Thoughts About Elliott Wave: Why the 5 & 3 Model?According to Dow, there are two primary trends in the market, the primary uptrend and the primary downtrend.Both primary trends consist of three phases.
Phases of the Primary Uptrend
-Accumulation Phase
-Markup Phase
-Distribution Phase
Phases of the Primary Downtrend
-Distribution Phase
-Panic Phase
-Discouraged Selling Phase
Note that the distribution phase is common between the primary uptrend and the primary downtrend. The urgent question is:
Where does the distribution phase lie? In the primary
uptrend or in the primary downtrend?
The answer is that this stage occurs during the final stage of the bullish trend. Although the selling (the downtrend) has actually started, it does not appear on the chart that shows the continuation of the bullish trend, as the selling is done in a hidden way, where smart sellers who notice the greedy buying rush from all traders in the market, whether professional or nonprofessional, who heard from the specialized and nonspecialized media about the uninterrupted staggering profits of the stock market.
At this phase, all or the vast majority of investors, traders, and fund managers become buyers, either with what they own or in managing money, in addition to margin, in order
to catch up or increase profits that continue for a long time. No one believes that it will be cut off or stopped.
For sellers to distribute the largest amount of their shares they own, they maintain the upward trend in front of market participants to maintain buyers' hopes. Only a few professionals who are not under the psychological pressure of excessive optimism take note of this sales process. They notice the selling and the start of the real bearish trend (which is not visible on the chart) through negative divergences, whether in volumes or with momentum indicators and market breadth. Rising wedge is the best formation and reflects the distribution phase. At times it is formed in the whole distribution phase or in the last part of it.
IFTAUPDATE 2022 Volume 29 Issue 1
By El- Sayed Owaidy, CETA, CFTe
