Wavy Tunnel – Module 7

Disclaimer
This video is for educational purposes only. Past performance does not equal
future results.

Please do not construe any information in this video or notes below as advice
or recommendation of any kind. You can lose money trading. If you cannot
afford to lose money you should not trade.

Remember to practice with a paper trading or demo account with any new
concept of strategy until you really get to know and understand the risk and
reward potential.

This video is copyright protected 2013. If you share this video in any format
with anyone you will be at risk of copyright violation laws in federal court.

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Wavy Tunnel PLUS
MODULE 7 WAVY TUNNEL PLUS PART 2

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 Welcome to Module 7

≈ Introduction
Module 7 ≈ Trading Room Chart Setup

Learning Objects ≈ The Bungee

≈ Semaphores and Cycles
≈ Support and Resistance with Pivot Points
≈ More on Divergence
≈ Examples of Wavy Tunnel PLUS Setups

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 Semaphores and Cycles

3 Level Zig Zags - Semaphores

1. Level 3 Gold Semaphore produces the longest

cycle, using parameters 34, 13 and 8 cycle
periods
2. Level 2 Red Semaphore produces a medium
cycle, using cycle periods 13, 8 and 5
3. Level 1 Blue Semaphore produces the shortest
cycle, using cycle periods 5, 1 and 3
4. These Semaphores repaint but can be very
useful in conjunction with Wavy Tunnel and
Bungee
5. Trading from one Royal Pointer to the next can
be very lucrative with other end of trend
confirmations

* The MT4 Template with the Chart Setup is available for download

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 Semaphores and Cycles

3 Level Zig Zags - Semaphores

1. The bigger the numbers, the bigger the pivots

2. The Purple Royal Pointer appears on the bigger
moves and the Blue Semaphores appear on the
smaller moves
3. These Semaphores or zig zags represent cycle or
pivot moves
4. In our trading we look for the End of the Trend
so we would look for the Royal Pointer along
with CAO peaks and Bungee SAs
5. Very often the Royal Semaphore appears at the
end of a Wave 3 so wait for the Wave 5 of that
sequence before reversing the trend

* The MT4 Template with the Chart Setup is available for download

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 Semaphores and Cycles

3 Level Zig Zags - Semaphores

1. Floaters are purple arrows that do not land on a Yellow Semaphore – they float in the air and usually
occur during a correction of an uptrend
2. Sinkers will occur below the market when the purple arrows don’t land on a Yellow Semaphore
3. Sinkers and Floaters arise from the skewed calculations during sideways markets

Floater

Sinker

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 Semaphores and Cycles

Blue Semaphore
Noble Semaphore Royal Semaphore Yellow Semaphore

Red Semaphore

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 1 Semaphores and Cycles
Early warning to get out of long trade with Noble 1
Semaphore – wait for Noble 2 to enter long again – Trading from
then exit at the Royal Semaphore at the top Royal Semaphore one Royal
3 Semaphore to
Noble 1 the next can
be quite
lucrative!

Noble 2
BUY 4
2

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 1 Semaphores and Cycles
Early warning to get out of long trade with Noble 1
Semaphore – wait for Noble 2 to enter long again – Trading from
then exit at the Royal Semaphore at the top Royal Semaphore one Royal
3 Semaphore to
Noble 1 the next can
be quite
lucrative!

Noble 2
BUY 4
2

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 Support and Resistance with Pivot Points

Daily Calculation of Support and Resistance

 Pivot Points are calculated daily after the New York market close at 5pm or at
midnight EDT
 New York and Asian traders use the 5pm calculation and European traders
typically use the 12 midnight calculation
 Pivot Points are price based calculations which establish support and resistance
that can be used for day trading and swing trading
 Weekly and Monthly Pivot Points are used for longer term position trades on
Weekly and Monthly charts
 Variations include Standard, Fibonacci, Camarilla and Woodie’s Pivots

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 Support and Resistance with Pivot Points

Daily Calculation of Support and Resistance

Standard Calculation
Standard based on high, low and close:

7-point system: R3, R2, R1, P, S1, S2 and S3

Resistance 3 = High + 2(Pivot - Low)

Resistance 2 = Pivot + (High - Low)
Resistance 1 = (2 x Pivot) - Low

Pivot Point = (High + Low + Close)/3

Support 1 = (2 x Pivot) – High

Support 2 = Pivot - (High - Low)
Support 3 = Low - 2(High - Pivot)

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 Support and Resistance with Pivot Points

Daily Calculation of Support and Resistance

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 Support and Resistance with Pivot Points

Daily Calculation of Support and Resistance

Hourly 15-minute
chart with chart with
Daily Pivot Daily Pivot

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 Support and Resistance with ATR

100 Day/ 14 Day Calculation of Average True Range

Symbol Average True Range Symbol Average True Range
(100 Day/ 14 Day (100 Day/ 14 Day
in pips) in pips)
GBP/USD 102/95 EUR/GBP 46/40
EUR/USD 82/71 EUR/JPY 125/96
USD/JPY 106/78 GBP/JPY 148/102
USD/CHF 73/55 EUR/AUD 145/114
USD/CAD 59/46 EUR/CAD 85/71
AUD/USD 103/86 AUD/JPY 115/94
NZD/USD 94/76 CAD/JPY 98/75

