Question of the Week: 5/15/2006

In creating a wave chart, how do you decide to plot the high or low first?


To produce good wave counts, wave charts are essential. A wave chart is created by plotting two price points per period (i.e., Daily, Weekly, Hourly, 5-minute, etc.) in the order they occurred during the period. Unfortunately, I have never known of a data service that produces proper wave charts, so the process must be done manually.

To determine whether the high or low came first, create a chart composed of bars 1/40th the size of the time frame you plan to plot. For a Daily plot of the cash S&P, which is open 6.5 hours each day, 1/40th of that time is approximately 10 minutes (if your market trades 24-hours a day, 1/40th of the day is approximately 30 minutes). A chart 1/40th the size of the larger time frame will make it easy to determine whether the high or the low came first on the larger time frame. Which ever came first, place that in an Excel spreadsheet (say column 1-B) and place whatever came second in column 2-B. Place the dates in column A with the same date twice before going on to the new date. Continue this vertical, sequencial placement of data until you have enough to plot a chart. A good wave chart will contain 40 or more data points.

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