the count is incorrect.
Points (1) and (3) are what I mean by objective guidelines. The Ray Wave is replete with checks and balances to ensure we are placing market information within an ‘objective’ structure rather one that is a function of our imagination. If used in this way, the Ray Wave is a powerful tool; if we just randomly label a structure – well, GIGO (garbage in, garbage out). But I love the Ray Wave. When used with the Barros Swing, the Ray Wave provides a reliable roadmap to future price action – it gives me benchmarks by which to determine which of the scenarios I have imagined is the one most likely to occur.
FIGURE 1 GBPUSD