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 More on Divergence

Awesome Oscillator Uses – ABC with Divergence

1. The CAO is an oscillator which depicts a 5-

wave move with oscillator divergence
between waves 3 and 5 when there are
Divergence between (A) and (C)
between 100 -140 bars in the 5-wave
sequence
2. The CAO can also show divergence in an ABC
corrective sequence between A and C
• If A is strong and steep, the CAO will
show divergence between A and C
• When there is divergence between A and
C, trade it the same way as a 3 4 5 (PW
and FG)

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 More on Divergence

Awesome Oscillator Uses – ABC with Divergence

1. With Divergence between A and C on the

Daily chart, move to the 4-hour chart to see
Wave C broken down with further divergence
Divergence between 3 and 5 of (C)
• In this example, Wave C has a 5-wave
sequence with an extended Wave 3
• Therefore, measure the divergence
Note: Since Wave 3 is
between the CAO peak of Wave 3 of 3
extended, there is
and Wave 5 divergence between waves
• Notice how Wave 4 comes back to the 3 and 5 of Wave 3
Tunnel, with the CAO coming back to the
zero line

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 More on Divergence

Awesome Oscillator Uses – ABC with Divergence

1. What is expected to happen after the

completion of this ABC?
• Based on the Wavy Tunnel progression of
trades, one would expect a PW/FG
followed by a BO-1
• Looking at the price action on the 4-hour
chart, PW/FG is followed by BO-1 to
complete the Wave 1
• This is followed by a Wave 2 where PW/ FG leads right
the Wave comes back down below into a BO-1 trade
the Tunnel
• Another BO-1 kicks off Wave 3
• Followed by BO-3 trades
• A BO-4 trade is currently setting up

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 More on Divergence

Awesome Oscillator – ABC / NO Divergence

DAILY CHART

What if there is no divergence in the awesome

oscillator between A and C?

• If A is weak then C will be stronger and the

CAO will peak higher at C with no Divergence
• This occurred in this chart during QE3
during September 2012
• Illustrates the importance of knowing
economic influences that might affect
price action
• There is another way to find the End of the
Trend 4-HOUR CHART
• Break down the Wave C NO Divergence!

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 More on Divergence

Awesome Oscillator – ABC / NO Divergence

DAILY CHART

Break Down the Wave C

• Go to a smaller time frame and make
sure the C takes up between 100-140
bars on the screen and use the CAO to
find divergence between 3 and 5
OR
• Use a different oscillator as we will
illustrate on the next few slides

4-HOUR CHART
NO Divergence!

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 More on Divergence

3/10 Oscillator and Bill Williams Accelerator Oscillator (AC)

1. When Wave C is strong (and very often it is 1.618 times Wave A), the oscillator will
peak at C rather than at A
• Look at the entire Wave C 5-wave sequence using the 3/10 oscillator or the
Accelerator Oscillator (AC)
• Look at these oscillators for divergence between Waves 3 and 5 of C
• Once we have that subtle divergence in a Wave 4 position, it is likely that the ABC
is over and the trend will resume
• If this occurs when price has just completed a PW/FG, at the Tunnel, this is
further confirmation
• If not, make sure the next move is in 5-waves to ensure the correction is
finished and a new trend is beginning
• Look for BO-1 trades on a smaller time frame for confirmation

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 More on Divergence
c
Awesome Oscillator – ABC corrections

b
No Divergence

Divergence on AC

Divergence on 3/10

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 More on Divergence

CAO Divergence Summary

1. Regular Divergence - The CAO is an oscillator which depicts a 5-wave move with
oscillator divergence between waves 3 and 5 when there are between 100 -140 bars in
the 5-wave sequence
• Go down to a smaller time frame if you have fewer than 100-140 bars on chart
• Go up to a higher time frame if you have more than 100-140 bars on chart
2. Use regular CAO divergence for Waves 3,4 and 5
3. Use regular CAO divergence for Waves A,B and C
4. Use regular divergence for any 5-wave sequence but make sure you have the right
number of bars on chart
• End of Wave 3
• End of Wave 5
• End of Wave A (if 5 waves)
• End of Wave C

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 More on Divergence

CAO Divergence Summary

Bearish Regular Divergence – In an uptrend, price makes a new high and the oscillator
makes a lower high so look for shorts
• Look at price and oscillator peaks (less than sign <)
Bullish Regular Divergence – In a downtrend, price makes a new low and the oscillator
makes a higher low so look for longs
• Look at price and oscillator valleys (greater than sign >)

