Peter Goodburn is an Elliott Wave practitioner and trader with experience dating back to the late 1970’s where he started his career in the commodities business. Peter was first introduced to Elliott Wave in the mid 80’s and this led him to become the founding partner of WaveTrack International. Peter is also a Certified Financial Technician and has taught the Elliott Wave principle to students at the London School of Economics.
In the show Peter reveals:
- Two Elliott Wave patterns you should learn
- How he melds Fibonacci with Elliott Wave
- A unique way to master Elliott Wave
- The best stock tip I’ve heard all year
Your Episode Sponsor:
Truth of the Stock Tape by William D. Gann
Tell us a bit about you personally and what first attracted you to trading?
In the late 70’s a friend introduced me to a commodity company called Billiton. They had a trading business based in London and I started my career there.
I was trading on the London Met Exchange so I gained quite a bit of experience in those early days. I worked for these commodities companies until I created my own business WaveTrack International in the late 80’s.
Most of my spare time is taken up with reading, and I delve quite a lot into the history of the markets, e.g. Dow Theory.
Can you give the listeners some insight into your Elliott Wave analysis? Your analysis style, approach, time frames, duration, number of instruments you analyse and your asset class preferences.
I’ve always maintained a fairly high profile in monitoring the commodity markets overall.
I tend to look at Elliott Wave as a method to help us determine the idea that markets are in constant flow and they are patterning into a seamless process of evolution. If we can monitor this we get a pretty good picture of where the trends are developing and where they begin to end.
In terms of extending above commodities I’ve looked at stock index and equity markets, the currencies and bonds.
We’re looking at the Federal Reserve news flows every day and they are an important part of our analysis as well.
Has the Elliott Wave Principle grown in popularity over the last 30 years and where is it heading?
We do a lot of work for banks and institutions and I have to say that the Elliott Wave analyst/trader there is a rare commodity. I think that’s an evolution of Universities and economics reporting more of the fundamental basis of education in Universities. I don’t think the likes of Elliott Wave, Dow Theory and Cycle Theory are getting taught enough nowadays.
On the opposite side, in the retail sector of the market, it’s exponentially growing. Lots more people who have liberated themselves from work for companies are sitting at home with a fast internet connection and are looking for a way to make a living out of trading. The Elliott Wave principle is a popular principle because it does have an element of predictive qualities.
The Elliot Wave process is a deterministic systems, i.e. it does have predictive qualities, and I think that’s appealing for a lot of people.
A moving average is not a deterministic system, i.e. it does not have predictive qualities. For example if a price is above a moving average cross you buy it but at that point you don’t really know how long that trend’s going to last, what the amplitude might be, what’s the upside potential if the market is breaking up above it. It doesn’t tell you that. That’s what I describe as non-deterministic.
Whereas the Elliott Wave system is a deterministic system. We can measure up certain waves and patterns themselves. These waves form the patterns and those patterns can be absolutely measured. Each one out of the 13 series that R.N. Elliott initially identified can be measured up. Therefore, when we do a predetermined forecast and we draw a developing pattern to its completion what we’re looking for is for the price action to come toward it and meet it and stage, what I call, a reversal signature. When that happens you get all the fluidity of the market coming together at a particular inflection point and you know right then and there by the effect of what it does afterwards, whether that trend has changed.
Do you stick with the original Elliott Wave principles or have you adopted your own style?
I consider myself a purist. I haven’t really diverged a lot from RN Elliott’s main work.
I would encourage anyone interested in Elliott Wave to go back and read the original transcripts that Elliott wrote the wave principle from in 1938 and later he wrote the monograph, Natures Law, in 1946.
One thing we’ve picked up on over the last 20 years is an emphasis on ratio and proportion. There’s no way I would start measuring a wave count without starting to measure up some of its movements. First of all the eye has to identify what it perceives to be patterns. We have to proof those according to the specific dimensions of the ratio measurements according to each pattern.
You see a lot of blogs putting a lot of numbers/letters on charts, to a large extent it’s arbitrary. You need to proof this and get it fixed so you have a very high probability when we’re going to start forecasting. Through that methodology we can use the Fibonacci summation series and the measurement to try and do that.
How much weighting do you give to Fibonacci?
It’s evenly measured. You can’t say it’s a greater percentage than the Wave summation in itself. They co-exist. They have to co-exist.
Can you explain to the listeners your preferred Elliott Wave strategy, the ins and outs of how it works and why you choose this type of strategy over others?
We have 13 types of pattern that we use as a template today. There are certain derivatives of those, for example, if we talk about a basic 3 wave correction movement against the trend we call that a zig zag. But it can evolve as a derivative, like a double zig zag or a triple zig zag.
We talk also about flat patterns, a flat pattern is like a horizontal 3 price swing movement.
My favorite, which are set in stone and gives the best trading signals, is the diagonal pattern. It’s this wedge shape 5 price swing event and the contracting type narrows at the end, expanding type widens at the end. Expanding types are more difficult to predict the conclusion of and there are special techniques I have to do that. But the contracting diagonal line I would urge everybody get acquainted with because when that occurs you know that there’s a very high probability of trend change at a specific point. With the diagonal you’ve got very specific price level for determining the pattern itself. And you then have a very clear and clean decision to make when it begins to stage a reversal you can jump on the next trend. So I really like that setup.
