As a continuation from my previous post on using the Ellipse for additional profit targets we have an example on the 3 minute chart of the eMini S&P 500. This is a textbook Type II trade and our normal profit target is a MOB Level taken from our previous Wave 4 which give me a trade target of 840.00. To be proactive in our profit taking I draw an Ellipse from Wave 4 to Wave 5 and see that we have some initial resistance at the level of 832.00, this is where I will place my first limit order to take off 1/4 to 1/3 of my position.
Our Ellipse Level is now hit at 831.00 (the Ellipse price adjusts as the market approaches it) we take our initial profits on the trade and adjust the stop to the entry.
As the trade progresses we are stuck at this level until eventually the market reverses and takes out the previous Wave 5 low. The pattern was not successful, however the trade returned profits.
Ron Wheeler
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