Bullish
Divergence >

Bearish
Divergence <

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 More on Divergence

Hidden Divergence – use the Stochastic 8,3,3

1. Think the opposite of regular Divergence

2. Picture an uptrend market and look for Bullish Hidden Divergence
• When the current swing low is above the prior swing low and the oscillator
reading drops with the current swing low that is called Hidden Divergence
• Price makes a higher low and the oscillator makes a lower low
• Hidden Divergence suggests a sizable continuation of the move in the direction of
trend
• Also called a Slingshot in certain circles
3. In a downtrend market look for Bearish Hidden Divergence
• Price makes a lower high and the oscillator makes a higher high
• Look for trend continuation

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 More on Divergence

Hidden Divergence – use Stochastics 8,3,3

Bullish Hidden Divergence – use price and oscillator valleys

• Price makes a higher low and the oscillator makes a lower low
• Look for trend continuation in an uptrend
Bearish Hidden Divergence – use price and oscillator peaks
• Price makes a lower high and the oscillator makes a higher high
• Look for trend continuation in a downtrend

Hidden Bullish
Divergence < Hidden Bearish
Divergence >

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 Break out Trade 1 (BO-1) Wavy Tunnel Trades – Trend Following

BO-1 kicks off the

Trend Move when the
Wave crosses below or
above the Tunnel

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 Break out Trade 1 (BO-1) Wavy Tunnel PLUS – Trend Following

BO-1 kicks off the

1 Trend Move when the
Wave crosses below or
above the Tunnel

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 Break out Trade 1 (BO-1) Wavy Tunnel PLUS – Trend Following

BO-1 kicks off the Trend Move with

early confirmation from the Bungee
and the CAO crossing the zero line
Price Makes a New High
Early 2 with Purple Pointer
Entry
New Price Action

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 Break out Trade 1 (BO-1) Wavy Tunnel PLUS – Trend Following

BO-1 kicks off the Trend Move with

early confirmation from the Bungee
and the CAO crossing the zero line
Price Makes a New High
with Purple Pointer

New Price Action

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 Break out Trade 2 (BO-2) Wavy Tunnel Trades – Trend Following

Wave turns
dramatically and
leaves Tunnel behind

Candles start forming

below 12 EMA

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 Break out Trade 2 (BO-2) Wavy Tunnel PLUS – Trend Following

Wave turns
dramatically and
leaves Tunnel behind

Candles start forming

below 12 EMA

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 Break out Trade 3 (BO-3) Wavy Tunnel Trades – Trend Following

Wave crosses Tunnel and

price retraces back to wave.
Candles form below wave
and close below 12 EMA.

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 Break out Trade 3 (BO-3) Wavy Tunnel PLUS – Trend Following
Wave crosses Tunnel and
price retraces back to wave.
Candles form below wave
and close below 12 EMA.

Notice the Yellow Strand

crossing below 50%,
which is consistent with
the FG trade, the
precursor to the BO-1

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 Break out Trade 4 (BO-4) Wavy Tunnel Trades – Trend Following
Wave 4 corrects to the
Tunnel after Wave 3 ends.
Think of a BO-4 trade as a Wave 4 Candles form above wave
and close above 12 EMA
The target for the BO-4 will be the
Wave 5 target

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 Break out Trade 4 (BO-4) Wavy Tunnel PLUS – Trend Following
5
Wave 4
3 corrects to the
Tunnel after
Wave 3 ends.
1 Candles form
above wave
4 and close
above 12 EMA.

Yellow and Green strands

move above 50% to confirm
start of Wave 5 move

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 Price to Wave Trade (PW) Wavy Tunnel Trades – End of Trend

Price to Wave with

Awesome Oscillator
Divergence

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 Price to Wave Trade (PW) Wavy Tunnel PLUS – End of Trend

Price to Wave with

Awesome Oscillator
Divergence

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 Fill the Gap Trade (FG) Wavy Tunnel Trades – End of Trend

Fill the Gap Trade

Divergence

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 Fill the Gap Trade (FG) Wavy Tunnel PLUS – End of Trend

Fill the Gap Trade

Divergence

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 The Finale Wavy Tunnel PLUS – End of Trend

123 Reversal 1 3
Pattern

2 4

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 The Finale Wavy Tunnel PLUS – End of Trend

123 Reversal 1 3
Pattern

2 4

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 The Finale Wavy Tunnel PLUS – End of Trend

123 Reversal 1 3
Pattern

2 4

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 Summary of Wavy Tunnel Trades

SUMMARY – SIX TRADES:

FOUR Trend Following Trades: BO-1: Break Out

BO-1: Break Out

BO-2: Break Out
BO-3: Break Out
BO-4: Break Out

TWO End of Trend Trades:

PW: Price to Wave
FG: Fill the Gap

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 Overview of Wavy Tunnel Trades

SUMMARY – Questions:

How should I get started to build confidence with this method?

≈ Find these trades over many days, until you internalize the setup
≈ Try to understand the theory behind the system
≈ Take positions on a demo account until a track record of successful trades is established
≈ Implement the method correctly
≈ Do not guess where the market is headed until the setup takes you there
≈ Do not think, just act in executing the trades
≈ Think only at the end of the trading day or week, when reviewing the setups
≈ Document every trade with a screen capture

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