The other one is the expanding flat. Next the zig zag and its derivatives it’s the most frequently traded. If you want a really good explanation of an expanding flat you can see it in the Dow Jones index on the weekly chart. When you go back to the high in 2000 which was the high at 11,750 you have 3 main price swings into the expanding flat. So wave A was the big drop into October ’02 and B was the higher high you saw in October ’07. The interesting thing about the expanding flat is that you have very specific Fib price ratio measurements to depict those tops in B where it makes a new extreme.
These two patterns are really what I’d encourage everybody to get acquainted with.
How long did it take you to go from trading newbie to consistently profitable?
Probably 3-4 years.
What’s your mental approach to trading and what special techniques do you use to keep your emotions in check?
You have to extricate yourself from all the daily news flows.
Always inquire deeply into anybodies own perceptions. Always question those.
What’s your favorite entry setup?
I have a three step approach.
Firstly, price action has to hit one of our predetermined measurements within a pattern. If it does, the second step is to wait for price rejection and I normally have a 3% swing from that preceding pattern. Not 3% from the value of the price but 3% of the preceding pattern. Once we get price rejection the 3rd step is a reversal signature that normally comes about if we get a five wave movement on an intraday chart, maybe a 10, 20, 30 minute bar chart moving away from that predetermined level.
What strategies do you use to exit and manage active trades?
It a very simple approach because if you’ve got a price rejection and a reversal signature then the stops would be above or below where that rejection occurred.
What’s your recommended “must read” trading book?
“Truth of the stock tape” by W.G. Gann.
Do you automate parts of your analysis? If so, what have you automated, why and how does it help you?
No we don’t do any automation. I would love to think the Elliott Wave principle could be automated.
If there was one thing you would recommend any retail trader spend the next month mastering, what would it be, why and how could they go about mastering it?
There’s a hands on approach you could do, rather than sitting in front of a computer screen and trying to identify patterns with you eyes alone. I would take a piece a graph paper and every hour look at the price movements on a chart and every hour take a reading and plot a line movement on the graph paper. You’ll start to see how that evolves. This type of approach, I think, becomes very intimate for the user and I think an hourly chart, a line chart, will defuse a lot of the spikes you might get intra hourly.
What trading related internet resource, like bloomberg.com, do you always use?
Any resource or anything should be questioned. Question to your own satisfaction. Don’t assume that the person writing it is correct.
My daily website usage it limited to Market Watch. I do take Bloomberg’s calendar. I love Reuters because some of these other websites look like a dog’s breakfast. When it comes to Gold and Silver I tend to look at websites like Sharps Pixley.
What’s the biggest mistake most retail traders make?
Too much leverage.
What’s your preferred broker and trading platform?
I don’t have one because most of my trading is going through some of the old commodity houses. I don’t trade electronically. I have a client liaison officer that I phone to place all my orders.
If there was one mantra or saying our listeners should reminded themselves of each day, to help improve their trading, what would it be?
Know they self.
We’d like you to give us the “bones” of a full trading strategy – the entry setup, stop loss, take profit targets, market, timeframe… We want to know it all! So, what do you have as our “Strategy of the week” Peter?
Over the last 4-5 years you’ve probably seen, almost on a daily basis, just how much bearish sentiment there are in the commodity markets at the moment. There’s a particular trade setup at that I’m monitoring and we’re in the process of triggering a buy signal and that is in the precious metals sector area already.
We’ve already seen the gold bullion prices hit a major low with a diagonal pattern and it finished at 1077 and we’ve already had a buy signal already triggered on those.
But there is another setup we can get involved in. It’s one of the largest mining companies in the world and it’s called Newmont Mining, listed on the New York Stock Exchange under the symbol NEM. I’m using and have been monitoring this pattern for many years now (over the last 10 years). Back in 2006 Newmont Mining topped out at 62.72 and then it started a decline which turned into what we call a three price swing zig zag. And most of its decline accelerated in the financial crisis, down to the low of 21.17 in November 2008. It then went from 21.17 and did another zig zag and broke the old 2006 highs and went up to a high at 72.42 in November ’11.
Now these price sequences form the Expanding Flat but the final decline of that pattern was yet to emerge. But it did so and it’s required to decline in 5 price swing now (not 3 but 5) and break the old lows of 2008 and that has actually happened. And it has only happened right now, this month, with Newmont Mining trading down into some predetermined levels that we had, at $15.47.
The pattern and measurements look great and I’d like to share that with everybody because if we get a reversal signature over the next month we’re going to see this one trend up for the next several years and ultimately our price targets will be far beyond the old 72.42 levels and in fact when we look at the larger picture we think it’s going to do something like 160 which gives you an 8-9 times multiple.
I’d like to share this with everybody and you shouldn’t need to leverage into it, there’s no need to leverage into it but it’s a long term trade really that can have a significant effect on everybody’s P&L.
Before we wrap up, what’s the best way for traders to get hold of you?
The best way is to go to our website which is WaveTrack.com and if you have any specific questions you can always get through to us at the helpdesk which is located at the top of the main page of the website and you can drop me a message if you have any questions at all and if you really want to get involved in seeing what our forecasts look like you can always go to our subscriptions section because we have a very reasonably costed subscription for the Elliott Wave Compass report. That is a very low entry level for everybody to get to see some of our research and we do the four asset classes in that on a biweekly basis. So that’s a good way to get to know us.
Have a question for Peter?
Leave a comment below… I’ll make sure it gets to him.