What is a TS1 trade set-up?

A TS1 trade set-up is where the ABC correction forms as the first correction to the first move off an important high or low. In Elliott wave terms, this means a Wave 2 or B correction.

Why is identifying this set-up so important ?

>> Because the next swing off a potential Wave 2orB high or low has the potential to turn into a Wave 3 type swing. As Wave 3 is usually the strongest and longest of all the Elliott waves, it carries the highest profit potential. Therefore, identifying the very end of a potential Wave 2orB correction allows a small, controlled risk to be taken whilst maximizing profit potential as the trend resumes.

The legendary trader W.D. Gann held that "the safest place to look for a new trade is at the end of the first correction to a new swing". This is exactly what the TS1 trade set-up is designed to identify.

When checking charts individually for trade set-ups (though most traders will use the Trade Scanner on a group of markets), once the chart has been loaded simply click on the T module button. The software will analyze the last part of the data file to check whether a TS1 (Wave 2orB), TS2 (Wave 4) or TS3 (Wave C) trade set-up is present. Here is an example, on (Nov) 2001 Soybeans:

As can be seen in the chart above, the low of June 25 2001 has been identified as a potential TS1 buy set-up.

However, this powerful module does not finish its work here. It is also able to automatically identify the narrow support or resistance zones where the TS1 trade set-up is, typically, most likely to unfold (the pink rectangle below). To do this, select in the 'Show' function the 'Typ WPT' (Typical Wave C Wave Price Target). In addition, this crucial module is able to display colour-coded reversal bars, blue for buy and red for sell (tick 'Trade Setup', again under 'Show'). If using the Trade Scanner to identify set-ups on a database, these two features are pre-ticked on its main page:

A valid trade set-up occurs when a blue or red reversal bar unfolds at a WPT zone eg. the Typical pink rectangle below. This is how this combination looks on the chart:

MTPredictor has not only identified the potential TS1 trade set-up, but also the narrow price support area (in pink) where this TS1 trade was most likely to unfold and the blue (buy) reversal bar. A new long trade can be considered if this market trades above the high of the blue (buy) reversal bar.

However, no trade should ever be entered before evaluating its Risk/Reward outlook. The same Trade set-ups module in MTPredictor can also analyze the current trade set-up (whether displayed manually or found using the Scanner) to give the most likely future support and resistance zones and, more importantly, the associated Risk/Reward ratios at all these future levels. This is achieved by ticking the Analyse function in the window:

It is an easy but powerful process to automatically calculate, then display on the chart all the future larger-degree Wave C and Wave 3 WPT resistance zones, including the related Risk/Reward ratios at these levels. In addition, the Analyse function provides two extra, vital pieces of information - the price at which the trade has returned 100% of the Initial $ Risk to take the trade and the price at which 2-3x the Initial Risk has been made:

It can be seen instantly that if Soybeans rallied into the typical Wave 3 WPT resistance zone, it would mean a potential profit of approximately 4.4x the initial $ risk required to take the trade and approximately 9.4x at the maximum Wave 3 WPT. All this information is available before deciding to take the trade.

Displayed on the chart, the information looks like this:

And this is how the trade turned out:

The low on June 25 was actually the end of the first correction just before Soybeans rallied strongly, so this trade set-up did identify the safest place to enter a long position. In fact, Soybeans continued to rally, only finding resistance at the maximum Wave 3 WPT resistance area, for a profit of approximately 8x the initial $ risk required to take the trade. The slightly lower final profit figure was due to slippage on the trade entry as Soybeans gapped up on Jun 26, trade entry day.

The TS1, TS2 and TS3 trade set-ups are designed precisely to identify the end of a correction against the main trend. As such, they represent the best opportunity to accomplish two main aims:

• Maximize profits by trading in the direction of the main trend and
• Keep losses small when the trade goes wrong.

These are the two most important elements in a successful trading approach to the markets.

When monitoring a portfolio if markets, these 3 key trade set-ups will be identified within the group by the Trade Scanner, as mentioned above - saving the trader precious time for the Risk/Reward analysis process.

Does your current currencies trading software, stock market trading software or daytrading system allow you to scan for, identify, evaluate and manage such important trade set-ups ?

If not, then it is time to invest in the MTPREDICTOR 4.0 series!

Risk Disclaimer and Disclosure Statement

Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. By purchasing the MTPredictor program, you acknowledge and accept that all trading decisions are your own sole responsibility, and MTPredictor Ltd, MTPredictor.com or anybody associated with MTPredictor Ltd including S. E. Griffiths and A. P. Beckwith cannot be held responsible for any losses that are incurred as a result